United States of America et al v. Halifax Hospital Medical Center et al

Filing 399

ORDER denying 277 Motion for summary judgment. Signed by Judge Gregory A. Presnell on 11/18/2013. (ED)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
USA and ELIN BAKLID-KUNZ,
Plaintiffs,
v.

Case No: 6:09-cv-1002-Orl-31TBS

HALIFAX HOSPITAL MEDICAL
CENTER and HALIFAX STAFFING,
INC.,
Defendants.

ORDER
This matter comes before the Court without a hearing on the Motion for Summary
Judgment (Doc. 277) filed by Defendants Halifax Hospital Medical Center (“Halifax Hospital”)
and Halifax Staffing, Inc. (“Halifax Staffing”), the response (Doc. 310) filed by the United States
(the “Government”), and the reply (Doc. 336) filed by the Defendants.
I.

Background
Halifax Hospital is a special taxing district that operates a community hospital of the same

name in Volusia County, Florida. (Doc. 277 at 9). Halifax Staffing is an instrumentality of
Halifax Hospital. Halifax Staffing employs the individuals who work for Halifax Hospital.
Halifax Hospital pays all of the expenses and obligations of Halifax Staffing, including payroll,
either directly or by transfer of funds into Halifax Staffing’s payroll account.
The Relator, Elin Baklid-Kunz (“Baklid-Kunz” or the “Relator”) filed this qui tam action
on June 16, 2009, alleging that the Defendants, inter alia, violated the Stark Law, 42 U.S.C.
§1395nn, by billing Medicare for items provided as a result of referrals from physicians with
whom the Defendants had improper financial relationships. (Doc. 1). On October 4, 2011, the

Government announced that it had elected to intervene as to certain of the Relator’s claims,
including her Stark Law claims involving medical oncologists and neurosurgeons. (Doc. 69, 73).
By way of the instant motion, the Defendants seek summary judgment as to all of the
Government’s claims. The Court has already addressed the legality of the compensation
arrangements involving the medical oncologists. (Doc. 396). This order, therefore, will address
the compensation arrangements between Halifax Staffing and the three neurosurgeons: Dr.
Khanna, Dr. Kuhn, and Dr. Vinas.
II.

Legal Standards
A.

Summary Judgment

A party is entitled to summary judgment when the party can show that there is no genuine
issue as to any material fact. Fed.R.Civ.P. 56(c). Which facts are material depends on the
substantive law applicable to the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106
S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The moving party bears the burden of showing that no
genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548,
2553, 91 L.Ed.2d 265 (1986). In determining whether the moving party has satisfied its burden,
the court considers all inferences drawn from the underlying facts in a light most favorable to the
party opposing the motion, and resolves all reasonable doubts against the moving party.
Anderson, 477 U.S. at 255, 106 S.Ct. at 2513.
When a party moving for summary judgment points out an absence of evidence on a
dispositive issue for which the non-moving party bears the burden of proof at trial, the nonmoving
party must “go beyond the pleadings and by [his] own affidavits, or by the depositions, answers to
interrogatories, and admissions on file, designate specific facts showing that there is a genuine
issue for trial.” Celotex Corp., 477 U.S. at 324, 106 S.Ct. at 2553. Thereafter, summary judgment

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is mandated against the nonmoving party who fails to make a showing sufficient to establish a
genuine issue of fact for trial. Id. The party opposing a motion for summary judgment must rely
on more than conclusory statements or allegations unsupported by facts. Evers v. Gen. Motors
Corp., 770 F.2d 984, 986 (11th Cir. 1985) (“conclusory allegations without specific supporting
facts have no probative value”).
The Court must consider all inferences drawn from the underlying facts in a light most
favorable to the party opposing the motion, and resolve all reasonable doubts against the moving
party. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513. The Court is not, however, required to
accept all of the non-movant’s factual characterizations and legal arguments. Beal v. Paramount
Pictures Corp., 20 F.3d 454, 458-59 (11th Cir 1994).
B.

The Stark Law

In an effort to contain health care costs and reduce conflicts of interest, 1 Congress passed
amendments to the Social Security Act in 1989 and 1993 – known as “Stark I” and “Stark II,”
respectively -- that prohibit physicians from referring their Medicare and Medicaid patients to
business entities in which the physicians or their immediate family members have a financial
interest. See Pub.L. No. 101–239, 103 Stat. 2106 (codified at 42 U.S.C. § 1395nn(a)); Pub.L. No.
103–66, 107 Stat. 312 (codified at 42 U.S.C. § 1395nn(a)).

1

Stark I and Stark II were passed in the wake of several reports suggesting that physicians
with a financial interest in referrals tended to provide excess care. For example, in 1989 the
Office of the Inspector General of for the Department of Health and Human Services (“HHS”)
issued the results of a study that found that “patients of referring physicians who own or invest in
independent clinical laboratories received 45% more clinical laboratory services than … Medicare
patients in general.” Steven D. Wales, The Stark Law: Boon or Boondoggle? An Analysis of the
Prohibition on Physician Self-Referrals, 27 Law & Psychol. Review 1, 5 (2003). Later studies
showed significant increases in referrals by physicians with financial interests (either due to
ownership or receipt of bonuses) for such things as X-rays (16%), physical therapy and
rehabilitation (39-45%), MRI scans (54%) and CT scans (27%). Id. at 6.

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The Stark Statute establishes the clear rule that the United States
will not pay for items or services ordered by physicians who have
improper financial relationships with a hospital. Violation of the
Stark Statute may also subject the billing entity to exclusion from
participation in federal healthcare programs and various financial
penalties. See 42 U.S.C. §§ 1395nn(g)(3), 1320a-7a(a).
United States v. Rogan, 459 F.Supp.2d 692, 711 (N.D.Ill. 2006), aff’d, 517 F.3d 449 (7th Cir.
2008).
Stark I was in effect between January 1, 1992 and December 31, 1994. It barred
physicians from referring Medicare patients to an entity for clinical laboratory services if the
physician had a prohibited financial relationship with such entity. 42 U.S.C.A. §1395nn(a)(1)(A)
(West 1992). Stark II became effective on January 1, 1995. It expanded the list of prohibited
referrals to include the following “designated health services” (henceforth, “DHS”):
(A) Clinical laboratory services.
(B) Physical therapy services.
(C) Occupational therapy services.
(D) Radiology services, including magnetic resonance imaging,
computerized axial tomography scans, and ultrasound services.
(E) Radiation therapy services and supplies.
(F) Durable medical equipment and supplies.
(G) Parenteral and enteral nutrients, equipment, and supplies.
(H) Prosthetics, orthotics, and prosthetic devices and supplies.
(I) Home health services.
(J) Outpatient prescription drugs.
(K) Inpatient and outpatient hospital services.
(L) Outpatient speech-language pathology services.
42 U.S.C. § 1395nn(a)(1), (h)(6).

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In pertinent part, the Stark Law provides:
(a) Prohibition of certain referrals
(1) In general
Except as provided in subsection (b) of this section, if a physician
(or an immediate family member of such physician) has a financial
relationship with an entity specified in paragraph (2), then(A) the physician may not make a referral to the entity for the
furnishing of designated health services for which payment
otherwise may be made under this subchapter, and
(B) the entity may not present or cause to be presented a claim under
this subchapter or bill to any individual, third party payor, or other
entity for designated health services furnished pursuant to a referral
prohibited under subparagraph (A).
42 U.S.C. § 1395nn(a)(1). In addition to prohibiting the hospital from submitting claims under
these circumstances, the Stark Law also prohibits payment by the Medicare program of such
claims: “No payment may be made under this subchapter for a designated health service which is
provided in violation of subsection (a)(1) of this section.” 42 U.S.C. § 1395nn(g)(1).
The Stark Law broadly defines “financial relationships” to include an ownership or
investment interest in an entity or a “compensation arrangement.” 42 U.S.C. § 1395nn(a)(1).
“Compensation arrangement,” in turn, is defined as “any arrangement involving any remuneration
between a physician (or an immediate family member of such physician) and an entity.” 42
U.S.C. § 1395nn(h)(1)(A). “Remuneration,” with certain exceptions not applicable to the instant
case, includes “any remuneration, directly or indirectly, overtly or covertly, in cash or in kind.” 42
U.S.C. § 1395nn(h)(1)(B).
“Referral,” for purposes of the Stark Law, is defined as “the request or establishment of a
plan of care by a physician which includes the provision of designated health services.” 42 U.S.C.
§ 1395nn(h)(5)(A). The regulations interpreting the statute also broadly define “referral” as,

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among other things, “a request by a physician that includes the provision of any designated health
service for which payment may be made under Medicare, the establishment of a plan of care by a
physician that includes the provision of such a designated health service, or the certifying or
recertifying of the need for such a designated health service.” 42 C.F.R § 411.351. A referring
physician is defined in the same regulation as “a physician who makes a referral as defined in this
section or who directs another person or entity to make a referral or who controls referrals made to
another person or entity.” Id.
If a hospital submits prohibited claims and collects payment, the regulations implementing
42 U.S.C. § 1395nn expressly require that any entity collecting payment for a healthcare service
“performed under a prohibited referral must refund all collected amounts on a timely basis.” 42
C.F.R. § 411.353(d).
The Stark Law sets forth several exceptions to its broad prohibition on compensation
arrangements between health care entities and referring physicians. To avoid the referral and
billing prohibitions in the statute, a hospital’s financial relationship with a physician must fall into
one of the exceptions. One such exception involves what the Stark Law describes as “bona fide
employment relationships.” Under this exception, amounts paid by an employer to a physician
will not be considered a compensation arrangement for purposes of the Stark Law if
(A) the employment is for identifiable services,
(B) the amount of remuneration under the employment –
(i) is consistent with the fair market value of the services,
and
(ii) is not determined in a manner that takes into account
(directly or indirectly) the volume or value of any referrals by the
referring physician,

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(C) the remuneration is provided pursuant to an agreement which
would be commercially reasonable even if no referrals were made to
the employer, and
(D) the employment meets such other requirements as the Secretary
may impose by regulation as needed to protect against program or
patient abuse.
42 U.S.C. §1395nn(e)(2).
Once the Government has demonstrated proof of each element of a violation of the Stark
Statue, the burden shifts to the defendant to establish that his conduct was protected by a safe
harbor or exception. The Government need not prove, as an element of its case, that a defendant’s
conduct does not fit within a safe harbor or exception.” Rogan, 459 F.Supp.2d at 715.
The Stark Law does not create its own cause of action. U.S. ex rel. Drakeford v. Tuomey
Healthcare Systems, Inc., 675 F.3d 394, 396 (4th Cir. 2012) (explaining, in case involving alleged
violations of Stark Law, why the United States was seeking relief under the False Claims Act).
C.

The False Claims Act

The False Claims Act (henceforth, the “FCA”), 31 U.S.C. § 3729 et seq., was enacted in
1863 as a means of combating frauds perpetrated by private contractors during the Civil War.
Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 781, 120
S.Ct. 1858, 146 L.Ed.2d 836 (2000). 2 See also Ragsdale v. Rubbermaid, Inc., 193 F.3d 1235,
1237 n. 1 (11th Cir.1999) (“The purpose of the [FCA], then and now, is to encourage private
individuals who are aware of fraud being perpetrated against the government to bring such
information forward.”) (citation omitted); and see United States ex rel. Williams v. NEC Corp.,
931 F.2d 1493, 1496–98 (11th Cir.1991) (tracing history of FCA).

2

See also United States ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1496–98 (11th
Cir.1991) (tracing history of Act).

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The FCA permits private persons (called “relators”) to file a form of civil action (known as
qui tam) against, and recover damages on behalf of the United States from, any person who:
(1) knowingly presents, or causes to be presented, a false or
fraudulent claim for payment or approval; [or]
(2) knowingly makes, uses, or causes to be made or used, a false
record or statement to get a false or fraudulent claim paid or
approved by the Government.
31 U.S.C. § 3729(a)(1)-(2) (2003). 3
To prevail under the first of these two sections, a plaintiff must prove three things: (1) a
false or fraudulent claim (2) was presented, or caused to be presented, by the defendant to the
United States for payment or approval (3) with knowledge that the claim was false. United States
v. R&F Properties of Lake County, Inc., 433 F.3d 1349, 1355 (11th Cir. 2005). When a violator
of government regulations is ineligible to participate in a government program and that violator
persists in presenting claims for payment that the violator knows the government does not owe,
that violator is liable, under the False Claims Act, for submission of those claims. McNutt ex rel.
U.S. v. Haleyville Medical Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir. 2005) (holding that
violation of Anti-Kickback Statute could form basis for qui tam action under FCA). The violation
of the regulations and the corresponding submission of claims for which payment is known by the
claimant not to be owed make the claims false under Section 31 U.S.C. § 3729(a)(1). Id. See also
U.S. ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301, 1311 (11th Cir. 2002) (stating that, in
health care context, FCA liability does not arise from provider’s disregard of Government

3

The FCA was amended in May 2009 and changes were made to 31 U.S.C.§ 3729(a)(2);
however, the amended version of 31 U.S.C.§ 3729(a)(2) only applies to claims for payment (such
as Medicare claims) pending on or after June 7, 2008. Hopper v. Solvay Pharmaceuticals, Inc.,
588 F.3d 1318, 1327 n.3 (11th Cir. 2009). The Government does not allege that any of the
Medicare claims at issue here were pending on or after that date, and therefore the previous
version of 31 U.S.C.§3729(a)(2) applies here.

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regulations or failure to maintain proper internal policies unless those acts allow provider to
knowingly ask Government to pay amounts it does not owe.)
Falsely certifying compliance with the Stark Law in connection with a claim submitted to a
federally funded insurance program is actionable under 31 U.S.C. §3729(a)(2). U.S. ex rel.
Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 94 (3d DCA 2009) (citing cases). To establish a
claim under 31 U.S.C. §3729(a)(2), a plaintiff must demonstrate that
(1) a “claim” was presented to the government by the defendant, or
the defendant “caused” a third party to submit the “claim,” (2) the
claim was “false or fraudulent,” (3) the defendant presented the
claim knowing it was “false or fraudulent,” and (4) the defendant
made or used a false statement which the defendant knew to be
false, and which was causally connected to the false claim.
U.S. ex rel. Aakhus v. Dyncorp, Inc., 136 F.3d 676, 682-83 (10th Cir. 1998) (citing cases).
For purposes of the FCA, the terms “knowing” and “knowingly” mean that the person
either had actual knowledge of the information, acted in deliberate ignorance of the truth or falsity
of the information, or acted in reckless disregard of the truth or falsity of the information. 31
U.S.C. §3729(b)(1)(A). However, proof of intent to defraud need not be shown. 31 U.S.C.
§3729(b)(1)(B). The Government must prove all essential elements of an FCA claim, including
damages, by a preponderance of the evidence. 31 U.S.C. § 3731(d).
III.

Analysis
Halifax Hospital 4 paid the neurosurgeons a base salary, plus benefits and a bonus equal to

the difference between the base salary and the physicians’ collections. In essence, this allowed the
4

The neurosurgeons were employed by Halifax Staffing. As the neurosurgeons were
technically employed by an entity other than the one that submitted the claims to Medicare, there
is some dispute as to whether the exception for bona fide employment relationships might apply,
or whether the neurosurgeons’ agreements would need to satisfy a different exception -- one that
involves indirect compensation arrangements. 42 C.F.R. § 411.357(p). However, Halifax Staffing
is merely a payroll service provider for Halifax Hospital, with no other business operations. For
purposes of this motion, Halifax Hospital will be considered to be the direct employer of the

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neurosurgeons to operate their practice with a guaranteed salary and keep 100% of their
collections with no overhead expense.
Since the neurosurgeons are referring physicians who made referrals to Halifax Hospital,
Defendants rely on the bona fide employee exception to the Stark Act. The Defendants contend
that the neurosurgeon agreements satisfy this exception in all respects – i.e., the employment was
for identifiable services, the compensation received was consistent with fair market value and did
not take referrals into account, and the agreements would have been commercially reasonable even
in the absence of any referrals.
The government contends that genuine issues of material fact are in dispute as to most of
these factors and the Court agrees. The Government’s expert witness on physician compensation
has identified a number of issues in regard to whether the compensation received by the
neurosurgeons was consistent with fair market value. For example, in a number of years, the
neurosurgeons appear to have been paid more than twice as much as neurosurgeons at the 90th
percentile of their specialty despite collections from their work falling below (in some instances,
well below) that rank. (Doc. 310-3 at 16-17). The Defendants argue that the neurosurgeons were
exceptionally productive and their exceptional productivity justified that level of compensation.
However, the Government’s expert has also raised questions as to whether the neurosurgeons’

neurosurgeons, and therefore the Court will address the exception for bona fide employment
relationships. However, even if the other exception were to apply, the result would be the same.

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productivity numbers were improperly inflated by, for example, billing under their name for
services performed by nurses and physician assistants. (Doc. 310-3 at 19-27).
The propriety of the neurosurgeons’ compensation under the Stark Act is a matter for the
jury to decide.
In consideration of the foregoing, it is hereby
ORDERED that the Motion for Summary Judgment (Doc. 277) is DENIED.
DONE and ORDERED in Chambers, Orlando, Florida on November 18, 2013.

Copies furnished to:
Counsel of Record
Unrepresented Party

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