Health Care Law Blog

The Stark law generally prohibits a physician from making referrals of Medicare and Medicaid patients to hospitals, labs and other providers with whom the physician has a financial relationship, unless an exception applies. Penalties for violations of the Stark law may include: denial of payment or recoupment of payments if already made, civil monetary penalties of up to $15,000 per claim, exclusion from Medicare and/or Medicaid, and potential liability under the False Claims Act (under which damages are tripled). Stark law claims may be filed by a whistleblower under the False Claims Act, and the whistleblower is entitled to a percentage of whatever the government recovers.

There has been increasing awareness and attention focused on litigation and government enforcement actions involving false Medicare and Medicaid claims and illegal physician relationships following massive settlements in whistleblower cases involving organizations such as Tuomey Healthcare System and Halifax Health (resulting in settlements of $72.4 million and $85 million, respectively).

Now individual executives, and not just their companies, are being targeted. Last year, U.S. Deputy Attorney General Sally Quillian Yates released a memorandum warning top healthcare executives that they would be held personally liable for their organizations’ misdeeds. She was not bluffing.

Former Tuomey Healthcare System CEO Ralph “Jay” Cox III paid a $1 million settlement and agreed to a four-year period of exclusion from participating in federal health care programs to resolve allegations over his involvement in the health system’s alleged Stark law violations. The chairman of the board of directors of North American Health Care also personally agreed to pay $1 million to settle claims related to the company billing Medicare and Medicaid for medically unnecessary rehabilitation therapy services.  Just recently the Department of Justice reported that Life Care Centers of America, which owns and operates 220 skilled nursing facilities, and its sole shareholder, Forrest L. Preston, would pay a $145 million settlement to resolve False Claims Act claims involving medically unnecessary care.

As these settlements - and others - make clear, the Justice Department is aggressively pursuing its pledge to go after individuals as a deterrent to False Claims Act, Stark law and anti-kickback statute violations. Healthcare executives, and even physicians who could also be ensnared in investigations, should take heed. The Justice Department has indicated its intention to hold individuals accountable for corporate misconduct, even if they can’t afford to pay the fines, and even if they don’t have detailed knowledge of the schemes at issue.

Given the amount of money at stake - for the government and whistleblowers - there’s a good chance that Stark law and False Claims Act violation enforcement actions will continue to increase. And given the significant potential liability for violations, coupled with the increasing scrutiny of individual executive’s roles in wrongdoing, hospitals, health systems and their executives should be carefully scrutinizing all of their financial arrangements with physicians and physician-controlled organizations. Foster Swift’s Health Care attorneys can assist health care systems to review their practices and implement changes in order to avoid risks of liability. For more information, please contact Gary J. McRay at (517) 371-8285 or Julie L. Hamlet at (616) 796-2515.