Publications

Third Circuit Holds that Hospital Failed to Satisfy Stark Law Personal Services Exception – On January 21, 2009, the U.S. Court of Appeals for the Third Circuit released its opinion in an important case regarding the meaning of the Stark Law, U.S. ex rel. Kosenske vs. Carlisle HMA, Inc., No. 07-4616. The case was before the court after a grant of summary judgment in favor of the defendants by the District Court on the alleged Stark Law violation, and the unanimous court reversed and remanded the case for further proceedings. Both courts held that the grant of exclusive privileges by a hospital to an anesthesiology group (including the use of hospital-owned facilities and equipment associated with the privileges) could create in-kind remuneration sufficient to constitute a financial relationship under the Stark Law. The courts also held that, under the undisputed facts in the case, the hospital had received referrals when anesthesiologists treated pain management patients who were hospital outpatients, using a facility that was separate from the main hospital facility. The Circuit court disagreed, however, with the District Court’s holding that the arrangement satisfied the personal services exception in the Stark Law.

The Circuit court held that, with respect to pain management services by the anesthesiologists in a dedicated center, a pre-existing 1992 hospital-based physician group agreement was insufficient to satisfy the requirement of a written agreement because the 1992 agreement pre-dated the commencement of pain management services. In addition, according to the Court, there was no reference in the 1992 agreement to “consideration that [the anesthesia group] was receiving for its services [from the hospital]” sufficient to meet the special fair market value requirement of the Stark exception. The Court found that the addition of substantial new pain management capabilities to the hospital’s outpatient services constituted new remuneration to the anesthesiologists, with “no arm’s length negotiations that could vouch for the fair match of service and compensation that the whole statutory scheme is designed to assure.” The Court further observed that even if such actual arm’s length negotiations had taken place, they would likely have been affected by the ability of the parties to generate business for each other and, without more, would have failed to meet the standard of fair value required by the Stark exception.

The defense pointed out to the court that the patients were hospital outpatients, for whom fees for use of the facilities had been separately billed, but to no avail. The Court seemed to be affected by the fact that these hospital facilities were separate from the main hospital and dedicated to use as a “Pain Clinic.” There is no indication that the parties argued anything about the compensation to the individual anesthesiologists being indirect through their group practice, instead of direct. We intend to review the briefs in the case and report in a future Health Headlines on how broadly the government’s interpretation of Stark may reach in the case of other types of physicians who see patients in outpatient departments through the exercise of their freely-bestowed privileges. The applicability of Stark in this manner to the exercise of clinical privileges in outpatient settings, even if limited to the work of traditional hospital-based physicians, is surprising and, some would say, unintended by Congress. Given the draconian and automatic consequences of Stark violations, however, hospitals in the Third Circuit and elsewhere should pay close attention to this case and future commentary on it.

For a copy of the decision click here. Reporters, Glen Reed, Atlanta, gareed@kslaw.com, (404) 572-3393 and Rob Keenan, Atlanta, rkeenan@kslaw.com, (404) 572-3591.

CMS Introduces Internet-Based Provider Enrollment for Physicians and Other Practitioners – On January 28, 2009, CMS announced that it would make its Internet-based Provider Enrollment, Chain and Ownership System ("PECOS") available to physician and non-physician practitioners in all states and the District of Columbia. In addition to allowing provider enrollment over the Internet, PECOS will also allow practitioners to update their enrollment information or withdraw from participation in Medicare online. The Internet-based PECOS is intended to be an alternative to the paper enrollment forms CMS-855I and CMS-855R. To take advantage of the Internet-based PECOS, physicians and practitioners will need an active National Provider Identifier ("NPI"), a National Plan and Provider Enumeration System ("NPPES") user ID and password, as well as personal identification information, and information about their practice location and professional licensure and certification. CMS anticipates that the Internet-based PECOS will reduce the time and administrative burden of completing provider enrollment paperwork.

CMS also announced that organizational providers and suppliers (with the exception of DMEPOS suppliers) would be able to utilize the Internet-based PECOS later this year. More information about the Internet-based PECOS can be found at: http://www.cms.hhs.gov/MedicareProviderSupEnroll. Interested physicians and non-physician practitioners may access the Internet-based PECOS by clicking here. Reporter, Adam Laughton, Houston, alaughton@kslaw.com, (713) 276-7400.

District Court Dismisses Relator’s FCA Action Against Texas Hospital System for Failing to Plead Fraud With Particularity – In June 2005, CHRISTUS Spohn Health System’s former director of property management filed a lawsuit against CHRISTUS Spohn Health System and CHRISTUS Health System (collectively, “Spohn”) under the federal False Claims Act (“FCA”), 31 U.S.C. § 3730(b)(2), for allegedly entering into below fair market value leases with physicians and physician groups in exchange for Medicare referrals in violation of the Stark Law, the Anti-kickback Statute, and various state laws. U.S. ex rel. Smart v. CHRISTUS Health, Civ. No. C-05-287 (opinion issued Jan. 22, 2009). After the United States declined intervention, Spohn filed a motion to dismiss the FCA action on grounds that, among other things, the court lacked jurisdiction under the FCA’s public disclosure bar and the relator’s complaint failed to plead fraud with particularity in accordance with Fed. R. Civ. P. 9(b). On January 22, 2009, the district court issued a memorandum and order in connection with Spohn's motion to dismiss. The court rejected Spohn’s argument that the relator’s FCA allegations had been publicly disclosed in a lawsuit previously filed against Spohn by a physician group in state court, finding that the relator’s FCA lawsuit was not “based upon” the allegations in the state court lawsuit. The court did, however, agree with Spohn’s argument that the relator had failed to plead fraud with particularity under Fed. R. Civ. Proc. 9(b). The court found that the relator’s complaint did not identify a single false claim or false certification submitted by Spohn to Medicare in violation of the FCA. Accordingly, the court dismissed the relator’s FCA lawsuit but gave the relator 20 days to amend his complaint. Reporters, Adam Robison, arobison@kslaw.com, (713) 276-7306 and Gary W. Eiland, geiland@kslaw.com, (713) 751-3207.

Senators Kohl and Grassley Introduce Legislation Requiring Disclosure of Drug and Device Manufacturer Payments to Physicians – On January 22, Senators Kohl (D - Wis.) and Grassley (R - Iowa) reintroduced legislation that would increase transparency with respect to remuneration transferred by drug and device companies to physicians. The proposed legislation—the Physician Payments Sunshine Act of 2009 (S. 301) (the “Act”)—is similar to legislation proposed by the Senators in 2007 (S. 2029), and would require a manufacturer of a drug, device, biological, or medical supply covered under Medicare, Medicaid, or SCHIP to report to the Department of Health and Human Services (“DHHS”) any “payment or other transfer of value” to a physician or physician practice totaling more than $100 annually. The Act defines “payment or other transfer of value” as “a transfer of anything of value [including]…any compensation, gift, honorarium, speaking fee, consulting fee, travel, services, dividend, profit distribution, stock or stock option grant, or ownership or investment interest.” Under the proposed legislation, the required disclosure to DHHS must include the name and business address of the physician or physician practice, the value attributed to the payment or transfer, the dates on which the manufacturer provided the value or transfer, and a description of the form and nature of the payment or transfer. Failure to comply with the Act’s reporting requirements could result in a civil monetary penalty between $1,000 to $10,000 for each unreported payment or transfer, up to an aggregate penalty of $150,000 for each annual submission. A “knowing” failure to report could result in a civil monetary penalty between $10,000 and $100,000, up to an aggregate penalty of $1,000,000 for each annual submission.

Under the Act’s timeline, DHHS must establish procedures for reporting the information by November 1, 2009. In addition, DHHS also must establish procedures for making the reported information publicly available on an internet website. The established procedures must ensure that the reported information is published in a searchable and downloadable format by September 30, 2011 and by June 30 of each calendar year thereafter. Beginning on April 1, 2011, DHHS must submit annual reports to Congress and the states.

This bulletin provides a general summary of recent legal developments. It is not intended to be and should not be relied upon as legal advice.

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