NY Hospital Management Company Settles for $4 Million for Alleged FCA Violations Arising from Failure to Document Physician Arrangements in Writing

On September 13, 2017, the U.S. Department of Justice (DOJ) announced that MediSys Health Network Inc. (MediSys), a New York management company that owns and operates Jamaica Hospital Medical Center and Flushing Hospital and Medical Center, agreed to pay $4 million to settle allegations that it violated the False Claims Act (FCA) by engaging in improper financial relationships with referring physicians. The underlying lawsuit was filed by Dr. Satish Deshpande under the qui tam, or whistleblower provisions of the FCA, and alleges that the hospitals owned by MediSys maintained various arrangements with physicians that did not comply with the requirements of the Federal Stark Law (“Stark”), thus resulting in the submission of false claims to Medicare programs and services under the FCA.

The Federal Stark law requires that entities that employ or contract with physicians must ensure their agreements are (i) documented in writing and (ii) structured to comply with the applicable exceptions under Stark. During the course of the underlying investigation, MediSys made a series of disclosures to the United States that nineteen physician compensation arrangements with physicians, including both call coverage and speaking engagements, may not have been documented in writing by MediSys, as required by Stark, and that nine office space lease arrangements may not have been in compliance with the applicable Stark exception. The $4 million settlement entered into by MediSys resolves allegations that the potential Stark violations caused the submission of false claims to the Medicare programs for services rendered to patients referred by the particular physicians to the hospitals.

While the settlement is not an admission of liability by MediSys, it certainly demonstrates the importance of ensuring that hospitals and physicians maintain written agreements in compliance with Stark and its applicable exceptions. By reviewing the status of its arrangements to ensure contracts between physicians and hospitals are in writing and in compliance with applicable federal laws, providers can mitigate the risk of facing scrutiny by the DOJ as well as potential FCA fines and penalties.

Frier Levitt’s healthcare department routinely counsels providers on compliance with Stark and FCA and can assist with crafting the requisite transactional documents for providers entering into such relationships. Contact us today to speak to an attorney.

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