District Judge Hits Halifax Hospital with $26M Fine in Qui Tam Suit

bonus calculationA November 13th order from U.S. District Judge Gregory A. Presnell hit Halifax Hospital in Daytona Beach hard and has implications for all physician bonus compensation arrangements.  The background of the whistleblower case involves:

  1. Halifax is a special taxing district of Volusia;
  2. Halifax Staffing, Inc is owned by the hospital and had an employment relationship with six medical oncologists which involved the oncologists being paid salaries plus bonuses;
  3. The bonus was based in part on services provided by the oncology group, but also on services they did not personally provide (e.g. infusion).  The bonus was paid to each physician in the group based on their respective personally performed services;
  4. The oncologists would submit two bills to Medicare when treating a patient who received chemotherapy.  One bill was for the physician’s services.  The second was for the facility fee (which encompasses use of the space, equipment, etc.).

The judge’s order focused on the government’s assertions that the bonus arrangement violated both the Stark Law and False Claims Act.  The court was particularly persuaded by the government’s allegations of wrongdoing based on the following:

The hospital established a bonus pool made up, in part, by income from infusion services.  Outpatient prescription drugs and outpatient hospital services fall under the federal definition of what constitutes a “designated health service” (DHS), for which there are self-referral prohibitions and consequences.  Interestingly, the court looked past the long-held-sacred “bona fide employment” relationship based defense (which is a defense to an alleged Anti Kickback Statute (AKS) violation) to find a Stark violation because the payment to the oncologists was determined in a manner that “takes into account the volume or value of any referrals by the referring physician.”  The court adopted the argument that, in bonusing the oncologists based on a percentage of the operating margin (which included income from designated health services), the hospital violated Stark and failed to meet the “bona fide employee” exception.

The court seemed especially persuaded by the fact that the oncologists had the ability to order the DHS services (outpatient prescription drugs and services) and to be benefitted from doing so.  The heart of many healthcare regs is the fear that those with a financial incentive to over order or produce (and thereby drive up healthcare costs) will do so.  The court zeroed in of the physicians’ ability to increase income from personally ordering DHS and receiving more bonus money from doing so.  Moreover, the court rejected the argument that the Stark provision which allows a physician to be bonused based on personally performed services was met here, because the oncologists were bonused on income from DHS and things they did not personally provide.

The court also focused on the technical issue of what constitutes a “referral,” since a lot of Stark’s provisions focus on whether a referral is permissible.  The doctors claimed that identifying a physician on the claim form as the “attending” or “other” physician is no evidence that the doctor was the “referring” physician.  The court rejected that and adopted the government’s position that (1) “the request or establishment of a plan of care” is also a “referral” under Stark; and (2) when a physician personally performs a service, any resulting facility fee is a “referral” under Stark.

The Halifax Order (which was in response to a Motion for Summary Judgment) is big news for the healthcare community, since it clarifies and reiterates the government’s view of how particularly and seriously Stark (and the FCA) applies.  The case has special implications for not only hospital physician compensation arrangements, but also for all healthcare provider compensation arrangements where state or federally compensated DHS is involved.

One thought on “District Judge Hits Halifax Hospital with $26M Fine in Qui Tam Suit

  1. Pingback: Physician Compensation Targeted by the Department of Justice | Florida Healthcare Law Firm Blog

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