DOJ Announces $3.2 Million Settlement with California Hospital Over Alleged Stark Law Violations

The Department of Justice recently announced a $3.2 Million settlement with Tri-City Medical Center related to allegations it violated the Stark Law and False Claims Act.  Tri-City Medical Center, a hospital in Oceanside, California, allegedly maintained financial arrangements with community-based physicians and physician groups that failed to comply with the Stark Law.


Stark, the physician self-referral law, forbids a hospital from billing Medicare for certain services referred by physicians who have a financial relationship with the hospital unless that relationship falls within one of the enumerated Stark exceptions.  These exceptions generally require that the arrangement not exceed fair market value, do not account for the volume or value of referrals and are considered commercially reasonable.  In addition to a number of other requirements, agreements with physicians who are not employees of the hospital must be set forth in writing.


In the case of Tri-City Medical Center, the press release indicates that the hospital identified five arrangements with its former chief of staff that, in the aggregate, did not appear to be commercially reasonable or satisfy the fair market value requirement.  In addition, the hospital identified 92 financial relationships with community-based physicians and physician groups that did not satisfy a Stark exception for reasons that included the written agreements being expired, not signed or unable to be located.


It is important for both hospitals and physicians engaging in relationships with hospitals to be keenly aware of the prohibitions imposed by the Stark law as well as the requirements necessary to meet one of the Stark law exceptions.  In light of the potential penalties and the fact that the Stark law is a strict liability statute, it is imperative for physicians and physician groups to obtain legal advice before entering into a financial relationship covered by the Stark law.


It is also important to note, however, that recent clarifications and revisions to the Stark law may provide hospitals and physicians with a defense to certain technical violations.  For example, CMS will now allow holdover arrangements for an indefinite time, will consider multiple documents (rather than a single contract) when determining whether a written arrangement exists, and will increase the timeframe to 90 days for securing all necessary signatures even in cases where the failure is not inadvertent.


The Tri-City Medical settlement comes as part of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which involves a partnership between the Attorney General and Secretary of Health and Human Services.  Using powerful tools like the False Claims Act, the Justice Department has recovered more than $27.1 billion since January 2009, with more than $17.1 billion recovered in matters involving fraud in the federal health care programs.

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