On September 15, 2015, the U.S. Department of Justice (DOJ) announced the settlement of a qui tam action in the amount of $69.5 million with North Broward Hospital District (NBHD). The amount is a small fraction of the $442 million in treble damages to the Medicare and Medicaid programs alleged in the Third Amended Complaint. The settlement resolves allegations that NBHD violated the False Claims Act and the Stark Law by engaging in improper financial relationships with referring physicians. This settlement is an example of a troubling trend in which the DOJ imposes its views of the fair market value (FMV) and commercial reasonableness of employment compensation arrangements upon hospitals and providers. As the DOJ continues to successfully challenge physician compensation by analyzing the monetary impact of such compensation on hospitals’ profits and losses, hospitals are increasingly hamstrung in their ability to rely on FMV opinions to set physician compensation.

NBHD is a special taxing district of the state of Florida that operates hospitals and other health care facilities in the Broward County, Florida region. NBHD was named in a whistleblower suit originally filed in 2010 by Dr. Reilly, an orthopedic surgeon who held staff privileges to practice medicine at Imperial Point Medical Center, a hospital within the NBHD system. The Third Amended Complaint alleged that nine employed cardiologists and orthopedic surgeons were provided compensation packages in excess of FMV, in a system that illegally compensates physicians for the volume or value of their referrals to NBHD. It alleged that from 2004 to present, the overcompensation of the orthopedic surgeons generated net operating losses of over $40 million – an amount offset by referral profits monitored by NBHD in purported “secretive Contribution Margin Reports.”


Continue Reading South Florida Hospital System Settles Stark Allegations for $69.5 Million

On August 3, 2015, in Kane v. Healthfirst, Inc., No. 1:11-cv-02325-ER (S.D.N.Y. Aug. 3, 2015), Judge Edgardo Ramos of the Southern District of New York decided an issue of first impression under the False Claims Act (FCA) requirement to return identified overpayments from Medicare and Medicaid within sixty (60) days. In denying the defendants’ motion to dismiss, the court provided some guidance on what it means to “identify” an overpayment and start the sixty-day clock created by the Affordable Care Act (ACA). At the very least, a party with an “identified” overpayment increases its risk of incurring FCA liability the longer it takes to quantify and return the overpayment beyond the first sixty days.

The ACA requires that an overpayment must be reported and returned within sixty days of the “date on which the overpayment was identified,” and any overpayment retained beyond this period is considered to be an “obligation” with the potential for FCA liability. 42 U.S.C. § 1320a-7k(d).

The alleged overpayments in Kane stemmed from a glitch in defendant Healthfirst’s computer system which caused its participating providers in a network operated by Continuum Health Partners, Inc. to seek additional payment from Medicaid based on erroneous remittance advices. In 2010, New York state auditors asked Continuum about the incorrect billing, and Continuum tasked its employee Robert Kane (the relator) with determining which claims had been improperly billed to Medicaid. Four days after Kane submitted a spreadsheet containing claims with alleged erroneous overbillings, Continuum fired him. The complaint alleged that Continuum took no further action to investigate or repay the claims until June 2012 when the government issued a Civil Investigative Demand (CID).


Continue Reading S.D.N.Y. Provides First Judicial Guidance on Identifying Overpayments and Effect on FCA Liability

On August, 20, 2014, in the case of U.S. ex rel. Absher v. Momence Meadows Nursing Center, Inc., the Seventh Circuit rejected a broad interpretation of what could constitute “worthless services,” instead setting a high bar to for False Claims Act (“FCA”) relators succeed under such a theory of liability. The court also made clear that relators proceeding under a “false certification” theory of FCA liability must specify and quantify the specific claims that they allege were false.

In Absher, the Court was presented with an appeal of a multi-million dollar jury verdict against Momence Meadows Nursing Care Center (“Momence”). The suit had been brought by two qui tam relators, who were nurses formerly employed by Momence. The United States had declined to intervene in the case before the District Court.

The relators alleged several theories of FCA liability, which the Seventh Circuit dealt with in turn. First, the relators claimed that Momence submitted “thousands” of claims for payment to Medicare and Medicaid, which were false because they were based on care that was non-compliant with Medicare and Medicaid regulations. The allegations included that the facility was understaffed and dirty, that residents experienced accidents such as falls, that there were infection and pest control issues at the facility, that employees were that the instructed not to chart pressure sores and symptoms of scabies, and that at least one resident had died due to poor care. State regulators visited the facility over 100 times during the period at issue and issued thousands of dollars in fines for noncompliance with regulatory requirements, but according to the relators, Momence did not comply with approved plans of correction. According to the relators, these and other violations rendered the care a “worthless service,” and hence it was false of Momence to seek payment from the government for this care.


Continue Reading Seventh Circuit Overturns Worthless Services Jury Verdict Against Nursing Home