Villafane Court Adopts Pragmatic Approach to Stark AMC Exception
On April 8, 2008, the United States District Court for the District of Kentucky dismissed a qui tam suit filed under the FCA, finding that the defendants met the qualifications for protection under the academic medical center (AMC) exception to the federal self-referral law (Stark law), 42 U.S.C. § 1395nn. In United States ex rel. Villafane v. Solinger, 543 F. Supp. 2d 678 (W.D. Ky. 2008), the plaintiff, a pediatric cardiologist, filed a qui tam action against affiliates of the University of Louisville Medical School (Medical School), including the Medical School's research foundation (Foundation), his former practice group and other individual defendants, alleging that the defendants violated the FCA by submitting claims for Medicaid reimbursement that were falsely certified to be in compliance with, among other things, the Stark law. In dismissing the suit, the court provided the first in-depth case law discussion of the AMC exception and applied a "goal- and purpose-oriented perspective," rather than a "hyper-technical" approach, to find that the defendants met the requirements for the exception.
The plaintiff, a former University of Louisville Medical School professor, and his current medical practice filed this suit against his former medical practice group, several physician members of the Medical School's faculty, the Foundation and Norton Hospitals, Inc. d/b/a Kosair Children's Hospital (Kosair), which is the only freestanding, full-service pediatric hospital in Kentucky. The chief of staff at Kosair was also a named defendant.
The crux of the plaintiffs' FCA allegations centers around the flow of money between Kosair and the defendant doctors. As full-time members of the Medical School faculty, defendant doctors participated in the Medical School's professional practice plan, which requires the doctors to pay a percentage of their private practice revenues to the Medical School's fund. The Medical School's fund channels money to the Foundation, which is used, among other things, to support the defendant doctors' faculty salaries. Significantly, hospitals, including Kosair, also contribute to the Foundation that supports the faculty salaries. Each of the defendant doctors practice at and as a result, refer patients to, Kosair. Plaintiffs claim that this financial relationship between Kosair and the physicians violates the Stark law.
The court first noted that neither the Stark law nor the antikickback statute provide for a private right of action; however, the FCA permits individual whistleblowers to file suit on behalf of the government. The plaintiffs claimed that FCA liability arose in this case as a result of Kosair's certification in its Medicaid claims for reimbursement that it had complied with all applicable laws and regulations, including the Stark law and antikickback statute.
The Stark law generally prohibits physicians from making referrals to an entity for a designated health service if the physician (or his or her immediate family member) has a "financial relationship" with that entity, unless an exception applies. Here, the court specifically found that the financial relationship at issue falls within the AMC exception and, thus, no FCA liability, as a matter of law, could be predicated on the Stark law. The court discussed each of the elements of the AMC exception and found that Kosair and the other defendants' financial relationship fell within that exception.
First, the court analyzed the AMC exception requirements that relate to the employment and licensure status of the referring physicians. The plaintiffs argued that the defendants failed to demonstrate that the referring physicians "provide either substantial academic services or substantial clinical services...for which the faculty member receives compensation." Specifically, the plaintiffs' asserted that the defendants' timekeeping system was a "sham" based solely on the estimates of the defendant doctors themselves. Finding that the AMC regulations do not require a physician to use a particular timekeeping system and that there is "no indication that either Congress or HCFA/CMS intended the fate of an academic medical center would hang upon its particular timekeeping practices," the court held that the defendant doctors provided substantial academic and clinical services as evidenced in affidavits indicating they supervise more than 100 medical students and residents at Kosair.
Furthermore, the court rejected plaintiffs' contentions that compensation provided to the defendant doctors exceeded fair market value (FMV) and was determined in a manner that took into account the volume and value of referrals. As an initial matter, the court refused to adopt the plaintiffs' theory that the FMV determination of a physician's compensation paid by the AMC should take into account the physician's income derived from his or her private practice, in addition to his or her faculty salary. Finding that the defendant doctors' salaries were in line with national salary data, the court further rejected the plaintiffs' argument that the salaries failed to meet the safe harbor because they do not fall within the Phase II methodologies for calculating FMV, which had been explicitly rejected in Phase III as both "impractical" and "infeasible." Addressing specifically the salary provided to Kosair's chief of staff, which was near or above the high-end range for neonatologists, the court found that the salary was appropriate in light of the chief's duties and responsibilities at the Medical School and that he is arguably at or near the top of his profession. To compare with ordinary neonatologists, the court held, would be to compare "apples and oranges."
Next, the court considered whether compensation to faculty physicians took into account the volume or value of the referrals. Plaintiffs argued that payments made by Kosair to the Foundation reflected the volume or value of referrals because, according to the plaintiffs, Kosair would not have contributed to the Foundation if such payments did not fund physician referrals to Kosair. The court found the plaintiffs' argument "contrary to the clear statutory and regulatory purpose" of the AMC exception and concluded that, because the physicians' salaries were fixed at FMV and did not vary during a given fiscal year based on referrals, the salaries do not reflect the volume or value of referrals. The court again specifically analyzed payments made to the chief of staff at Kosair, whose salary was substantially higher than other physicians and who also generated substantially more revenue for Kosair than other physicians. Again, the court noted that his salary was "hardly surprising" given his greater responsibilities at the Medical School and did not reflect the volume or value of referrals.
The court considered several other arguments presented by the plaintiffs contending that the defendants did not meet the AMC exception. Of note, the plaintiffs argued that the relationship between Kosair and the Medical School was not sufficiently memorialized by one or more written agreements or other documents. The court found that, although there was no lengthy, detailed contract between the two parties, the parties presented sufficient documentary evidence of their relationship dating back to 1962. This evidence included, among other things, documents that the two parties approved annually memorializing the amount of support provided by Kosair to the Foundation. The court noted that "[n]o authority requires a specific type of documentation to memorialize the relationship between the AMC components."
In addition to the foregoing, the court found that the relationship did not run afoul of the antikickback statute. As part of its analysis, the court expressly declined to adopt the "one purpose" test established in U.S. v. Greber, 760 F.2d 68, 71 (3d. Cir. 1985). The "one purpose" test, which has been adopted in other circuits, generally holds that the intent element of the antikickback statute can be met if payments to physicians are to any extent motivated to induce referrals. Instead, the court found that the plaintiffs here presented no specific evidence or facts to support their general allegation that the arrangement at issue violates the antikickback statute. Because the defendants' arrangement fell within the AMC exception to the Stark law and no violation of the antikickback statute was found, the court dismissed the FCA allegations in the plaintiffs' complaint. In addition, the court dismissed freestanding allegations under Stark and the antikickback statute because of the lack of a private cause of action under those provisions.
The court's decision in U.S. ex rel. Villafane v. Solinger is significant because it is the first published opinion that provides a detailed discussion of the AMC exception to the Stark law. Additionally, Villafane provides a common-sense approach to applying the elements of the AMC exception. The court's approach focused more on the purpose of the AMC exception and its elements, and rejected the "hypertechnical" arguments set forth by the plaintiffs.
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