Continuing a trend we reported in January 2014, the U.S. Department of Justice announced another multi-million dollar settlement of alleged False Claims Act (“FCA”) violations.  In this case, Halifax Hospital Medical Center and Halifax Staffing, Inc. (collectively “Halifax”) agreed to pay $85 million to resolve allegations that they violated the False Claims Act by submitting claims to Medicare that violated the Stark Law.  United States ex rel. Baklid-Kunz v. Halifax Hospital Medical Center, et al., No. 09-cv-1002 (M.D. Fla.).

Halifax entered into contracts with six medical oncologists that included payment of incentive bonuses to the physicians.  The Government alleged that Halifax knowingly violated the Stark Law when they executed these contracts because the incentive bonus improperly included the value of payment for referrals made by the physicians.  The Stark Law prohibits physicians from referring their Medicare and Medicaid patients to business entities with which they have a financial relationship, including a compensation arrangement.  The Government also alleged that Halifax knowingly violated the Stark Law by paying three neurosurgeons more than the fair market value of their work.

The settlement resolves qui tam claims originally filed by Halifax’s Director of Physician Services in 2009, in which the Government later intervened alleging violations of the False Claims Act, the Stark Law, and the federal Anti-Kickback Statute.  She will receive $20.8 million of the settlement proceeds.  The settlement does not resolve the relator’s claims that the hospital admitted Medicare and Medicaid patients to inpatient status when it was not medically necessary.  The Government did not intervene in these claims, which are scheduled to be tried in July.

Halifax did not admit liability as part of the settlement, but in a November 13, 2013 ruling, the U.S. District Court for the Middle District of Florida held that the contracts with the medical oncologists violated the Stark Law because the incentive bonus provision in the contracts did not fit within the bona fide employment relationship exception to the Stark Law’s prohibition on receiving payment for referrals.  This was the case because the bonus was based on factors in addition to services performed personally by the physicians.  As part of the settlement, Halifax also agreed to enter into a Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General, which reportedly obligates Halifax to undertake internal compliance reforms and submit its federal health care program claims to independent review for the next five years.

This case demonstrates the importance of carefully reviewing physician compensation arrangements to avoid substantial exposure in connection with alleged violations of the Stark Law and the False Claims Act.

Updated March 18, 2014:  This post has been updated to note there is a trial scheduled for July on the claims in which the Government did not intervene and were not resolved by the settlement in this matter.