On March 15, 2017, the U.S. District Court for the Western District of Pennsylvania held in United States ex rel. Emanuele v. Medicor Assocs., 2017 BL 80113, W.D. Pa., No. 10-cv-245, 3/15/17, that a hospital that created medical directorship positions without having signed contracts with the doctors violated the Federal physician self-referral law (referred to by the court as the “Stark Act”).  Specifically, the court granted in part and denied in part the whistle-blower’s partial motion for summary judgment finding the Stark Act was violated when certain financial arrangements were not memorialized into written agreements.

The relator, a former cardiologist with Medicor Associates, argued that the defendants had submitted false claims for payment based on referrals that violated the Stark Act and the Federal “Anti-Kickback Act” and sought damages under the False Claims Act (“FCA”).  The court noted that although the parties focused their arguments almost entirely on the Stark Act, the same analysis applied to the alleged violations of the Anti-Kickback Act and that under both legislative acts, a defendant would avoid liability by demonstrating that either a statutory or regulatory exception (or safe harbor) applies. 

The court recognized in its review of possible exceptions to the law that both the Stark Act’s fair market value exception and the personal service arrangement exception contain requirements that agreements be in writing.  See 42 C.F.R. § 411.357(l) (fair market value exception); 42 C.F.R. § 411.357(d) (personal services exception).  In its discussion, the court referred to recent guidance and rule changes issued by CMS in 80 Fed. Reg. 70886, 71314-71316 allowing for greater flexibility in proving compliance with the writing and signature requirements.  Specifically,  on October 30, 2015, CMS posted their final rule, which was published in the Federal Register on November 16, 2015 (“Final Rule”), modifying the Stark Act’s regulations. In the Final Rule, CMS acknowledged that the Stark regulations do not require that an arrangement be documented in a single, formal contract, but that a collection of contemporaneous documents may satisfy the writing requirement.  The Final Rule also provided a non-exhaustive list of documents that may demonstrate whether a compensation arrangement complies with the writing requirement.  The Final Rule can be found in its entirety here. 

In Emanuele,  the defendants occasionally let lapse six of the agreements at issue. The defendants continued to pay and perform under these six agreements before entering into new back-dated arrangements.  Relying on the new CMS Final Rule, the court noted “that the requirements of the statutory exceptions - including the writing requirement - must each be satisfied at all times,”  however, CMS does not require that an arrangement under the Stark Act be in one single contract, as it may be found in a “collection of documents.”  The court also emphasized language from the Final Rule that the arrangement must signed by the parties and “permit a reasonable person to verify that the arrangement complied with an applicable exception at the time the referral was made.”  The court stated that by looking at the collection of documents as a whole for these particular agreements, including the expired agreements themselves, and separate invoices and payments, that a jury could find the written agreement requirement was satisfied and therefore, that an exception to the law could apply.  The court ultimately found material issues of disputed fact on whether those six agreements were “adequately described in contemporaneous documents for purposes of the fair market value and personal service arrangements exceptions” and denied the plaintiff’s motion with respect to the those agreements. 

However, for two other directorships that “were never set forth in a signed writing or collection of writings and do not meet the requirements of any Stark Act exception,” the court found that those arrangements could not satisfy a Stark Act exception and granted summary judgment.  Despite defendant’s argument that there was a similarly sufficient collection of documents to support a written agreement, the court held that the bylaws, manuals, meeting minutes, invoices, general ledgers, and even electronic communications relied upon by the defense were deficient in showing that the critical terms were satisfied.  Furthermore, none of the documents were signed by the parties, and thus, according to the court, no reasonable jury could find that an exception to the Stark Act would apply.

The court’s holding is notable for several reasons.  First, as noted above, the court found that the writing requirement was not just a “mere technicality.”  Second, the court’s refusal to grant summary judgment for the other category of agreements reinforces the significance of the CMS guidance issued in late 2015 reflecting a more permissive approach toward proving compliance the writing and signature requirements.  Finally, the grant of summary judgment emphasizes the risk in certain situations of actually losing Stark claims, and being subjected to the FCA’s treble damages and per-claim penalties, at the summary judgment stage.  As such, any violation under the Stark law, even with respect to entirely legitimate, good faith arrangements, could lead to potential damages and even losing a FCA claim at summary judgment.  The case is available here.