[co-author: Taleena Nadkarni]
Recently, in United States ex rel. Kyer v. Thomas Health Systems, the judge overseeinga whistleblower’s False Claims Act (FCA) suit against Thomas Health Systems Inc. stalled further decisions until both parties could file supplemental briefs addressing the U.S. Supreme Court’s decision in Loper Bright Enterprises v. Raimondo. The judge’s order requires the parties to articulate if the Stark Law regulations are consistent with the statute.
The Loper Bright ruling—issued in July 2024 and covered by McGuireWoods in a prior alert—requires courts to independently interpret statutes without deferring to agency regulations, a shift that could significantly impact how Stark Law violations are adjudicated. Today, Kyer adds to a broader trend of challenges to regulations governing the FCA.
Kyer’s FCA Allegations
In the case, relator Liesa Kyer alleges that Thomas Health violated the FCA by submitting claims plagued by Stark Law violations, which regulate financial relationships between physicians and healthcare entities. Kyer, a former nurse, claims that Thomas Health’s compensation arrangements improperly accounted for physician referrals for surgeries and procedures under the Stark Law regulations.
Defendants filed a motion to dismiss on April 16, 2024. But, after the Loper Bright decision in July 2024, neither party supplemented their arguments to address the decision’s impact on the case. In other words, both parties briefed the motions based on regulations issued by the Centers for Medicare & Medicaid Services (CMS).
Impact of Loper Bright on Stark Law Regulations
Historically, regulations from CMS have been instrumental in defining the scope of Stark Law violations. Indeed, Stark Law regulations are often considered dense and voluminous but need to be reviewed to understand CMS’s interpretation of and understanding the strict liability statute. With the Loper Bright ruling, the Kyer judge, however, determined that courts must independently assess whether these regulations align with the statute as enacted by Congress, without deferring to CMS interpretations.
Judge Joseph R. Goodwin, presiding over Kyer, emphasized the need to reassess how Stark Law claims are evaluated, as courts can no longer rely solely on CMS regulations. He noted that Stark Law regulations are “complex, nuanced, and potentially beyond Congress’s intent.” Both parties have been ordered to submit briefs addressing the impact of Loper Bright on the case by October 4, with responses due by October 18.
“Inevitably, Loper Bright will begin to ripple through the Stark regulations. The only question for courts is when and how,” Goodwin wrote. He further stated that he cannot determine whether Kyer has stated a claim for which relief can be granted until the court fully understands the statutory requirements under Stark Law.
Looking Ahead
The approach in Kyer highlights the evolving legal landscape post-Loper Bright, where regulatory deference is no longer the norm and statutory interpretation takes center stage. The case could set a precedent for how Loper Bright will reshape Stark Law enforcement and FCA litigation in the future, potentially empowering litigants to challenge long-standing regulations. Courts are expected to take a more independent stance, creating new defense strategies for providers accused of violating the FCA. On the other hand, for clients looking to structure relationships, these cases may call into question settled legal positions – making such structuring less predictable and more difficult. How courts ultimately apply Loper Bright to CMS regulations remains to be seen, but the decision could have wide-ranging implications for future FCA cases.
