United States: Eleventh Circuit Affirms Key Kickback Statute, Stark Law, And False Claims Act Principles In Dismissing Allegations Against HCA

On July 31, 2019, the U.S. Court of Appeals for the Eleventh Circuit affirmed a lower court's decision to grant summary judgment to hospital operator HCA and dismiss relator Thomas Bingham's allegations. Bingham v. HCA (S.D. Fla. July 31, 2019) ("Op."). In a well-reasoned opinion, the Court affirmed several key holdings:

  • There is no "remuneration", for Federal health care program anti-kickback statute ("AKS") purposes, unless a benefit is conferred for less than fair market value. In other words, as long as compensation to or from a referral source is consistent with fair market value, the AKS is not implicated.
  • With respect to the Stark Law, showing that a space lease arrangement effectuates an "indirect compensation arrangement" between a hospital and a referring physician requires a showing that the space, rental rates, or benefits under the lease correlate with the volume of the physician's referrals to the hospital.
  • It may be appropriate for a court to strike allegations from an amended False Claims Act complaint if they are based on information uncovered by a relator during discovery.

These holdings should be welcomed by defendants of alleged AKS, Stark Law, and False Claims Act violations.

Bingham's Allegations

Bingham's claims related to leases for medical office building space between HCA-hired developers and physicians who had the ability to refer patients to HCA hospitals. Bingham alleged that HCA provided subsidies to the developers, which the developers in turn used to provide physician tenants with benefits such as free marketing, office improvements, low initial lease rates, restricted use waivers, and – for tenants who signed long-term leases – cash flow participation agreements. Bingham further alleged that, in return for these benefits, physician-tenants referred patients to HCA hospitals. According to Bingham, these arrangements violated the AKS and led to Stark Law and FCA violations.

No AKS Remuneration Unless Below Fair Market Value

With respect to Bingham's AKS allegations, the Court explained that "[a]n AKS violation...requires that there be 'remuneration' offered or paid in the transaction at issue." Op. at 9. Noting that remuneration is not defined in the AKS, the Court looked to the common usage of the term, concluding that remuneration meant "[p]ayment; compensation" and that "[c]ompensation, in turn, cannot be given unless some sort of benefit is conferred." Id. Further, "[i]n a business transaction like those at issue in this case, the value of a benefit can only be quantified by reference to its fair market value." Id. at 9-10. Therefore, "the issue of fair market value is not limited to HCA's safe harbor defense... but is rather something Relator must address in order to show that HCA offered or paid remuneration to physician tenants." Id. at 10. Because the Court concluded that Bingham had not pled with particularity any value conferred to physician tenants in excess of the fair market value of the space, e.g., below-market rents, Bingham's AKS allegations failed.

No Stark Law "Indirect Compensation Arrangement" Without Correlation Between Favorable Terms and Referrals

As to Bingham's Stark Law allegations, the Court found that "there is no genuine factual dispute over whether a prohibited indirect compensation arrangement under the Stark Statute exists because it plainly does not." Id. at 13. Specifically, any relationship between HCA and the physician-tenants could only be indirect because remuneration flowed through the developers. However, the Stark Law defines an "indirect compensation arrangement" to require "that compensation received by a referring physician 'varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician.'" Op. at 13. Because "HCA has shown that there is no correlation between the size of physician tenants' space leases and their referrals to HCA" and Relator failed to "show that the rental rates or other benefits allegedly given by HCA to any specific physician tenant are at all correlated with the volume or value of referrals from that physician tenant", Relator failed to create a genuine factual dispute as to whether an indirect financial relationship existed and implicated the Stark Law's prohibitions.

Information Learned in Discovery Appropriately Stricken from Complaint

After dismissing one set of allegations, the lower court allowed the Relator to proceed into discovery and amend those allegations after discovery had begun. The 11th Circuit explained that "[a]lthough courts should freely grant leave to amend pleadings, ...amendments that include material obtained during discovery, prior to a final decision on the motion to dismiss, may not be appropriate in cases to which the heighted [sic] pleading standard of Rule 9(b) applies if the amendment would allow the plaintiff to circumvent the purpose of Rule 9(b)." Op. at 16. The Court, therefore, affirmed the lower court's decision to grant HCA's motion to strike information in the amended complaint that was obtained through discovery. The Court then affirmed the dismissals of the related claims because, absent information learned in discovery, the Relator did not satisfy the pleading requirements of Rule 9(b).

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