No Practice is Immune from the False Claim Act, Stark Law

This case should signal physicians that no practice, regardless of the size, is immune from Stark Law and False Claims Act causes of action.

In November, the federal government intervened in a qui tam action alleging that the defendants, which include Family Medicine Centers (FMC) and its physician owners, Stephen Serbin and Victoria Serbin, violated the Stark Law and the False Claims Act. United States ex rel. Schaefer v. Family Med. Ctr. of S.C. LLC, C/A No. 3:14-382-MBS (D. S.C. Nov. 8, 2016).

By way of background, the Stark Law includes three separate provisions, which are found in three separate laws. The Omnibus Budget Reconciliation Act of 1989 (OBRA 1989) - known as "Stark I" - has been effective since January 1992. Initially, Stark I was only limited to laboratory services. After, the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) expanded the number of services that were included and applied to referrals affecting both Medicare and Medicaid patients. These provisions were subsequently integrated into the Social Security Amendments of 1994. The Stark III final rule appeared in the Sept. 5, 2007 of The Federal Register with an effective date Dec. 4, 2007. Section 1877 of the Social Security Act is where the prohibitions against physician referrals are found, in addition to various other regulations and laws. This law is constantly evolving, so physicians should keep on the latest changes.

 The False Claims Act, which is also known as "the Lincoln Law," stems back to 1863. The law provides for relators and/or the government to bring a case for fraud that was perpetrated against the government. Effective Aug. 1, the per claim penalties under the False Claims Act (FCA) were raised from $5,500-$11,000 to a new range of $10,781-$21,563. Often, the anti-kickback statute and Stark Law form the basis of False Claims Act cases in the healthcare sector..  Now, the total amount of recovery available to the government and the relator is $10,781 to $21,563 per violation plus treble damages for violations occurring after Nov. 2, 2015.

In the FMC case, the government alleged these crucial issues:

1. FMC promoted select physicians employed by the practice and encouraged them to refer laboratory tests for Medicare beneficiaries to FMC, which would pass on a percentage of the reimbursement to the referring physician, in violation of the Stark Law; 

2. The defendants encouraged FMC physicians to refer testing and other services to FMC or receive reduced compensation under their employment agreements; and

3. The defendants fraudulently established medical necessity through its over-utilized laboratory services and changing billing codes to increase their revenues.

Conversely, in relation to the motion to dismiss the case, the defendants argued the government's Stark claims did not adequately plead with particularity the materiality and state of mind requirements. The court rejected defendants' contention that the government failed to establish materiality because it continued paying submitted claims. It cited Fourth Circuit precedent for determining materiality, which asks whether the false statement "has a natural tendency to influence agency action or is capable of influencing agency action." The court opined that, "the proper focus with respect to materiality is the influence of the false statements at the time of presentment," not whether the false statements actually influenced agency action.

In sum, the court disagreed with the defendants' position and allowed the government to proceed. This case should be a reminder to all physicians, regardless of their practice size or specialty, to "play by the rules" in relation to referrals, upcoding, and medical necessity.