Given the relative infrequency with which government enforcement agencies initiate investigations of violations of the Stark self-referral prohibition, the health care industry takes particular notice of settlements involving self-referral allegations. The large settlement amounts in two recent false claims cases stemming from alleged Stark violations should prompt hospitals to take yet another look at their physician relationships to confirm that they fully comply with the Stark law. The cases reinforce our view that false claims actions involving Stark allegations typically are initiated by qui tam relators, as opposed to OIG or DOJ investigations. The settlement of these cases leaves us with no ruling as to whether a violation of the Stark law or antikickback statute is, in and of itself, a violation of the FCA.

Rapid City Regional Hospital
The DOJ announced on December 20, 2002, that it had reached agreements with Rapid City Regional Hospital in Rapid City, South Dakota (RCRH), and a group of oncologists, Oncology Associates, LLP, settling qui tam allegations involving "improper financial relationships" between the hospital and physicians, and overbilling on the part of the physicians. United States ex rel. Johnson-Pochardt v. Rapid City Regional Hospital, No. 01-CV-5019 (D.S.D. Dec. 20, 2002) (settlement agreement). Under the terms of the settlement with RCRH, the hospital agreed to pay the government $6 million in exchange for (1) a release of civil and administrative liability under the FCA, the antikickback statute, and the Stark law; and (2) a release from administrative action under the OIG's permissive exclusion authority. Oncology Associates, under the terms of a separate settlement agreement, agreed to pay $525,000 to settle the allegations against the group. In addition, RCRH entered into a five-year corporate integrity agreement, while Oncology Associates entered into a three-year integrity agreement. The relator was awarded $1,566,000, or 24 percent of the settlement amount, for her role in initiating and assisting in the case.

The case arose from qui tam allegations made by the former administrator of RCRH's cancer center. The relator alleged that RCRH provided Oncology Associates with office space, staff services, furniture, equipment, supplies, and other services — at less than fair market value and without a written lease. According to the complaint, the arrangement between RCRH and Oncology Associates constituted an improper financial relationship in violation of the antikickback statute and self-referral prohibition, which resulted in the submission of false claims actionable under the FCA. In addition, the relator alleged that Oncology Associates overbilled the Medicare program by submitting claims that did not include the site-of-service differential.

Both RCRH and Oncology Associates disputed the allegations.

Marycrest Health System
Marycrest Health System agreed to pay a total of $5 million to settle allegations that UniMed Medical Center (UniMed), a Minot, North Dakota, hospital formerly owned by Marycrest, submitted false claims to the Medicare and Medicaid programs. United States ex rel. Kenner v. St. Joseph's Hosp. Corp., No. 97-MK-813 (D. Colo. May 1, 2002) (stipulation of dismissal and settlement agreement). Under the terms of the settlement, Marycrest and 13 other defendants agreed to pay $3.75 million to the government in exchange for a release of civil and administrative liability under the FCA; $500,000 to the relator to settle a claim that he was wrongfully discharged from UniMed Medical Center; and $750,000 in attorneys' fees to the relator's attorneys.

The settlement resolves a qui tam action filed April 1997 by a former president and chief executive officer of UniMed alleging that, from 1991 through February 1998, UniMed violated the antikickback statute and the Stark self-referral prohibition by entering into financial relationships with a physician group in Minot, North Dakota, for the purpose of inducing patient referrals. The relator also alleged that UniMed made inflated claims for payment by including the costs of engaging in the prohibited financial arrangements in hospital cost reports submitted to Medicare and Medicaid.

Marycrest and the other defendants denied wrongdoing.