United States: Stark Law Update: US Reaches Groundbreaking FCA Settlement With Hospital

Earlier this month, a group of related corporate entities that collectively operate All Children's Hospital, a pediatric hospital, in St. Petersburg, Florida (the "Hospital"), entered into a $7 million False Claims Act settlement with the United States, the State of Florida and a relator who brought a qui tam (whistleblower) action against the Hospital. The settlement is significant because it covered, among other things, Medicaid billings by the Hospital for services that were provided to patients through referrals that allegedly violated the federal physician self-referral ("Stark") law. This watershed moment may have significant ramifications to the entire provider community.

Since the enactment of the Stark law, health care attorneys have regularly advised their clients that the Stark law prohibits referrals for designated health services ("DHS") covered by Medicare only, and that the Stark law's referral and billing prohibitions and sanctions generally do not attach to Medicaid referrals. Such advice was commonplace based on the language of the Stark law itself, relevant regulations, guidance and statements from the Centers for Medicare & Medicaid Services, and related enforcement actions. Recent trends and settlements such as the one reported here, however, suggest that practitioners and students of the Stark law must begin to consider the (potentially significant) impact of tainted financial relationships on the referral of, and billings related to, Medicaid patients. This new risk management consideration is the result of the All Children's settlement as well as language in a few other recent decisions relied on by the district court in denying the Hospital's motion to dismiss. See US and State of Florida ex rel. Schubert v. All Children's Health System, 2013 WL 6054803, *5-6 (M.D. Fla. Nov. 15, 2013).

Despite being a party to the settlement, the Department of Justice ("DOJ") previously decided not to intervene in the qui tam case against the Hospital. However, this should provide no comfort to stakeholders. While a decision by DOJ to decline to intervene in a qui tam case sometimes suggests that DOJ does not support the theory alleged in the complaint, that is not always the case, and certainly not the case here. Specifically, DOJ filed a Statement of Interest in connection with the Hospital's failed attempt to dismiss relator's complaint in which it makes abundantly clear its position that the Stark law applies to claims submitted to the Medicaid program. Moreover, the Statement of Interest is not only signed by the Assistant US Attorney assigned to the case from the Middle District of Florida, but also by the government attorney assigned to the case from DOJ's Civil Division, which works with US Attorney's Offices throughout the country on False Claims Act litigation.

Accordingly, while it is not publicly known why DOJ did not intervene in the qui tam case against the Hospital, three things are evident. First, the industry, as a whole, and the health care fraud and abuse defense bar in particular, should anticipate a sharp increase in qui tam cases that allege Stark law violations based, in whole or in part, on reimbursement claims submitted to the Medicaid program. Second, DOJ will be more likely to intervene in those cases when they are deemed factually sufficient. Third, if DOJ fails to intervene in such a case, relators will be more likely to move ahead on their own. The authors of this Alert will be exploring in depth the Stark law's application in the Medicaid context in a forthcoming article to be published in the coming week.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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