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Federal Court Finds Stark/False Claims Act Applicable to Medicaid Claims

on Wednesday, 26 March 2014 in Health Law Advisory: Zachary J. Buxton, Editor

A Florida federal district court has allowed a qui tam case to proceed arising from claims submitted to a state Medicaid program due to a potential Stark law violation.  In U.S. v. All Childrens Health System,  the relator, who had worked for All Childrens for many years as a practice administrator and was responsible for developing a physician compensation plan, alleged that compensation arrangements between the provider’s physician practice organization and over 75 of its employed physicians exceeded fair market value and provided compensation incentives for generating referrals for the affiliated hospital. 

 

All Childrens moved for dismissal of the case in part asserting that the False Claims Act had not been violated because the Stark law only applied to referrals paid under the Medicare program.  All Childrens relied on the Stark law and its implementing regulations, which specifically prohibit claims made to the Medicare program from a referral by a physician with whom a prohibited financial relationship exists.

 

The court soundly disagreed with All Childrens’ defense.  The court found that (i) while the statute and regulations implementing Stark only reference Medicare referrals and (ii) even though the Stark law itself is couched within the Medicare provisions of the Social Security Act, the prohibition extends to Medicaid claims by way of the Federal Financial Participation (“FFP”) payments made by the federal government to individual states under Medicaid state plans.  The court relied upon section 1903(s) of the Social Security Act, which specifically provides that FFP payments shall not be made to states when a referral would have been prohibited under the Stark law.  The court found that “the substantive prohibitions contained in the Stark amendment are therefore applicable to claims submitted to Medicaid.”  Any other finding, in the court’s opinion, would be expressly contrary to the applicable statutes.  The court stated further in dicta that even if CMS adopted a regulation expressly making the Stark law inapplicable to Medicaid claims, such a regulation would be contrary to the statutes and thus without the force of law.

 

While the government still must prove an actual Stark violation in order to ultimately prevail in All Childrens, the court’s finding is significant.  When a Stark violation is identified, many times affected providers look only to the referrals generated from Medicare beneficiaries when analyzing repayment and/or self-disclosure obligations.  Likewise, in instances where a Stark violation may exist but the specialty involved is a relatively low referrer of Medicare patients (e.g. pediatrics and OB/GYN), sometimes providers simply repay the small Medicare overpayment and move on.  Many times, however, these specialties are high referrers of Medicaid patients.  The All Childrens’ case serves as a reminder that Medicaid claims for designated health services submitted as a result of referrals from physicians with whom a prohibited financial relationship exists under Stark are also basis for potential False Claims Act liability.  As such, reporting and repayment obligations to state Medicaid programs should be considered contemporaneously with Medicare self-disclosure and repayment.

 

Andrew D. Kloeckner

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