Corporate Compliance: Appeals Court Vacates $44 Million Penalty, Grants New Trial

August 1, 2012 | Healthcare Risk, Quality, & Safety Guidance

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​The U.S. Court of Appeals for the Fourth Circuit vacated a lower court judgment awarding more than $44 million to the federal government against a health system in a lawsuit alleging that the system entered into compensation agreements with physician specialists that violated the Stark Law and the False Claims Act (FCA) and had mistakenly received Medicare payments resulting in its "unjust enrichment." The jury found that the defendant violated the Stark Law but not the FCA. The jury, however, did not determine the number of false claims or an amount of damages. Instead, the trial court entered summary judgment for the United States on its "equitable claims" for unjust enrichment and concluded that the United States should recover more than $44 million. It also granted the government's motion for a new trial on all of the FCA claims. The defendant appealed, claiming it had been deprived of its constitutional right to a jury trial, and the American Hospital Association filed an amicus brief supporting the defendant on appeal.

At issue was a compensation agreement between the health system and physicians requiring the physicians to provide outpatient procedures at facilities owned or operated by the health system. Physicians received an annual base salary that fluctuated based on the hospital's net cash collections for the outpatient procedures and a "productivity bonus" equal to 80% of the net collections, in addition to being eligible for incentive bonuses. The hospital submitted claims to Medicare that encompassed a professional fee for the physicians' performance of outpatient procedures pursuant to the contracts and a facility fee for the hospital's provision of space, staff, and equipment. A surgeon who unsuccessfully negotiated with the hospital filed a qui tam lawsuit alleging FCA violations, and the United States subsequently intervened, filing its own complaint alleging violations of FCA and the Stark Law. The trial court set aside the jury verdict, ordered a new trial on FCA claims, and granted the United States...

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