It’s easy to fall into the habit of regarding self-referrals and kickbacks as strictly a matter of federal law, governed only by the federal Stark Law and Anti-Kickback Statute.  But an April 13 verdict in California provides a vivid reminder that state law also has a role and that private insurers can be as fearsome as government authorities when it comes to fraudulent overbilling.

Insurer Aetna claimed that seven surgical centers in the San Francisco Bay area cooked up a scheme to drive up referrals and profits.  According to Aetna, physician investors in the centers referred patients to the centers although the centers were out-of-network for patients in the Aetna plan.  Out-of-network means higher fees for the centers and higher co-pays for the patients.  But the patients didn’t mind the higher copays because the centers waived them.  The referring physicians loved the higher fees because, Aetna says, they were compensated on the basis of billings.

So the patients were happy; the referring physicians were happy; and the centers were happy.  Everyone was happy–except Aetna and the plan sponsors.  Aetna claimed that the centers hid the co-pay waivers from it.  When Aetna figured the scheme out, it sued the centers.  On April 13 a Santa Clara jury found in Aetna’s favor on several state law claims, including fraud, conspiracy to commit fraud, and unjust enrichment.  The jury assessed damages of $37.5 million, and the court entered judgment the following day.

The case is Aetna Life v. Bay Area Surgical Management, Case No. 1-12-CV-217943, Cal. Super. Ct., 2016.