On November 13 and November 18, the federal district court handed down separate rulings on summary judgment motions in a Florida Stark Law case that many consider the new Tuomey–U.S. ex rel. Baklid-Kunz v. Halifax Medical Center. In the first decision, the Court granted the U.S. partial summary judgment on the Stark violation with respect to compensation paid to certain medical oncologists employed by the hospital. In the second decision, the Court denied the hospital’s motion for summary judgment with respect to certain neurosurgeons employed by the hospital. Both decisions tee up important hospital/physician employment issues for trial.
The case stems from a qui tam False Claims Act lawsuit filed in 2009 in which Elin Baklid-Kunz, the former compliance officer, made allegations regarding Halifax Hospital Medical Center (“Halifax Hospital”) and Halifax Staffing, Inc. (“Halifax Staffing”) (collectively, “Halifax”). The compliance officer alleged that Halifax:
- Had financial relationships with physicians that did not meet a Stark exception, and as a result the physicians inappropriately referred Medicare services to Halifax; and
- Inappropriately billed other services to Medicare.
The Department of Justice chose to intervene in the lawsuit in 2011 with respect to the Stark Law issues. Halifax filed a Motion for Summary Judgment and the U.S. filed a Motion for Partial Summary Judgment with respect to the Stark Law issues.
Ruling on the Government’s Motion for Partial Summary Judgment
Two different compensation arrangements were the subject of these decisions. In the first decision, the Court considered the Government’s motion for partial summary judgment with respect to compensation paid to the medical oncologist employed by Halifax and the resulting designated health service referrals from those physicians. The alleged Stark violations were the result of employment agreements entered into with six medical oncologists in 2005 that provided for an incentive bonus pool equal to 15% of the “operating margin for the Medial Oncology program” of the Hospital. Even though the physicians were permitted to divide that pool among themselves as they determined, which they did based on individual production, the Hospital admitted that the pool included revenue from services that were not personally performed by the medical oncologists, such as fees related to the administration of chemotherapy.
The Hospital, attempting to meet its burden in establishing a Stark exception applied, argued that this division of the bonus pool was a form of bonus permitted by the statute as “a productivity bonus based on services performed personally by the physician (or an immediate family member of such physician).” Despite the inclusion of non-personally performed services in the pool, the Hospital argued that the division of the pool was based on the proportion of the physicians’ personally performed services. Unpersuaded by this argument, the Court held that this bonus provision of the exception meant that the bonus pool itself must be made up of personally performed services. On November 13, 2013, the U.S. District Court for the Middle District of Florida granted summary judgment to the Government on the issue of liability under Stark Law.
Notwithstanding this decision on liability under the Stark Law, the Court also held that the Government had not sufficiently established the amount of damages resulting from this violation. As a consequence, the Court denied summary judgment on each of the remedies: the damages under False Claims Act, payment by mistake and unjust enrichment. Moreover, the Court ruled that a genuine issue of material fact remained as to whether Halifax acted knowingly for purposes of liability under the False Claims Act.
From this decision, it is apparent that a bonus paid to an employed physician should be based only on the personally performed services of the physician. Whether an aggregated bonus pool is a valid method of compensating a physician when a hospital is relying on the bona fide employee exception is not addressed by the Court. It might have been possible for the Hospital to defend this pool if it had aggregated only 15% of the professional component of personally performed services to form the bonus pool, then split that pool based on proportional production of the physicians’ personally provided services. The mathematical result should be the same as an individual bonus of 15% of an individual physician’s personally performed production, which is the method contemplated by the exception language and clearly the best practice. However, absent meeting all of the requirements of the in-office ancillary services exception, a hospital cannot include ancillary services revenue in a bonus pool (and even when the in-office ancillary services exception is met, the options for dividing the pool are limited).
Ruling on Halifax’s Motion for Summary Judgment
In its order issued November 18, the Court turned to the second set of compensation arrangements involving three neurosurgeons. Halifax contended that these relationships satisfied the bona fide employee exception to the Stark Law in all respects. That is, the employment was for identifiable services, the compensation received was consistent with fair market value and did not take referrals into account, and the agreements would have been commercially reasonable even in the absence of any referrals. The Government, however, contended that genuine issues of material fact existed with both the fair market value of the compensation and its commercial reasonableness–arguments with which Court agreed.
The Court cited compensation more than twice the 90th percentile for their specialty despite significantly lower collections and the potential question of whether the neurosurgeons’ productivity was improperly inflated by the physician billing for services performed by nurses and physician assistants. The Court held that these issues were properly determined by a jury and denied the Hospital’s Motion for Summary Judgment.
The report of the Government’s expert provides additional detail on the physicians’ compensation provisions. (The report is available as Exhibit 5 to the U.S. Opposition to Defendant’s Motion for Summary Judgment, Doc. 310. Click here to access it.) The report presents the expert’s conclusion that the physicians’ compensation included a base compensation component (varying between $250,000 and $325,000 for the 3 physicians), plus 100% of collections in excess of that amount. In addition, the physician received call pay for all days of call coverage (not just excess call), resulting in high compensation amounts for all years at issue. Moreover, the Report described a number of billing, coding and compliance questions well worth considering. Among other things, the expert’s report cite several internal audits conducted by the Hospital that do not appear to have resulted in changes being made.
One lesson to be learned from reading this report is that hospitals must be vigilant in constructing appropriate compensation arrangements in the first instance. But more importantly, hospitals must be vigilant in responding appropriately when issues are raised internally.
Trial for this case is set to begin March 3, 2014. We will keep you posted on further developments as they become public.
To read the Court’s first Order, click here.
To read the Court’s second Order, click here.
To read the report of the Government’s expert, click here.