On July 28, the federal district court in the Southern District of Ohio issued a pair of orders in related whistleblower cases under the False Claims Act (FCA): United States ex rel. Murphy v. TriHealth, Inc., et al., No. 1:19-cv-168 (S.D. Ohio) (Murphy); and United States ex rel. Shahbabian v. TriHealth, Inc., et al., No. 1:20-cv-67 (S.D. Ohio) (Shahbabian). The orders contain valuable insights about the application of the federal Anti-Kickback Statute (AKS) and the physician self-referral law (known as the Stark Law [Stark]) to physician compensation arrangements and legal principles and the constitutionality of certain aspects of the FCA.
The AKS prohibits, among other things, knowingly and willfully offering or paying any remuneration, directly or indirectly, to induce the referral of services payable under federal health care programs. Stark generally prohibits physicians from referring patients for certain health care services, payable under federal health care programs, to entities with which the physician has a financial relationship. Health care claims that stem from underlying violations of the AKS and Stark Law are “false” within the meaning of the FCA.
In Murphy, the whistleblower’s allegations include that a physician group overpaid its employed doctors more than the value of their individual productivity — at a significant financial loss to the physician group — because (1) the actual and projected value of the doctors’ referrals to affiliated hospitals more than offset the compensation losses to the physician group and (2) the physician group received annual subsidies to offset those losses from its parent company and the hospitals, which still made a profit. This strategy was described as “managing up the return, rather than managing down the loss.” In Shahbabian, the whistleblower asserts similar AKS and Stark claims and further alleges that, after purchasing his neurosurgery practice, the defendants forced him out and — under the threat of reporting him to the state medical board — moved his patients to a captive, high-referral practice.
The district court provisionally allowed the whistleblowers’ claims to proceed, holding they alleged viable FCA claims premised on plausible AKS and Stark violations, but certified, for appeal to the Sixth Circuit, the question of whether the FCA’s whistleblower (or qui tam) provisions violate Article II of the Constitution.
Key Takeaways
- AKS: The court not only held the payment arrangement alleged in Murphy would violate the AKS, but as pleaded, the defendants could not available themselves of any of the AKS safe harbors. Notably, however, the parties and the court did not appear to cite or address the AKS employment safe harbor in their analyses, 42 C.F.R. § 1001.952(i). That safe harbor protects “any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service” payable under federal health care programs and is different, in several important respects, than the Stark employment exception. These cases are nonetheless a reminder that, notwithstanding its broad language, providers should remain cautious about the reach of the AKS employment safe harbor.
- Stark: The court held the payment arrangement alleged in Murphy was not Stark-compliant and, as pleaded, the defendants could not avail themselves of any Stark exceptions. This included the narrower Stark employment exception that, in contrast to the AKS safe harbor, protects payments from employers to physicians only if, among other things, the payment “is not determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician.” 42 U.S.C. § 1395nn(e)(2)(B). The court also rejected the defendants’ argument the physician payment model did not qualify as a “compensation arrangement” under Stark, 42 C.F.R. § 411.354(d)(5) — i.e., because it did not vary or positively correlate with the number or value of physician referrals — because the payment arrangements at issue predated this revised Stark definition.
- Intra-Corporate Conspiracy: The intra-corporate conspiracy principle generally holds a corporation cannot conspire with its own agents or employees as long as the agents or employees act within the scope of their employment. In Murphy, the court allowed the whistleblower’s FCA conspiracy claims to proceed because, at the very least, he alleged a conspiracy between the physician group and its employed physicians. Notably, the court found to the extent the physicians “allegedly demanded increased compensation or else they would take their referrals to competing hospital systems,” they acted outside the scope of their employment, agreed to violate the AKS and Stark, and were not protected by the intra-corporate conspiracy doctrine. Providers should take note that any attempt to leverage referrals is a high-risk proposition.
- FCA Constitutionality: In recent years, there has been a renewed push for the argument that the whistleblower (qui tam) provisions of the FCA — which allow a private citizen (a relator) to file suit on behalf of the U.S. — violate Article II of the Constitution. The argument runs that (1) private citizens are not lawfully appointed officers of the U.S. under Section 2 of Article II (the Appointments Clause) and (2) the FCA, by vesting private citizens with the power to enforce the law without sufficient executive oversight, interferes with the president’s duties to faithfully execute U.S. laws under Section 3 of Article II (the Take Care Clause).
In Murphy and Shahbabian, the court recognized the Sixth Circuit rejected these arguments in United States ex rel. Taxpayers Against Fraud v. Gen’l Elec. Co., 41 F.3d 1032 (6th Cir. 1994). The court nonetheless found (1) “reasonable jurists certainly could disagree as to whether the FCA violates Article II, particularly in light of a pending appeal in the Eleventh Circuit, (2) the Supreme Court expressly declined to decide the Article II issue in earlier cases and (3) at least three Justices (Kavanaugh, Barrett and Thomas) note the FCA’s whistleblower provisions “raise substantial questions under Article II” and recommend the Supreme Court take up the issue in an appropriate case. For those reasons, the district court, in both Murphy and Shahbabian, certified the constitutionality of the FCA’s qui tam provisions, for an interlocutory appeal to the Sixth Circuit. We will be closely following these cases.
