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False Claims Act Case Based on Real Estate Transactions Dismissed

on Friday, 7 July 2017 in Health Law Alert: Erin E. Busch, Editor

Thomas Bingham, a real estate appraiser in the Tampa, Florida area, brought a qui tam action against BayCare Health System under the Federal False Claims Act alleging underlying violations of the Stark Law and anti-kickback statue arising out of two real estate transactions.  The case is initially interesting in that Bingham pursued his claim as a relator even after the Department of Justice had elected not to intervene in the case.  The case recently concluded in BayCare’s favor.  In April 2017, the U.S. District Court for the Middle District of Florida granted summary judgment to BayCare on all counts.  While the outcome is a “win” for the provider in this case, the facts of the case highlight the importance of individually examining all elements of transactions with potential referral sources.

BayCare owned St. Anthony’s Hospital, a general acute care hospital located in St. Petersburg, Florida.  In 2004 BayCare entered into a ground lease with a third party commercial real estate developer to construct a medical office building (“MOB”) on its campus. As part of the transaction BayCare granted a direct easement to the developer for on-campus parking. Upon the building’s completion, the MOB was rented by two physician groups. 

The relator first alleged that the parking easement created a direct compensation arrangement between St. Anthony’s Hospital and the individual (referring) physician tenants in the building.  Because there was no direct lease between those parties, and St. Anthony’s did not charge the physicians rent to park on campus, the relator claimed the arrangement constituted remuneration to the physician tenants and created a “direct compensation arrangement” outside of permitted exceptions under Stark.  The Court disagreed.  The Court noted that the parking easement was granted to the developer, and it was a developer that provided parking rights to tenants under their respective MOB leases.  Thus, the Court found no direct compensation arrangement.  

The Court then moved on to whether the transaction created an “indirect compensation arrangement.” An indirect compensation arrangement may exist when: (i) there is an unbroken chain of financial relationships, (ii) the referring physician receives aggregate compensation takes into account the volume or value of referrals or other business generated by the referring physician for the entity (here, St. Anthony’s), and (iii) the entity has knowledge of the compensation structure in (ii). 

The first test could be met – the unbroken chain:

BayCare/         Developer/       Physician Org./        Physician Owner/

St. Anthony’s  →  Landlord    →   Tenant    →   Employee

However, the Court found the relator had provided no proof that the aggregate compensation physicians received from their physician organizations varied with or took into account the volume or value of referrals or other business generated by the physicians.  Likewise, the third definitional element, the knowledge test, failed.  Since neither a direct nor indirect compensation arrangement was supported, the relator’s parking-related Stark claim failed.

Switching to the anti-kickback analysis, the second means of establishing false claims, the Court found no evidence that terms of the parking easement as offered to the MOB developer were based on intent to induce referrals from the ultimate physician tenants in the MOB.

The relator next claimed that St. Anthony’s had passed along “rent concessions” to the physicians in the form of lower rent due to St. Anthony’s improperly qualifying the MOB for property tax exemption.  The lower rent would have been reflected in the ground lease and could have been reflected in the developer’s rent to tenants. The assessor had originally granted the land a property tax exemption, but later withdrew it.  BayCare then began collecting real estate taxes from the developer, per the terms of the ground lease.  Here again, the Court found that there was no demonstrated link between the rent charged to the developer and the volume or value of physician referrals to the Hospital, thus there was neither a direct nor an indirect compensation arrangement for Stark purposes.  For the anti-kickback analysis, the Court found that BayCare had shown that it exercised no control over the amount or construct of rent charged by the developer to the tenants, and the relator had not shown any evidence that the ground lease rent was intended to induce referrals from the ultimate physician tenants.  

The relator challenged a second MOB rental arrangement for a different building.  This time the property was properly classified as exempt from property taxes according to the county assessor.  The relator tried to show the assessor was wrong and the result was a rent concession to the physician tenant in the building.  The Court rejected this argument as well, noting that the False Claims Act forum is not the proper place to challenge determinations by the county assessor and noting the assessor’s determination is entitled to a presumption of correctness.  

There were other claims and these too were rebuffed by the Court as it granted summary judgment to BayCare.  The takeaway is twofold.  First, parties will want to identify all forms of “remuneration” in a transaction and satisfy themselves that each element of remuneration is handled properly.  Remuneration is the trigger that launches the need for both a Stark Law and an anti-kickback statute analysis.  Second, the fact that a relator pursued the case after the Department of Justice elected not to intervene is symptomatic of a trend.  Entities that find themselves under an investigation that results in no intervention by the Department of Justice are not necessarily safe from the costs associated with additional litigation.

Alex M. (“Kelly”) Clarke


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