Warning: Physician Owned Liability is Far-reaching

When I present at a conference or speak with individuals, I often ask about their understanding of the federal Anti-kickback and Stark laws. A common answer is that a person cannot pay another in order to induce referrals, provide remuneration in a variety of forms to encourage a physician to use a product, or have a physician owned distributorship ("POD") that does not meet the requisite safe harbors. These are all correct answers. Yet, one area that many physicians overlook is having a family member or a fianc̩e own the POD or be part of the kickback Рthese can also open doors to liability.

United States ex rel. Cairns v. D.S. Med., LLC, No. 1:12CV00004 AGF (E.D. Mo. Aug. 31, 2017) is a False Claims Act (FCA) case that underscores the notion that physicians and their family members, including their fiancée may face liability for engaging in an illegal kickback scheme.

Dr. Sonjay Fonn, a neurosurgeon practicing under Midwest Neurosurgeons, LLC, convinced his fiancée to transition careers, become a spinal implant distributor and offered to support her business, D.S. Medical, LLC. In the complaint, the U.S. Government alleged that between 2008 and 2012, the surgeon utilized implants from D.S. Medical, LLC. In turn, his fiancée received higher commissions from the regional device manufacturer to secure the surgeon's business.

The inflated commission was shared with Dr. Fonn in the form of in-kind remuneration. In this case, the types of in-kind remuneration given to the surgeon included: living in his fiancée's home at rent below market value; gaining access to her yacht; and utilizing other properties.

These items are "red flags" in relation to Anti-kickback and Stark law violations. In turn, these violations led to the submission of false claims to government insurers (e.g., Medicare and Medicaid) for the spinal surgeries that were performed using the implants supplied by
D.S. Medical, LLC.

The surgeon and his fiancée's motion for summary judgement was denied by the court on the basis of an issue that needed to be resolved at trial. The issue is whether "one purpose" of the alleged remuneration was to induce the surgeon's use of the particular implants that were paid for by either Medicare or Medicaid. The court held that remuneration has long been interpreted broadly to include "anything of value." Furthermore, the court rejected the defendants' arguments that the allegations were not material to the government's decision to pay the claims that were submitted for the surgeries.

Some important takeaways for physicians include:

•The government looks at substance over form – meaning that trying to mask something that is illegal through a family member or a fiancée's business is equally improper

•Below market value propositions are a red flag for the government

•A company can be held liable, along with a physician, for kickbacks that lead to claims for payment by either the federal government and/or a state government.