The New York Regional Office of the U.S. Department of Health and Human Services, Office of Inspector General (“OIG”) recently announced the settlement of a civil lawsuit initiated by a qui tam relator under the Federal False Claims Act against a diagnostic testing facility (the “Facility”) for paying kickbacks to physicians and their medical practices in the form of sham rent payments to secure patient referrals in violation of the Federal Anti-Kickback Statute (the “AKS”).
The settlement resolves claims that for approximately ten years, beginning in January 2009, the Facility orchestrated a kickback scheme, paying over 100 physicians and their practices to induce the referral of patients for diagnostic testing services that were performed by the Facility’s staff at the physicians’ offices, and were reimbursed by Medicare and Medicaid. Upon scrutiny, the OIG found that the Facility’s rent payments to the physicians were based entirely upon the number of patient referrals and, in many instances, the rent exceeded the fair market rental value (“FMV”) of the leased office space.
The Complaint alleged, among other things, that:
- The sole factor the Facility considered when setting the monthly rent amounts was the expected value of the patient referrals the physicians would generate.
- Many of the agreements misrepresented key terms, such as the square footage of the rented space and the number of days per month that the Facility would utilize the space.
- The Facility typically performed no meaningful analysis to determine the FMV of the subleased premises or to verify that the agreed-upon monthly rent payments were consistent with FMV.
- Facility representatives monitored the patient referrals received each month, and routinely communicated with physicians to pressure them to meet the expected patient referral rates.
- If expected referral rates were not achieved, the Facility either paid the providers less than the amount specified in the sublease and/or varied its payment based on the actual patient referral volume. In some instances, Facility representatives renegotiated the rent amount downward or terminated the sublease arrangement entirely.
In a public statement regarding the settlement, U.S. Attorney Damian Williams remarked: “These are precisely the kind of business arrangements that the [AKS] was enacted to prevent.”
Under the settlement, the Facility will pay a total of $2.5 million to resolve the allegations in the Complaint and state law claims. The whistleblower will receive 22% of the settlement monies paid by the Facility to the Federal government. Additionally, the Facility executed consent judgments in favor of the U.S. for $4,280,108, and in favor of the State of New York for $1,919,892, for a combined total of $6.2 million, which may be enforced if the Facility fails to make the payments required under the settlements.
How Frier Levitt Can Help
Physicians and medical practices are frequently presented with opportunities to expand the services available to their patients through sublease arrangements. Even if the diagnostic testing services may be justified as medically appropriate, an improperly structured financial arrangement between parties in a position to refer to, or otherwise generate business for each other increases the risk a violation of the AKS, the Federal False Claims Act, and applicable state laws. To mitigate the risk of an adverse determination, parties are well-advised to consult experienced health care counsel before entering into any such arrangement. For more information, call Frier Levitt to speak with an attorney.
