A Pennsylvania hospital and physician group settled whistleblower fraud allegations for $20.75 million the day before jury selection was set to begin in U.S. District Court of the Western District of Pennsylvania in a suit regarding allegations that the hospital created medical directorships for cardiologists from the co-defendant physician group without the written agreements required to meet an exception under the Stark physician self-referral law.

University of Pittsburgh Medical Center Hamot (Hamot), a 424-bed hospital in Erie, Pa., faced allegations that it created sham directorships between 2004 and 2010 to incentivize referrals to Hamot for heart procedures. The district court’s earlier order held that Stark law violations can expose providers to False Claims Act liability, even if the directorships are legitimate, if the parties do not sufficiently memorialize and update their arrangements in order to meet a Stark law exception.

The Stark law prohibits a physician from referring patients for “designated health services” to an entity in which the physician has a financial relationship, and that entity cannot submit Medicare or Medicaid claims for items or services stemming from the referrals. The Stark law contains many exceptions that require a signed writing. For example, agreements to rent office space or equipment are allowed if the lease is written and signed by the parties.

In its CY 2016 Medicare Physician Fee Schedule Final Rule, CMS indicated that the Stark law writing requirement did not mandate a single, formal contract and stated that a collection of documents, including board meeting minutes, electronic communications, fee schedules, time sheets, call coverage schedules, accounts payable or receivable, and checks issued, could together satisfy the requirement.

However, the district court noted in a March 15, 2017 order – the first judicial interpretation of CMS’s clarifications – that the written agreement requirement in the Stark law was not “a mere technicality,” and observers were intrigued to see how a jury would enforce the written obligation. Instead, the parties settled the suit November 7, 2017 for $20.75 million, and they expect the U.S. Department of Justice, which participated in settlement talks, to approve the settlement in the next couple of weeks.

The case is U.S. ex rel. Tullio Emanuele v. Medicor Associates, Inc. et al.