I recently wrote about what appears to be a surge in Stark Law enforcement by the DOJ, and just days later the DOJ announced another Stark Law enforcement action. The Stark Law, or Physician Self-Referral Law, 42 U.S.C. § 1395nn, which is a strict liability statute that prohibits physicians from referring patients to an entity for “designated health services,” such as inpatient hospital, laboratory, or radiology services, in which the physician has a financial relationship, such as an ownership interest or compensation arrangements where the remuneration exceeds fair market value.
On July 26, 2024, the DOJ filed a Complaint against Murphy Medical Center, Inc. doing business as Erlanger Western Carolina Hospital and Chattanooga-Hamilton County Hospital Authority doing business as Erlanger Health System and Erlanger Medical Center (collectively, Erlanger) in the U.S. District Court for the Western District of North Carolina, alleging that Erlanger violated the Stark Law and thereby violated the False Claims Act, which permits the government to recover treble damages, among other relied.
The Complaint alleges, based on information provided by two qui tam relators, or whistleblowers, who worked for Erlanger as Chief Compliance Officer and Chief Financial Officer, that Erlanger developed a strategy to drive business to it by knowingly paying physicians large salaries and bonuses without regard to whether work was actually performed. Consequently, the Complaint alleges, Erlanger was paying more than fair market value in violation of the Stark Law. The Complaint notes instances where Erlanger should have been on notice of the disproportionate payment, but lacked or ignored internal controls and warning signs that could have resulted in a correction. The Complaint also notes that Erlanger had previously settled DOJ claims of Stark Law violations, agreeing to pay $40 million in 2005.
The Complaint provides specific examples of services provided by ten physicians who were compensated by Erlanger in amounts exceeding fair market value. Because those services, among others, billed to Medicare allegedly violated the Stark Law, the government asserted claims against Erlanger under the False Claims Act and for common law unjust enrichment and payment by mistake. The DOJ seeks damages against Erlanger of approximately $27.8 million.
The Erlanger action and the others I previously wrote about should remind hospitals and health systems to be vigilant about physician compensation structures, as the fair market value assessment may result in subtle disparities that nonetheless raise the specter of Stark Law violations. This is an area of compliance to be particularly mindful about.