A recent whistleblower case out of the federal 3rd Circuit in Pennsylvania highlights some of the dangers in not properly documenting financial relationships between physicians and hospitals. Specifically, in US ex. rel. Kosenske v. Carlisle HMA, Inc., a Qui Tam lawsuit brought by the former member of an anesthesia group, the 3rd Circuit Court of Appeals reversed a US District Court’s summary judgment in favor of the defendant hospital and anesthesia group.

The anesthesia group in question had a written exclusive contract with the hospital for anesthesia services but, subsequent to entering into the exclusive agreement, began providing pain management services at the hospital’s freestanding pain center. The hospital did not charge the anesthesia group rent for use of the space in the pain center and the qui tam relator claimed that the arrangements failed to meet the Stark exception for personal service arrangements (and therefore that claims for services referred by the anesthesia group’s physicians to the hospital were in violation of the federal False Claim Act).

The Appeals Court found that the arrangement between the hospital and the anesthesia group implicated the Stark prohibitions because the anesthesia group received remuneration from the hospital in the form of, among other things, free rent and administrative services, and because the pain physicians referred patients to the hospital for diagnostic testing and other Stark services. The Court further found that the arrangement did not satisfy the Stark personal service exception because, among other things, the exclusive contract did not contemplate the pain management services when it was originally signed and it was not subsequently amended to address the pain management services. The case was remanded to the District Court for further proceedings.

What should physicians take away from this case?

(1) If you have a financial relationship of any kind with your hospital, it should be reflected in a signed written agreement;

(2) Make sure your agreements with your hospital meet an applicable Stark exception; and

(3) Regularly review and update your agreements to be sure they are in effect and accurately reflect the terms of the relationship.