Both cases are based on the False Claims Act, a Civil War-era law that makes it a civil violation to overbill government programs. The key to the law's effectiveness, proponents say, is that it empowers whistle-blowers to step forward with nonpublic information and file cases to recover misspending on the government's behalf. The law allows penalties of up to $11,000 per Medicare claim, in addition to triple damages, if the conduct is found intentional or arising from reckless disregard for the law. In hospital cases, the False Claims Act typically comes to bear when a whistle-blower can show the hospital broke another Medicare rule.
There is a powerful financial incentive for whistle-blowers to step forward, and a number of mid- to high-level hospital officials like Baklid-Kunz have done so. They can take up to 25% of the amounts reclaimed if the government intervenes in the case, or up to 30% if the government declines to intervene, as it did in the second Halifax case.
In U.S. v. Halifax, the alleged payment violation involves Stark—a law of such daunting complexity that its author, former California Democratic Rep. Pete Stark, has publicly called for its repeal. Federal officials have published, and regularly update, about two-dozen exceptions to the Stark law. One key exception, at issue in both the Halifax and Tuomey cases, is the “bona fide employment” exception. Under that rule, money paid to doctors is not considered compensation subject to the Stark law as long as the doctors receive no more than fair-market value for the services and the payments don't vary with the volume or value of the services done at the hospital.
At Halifax, the oncologists received incentive bonuses. They were allowed to split 15% of the hospital oncology department's operating margin, apportioned to each doctor based on who did the most work. Hospital officials knew this pay would vary with volume. But they argued in court records that the language of the bona fide employment exception is itself subject to an exception that says productivity bonuses are not considered compensation if they pay only for services personally performed by the doctor.
But U.S. District Judge Gregory Presnell in Orlando issued a summary judgment last November that Halifax's incentive bonus did not fall within the bona fide employment exception. That each oncologist “could increase his or her share of the bonus pool by personally performing more services cannot alter the fact that the size of the pool (and thus the size of each oncologist's bonus) could be increased by making more referrals,” he wrote.
The ruling came as a surprise because Halifax executives said the pay arrangement was vetted by their own lawyers as well as by outside counsel at McDermott Will & Emery. In a Jan. 24 statement of the case, Justice Department lawyers wrote that the review by McDermott Will & Emery found only “a reasonable argument” that the contract was legal.
The Halifax case may never have reached this point if executives there had listened to what whistle-blower Baklid-Kunz said were her warnings to them in 2008. HHS' inspector general's office has repeatedly urged hospitals to establish internal compliance programs and take prompt corrective action when concerns arise.
But Baklid-Kunz said that was not the culture at Halifax at the time. “I was always told that Halifax was not liable under (the False Claims Act) because we were a tax-supported hospital,” she said in an interview.
Whatever the roots of the Halifax problems, some hospital leaders say most False Claims Act cases result not from bad intent, but from sloppy practices. The Halifax case should serve as a wake-up call because it could happen to any hospital organization.
“There but for the grace of God could go anybody,” said Keith Pitts, Tenet's vice chairman.
Follow Joe Carlson on Twitter: @MHJCarlson