Health Law Daily Surgeon’s on-call contracts were not an attempt to obtain referrals
Monday, June 13, 2016

Surgeon’s on-call contracts were not an attempt to obtain referrals

By Harold Bishop, J.D.

An action brought by a surgeon who alleged that his two on-call contracts with a hospital were terminated because he failed to refer Medicare-eligible patients to the hospital was dismissed with prejudice. The Third Circuit affirmed the dismissal because the surgeon’s complaint did not allege that, at the time that the contracts were executed, the hospital did or said anything to infer that it intended to induce him to exclusively refer patients to the hospital. In addition, both on-call contracts specified that the compensation was not in exchange for the referral of patients (Cooper v. Pottstown Hospital Co. LLC, June 10, 2016, Nygaard, R.)

Facts. An orthopedic surgeon alleged that Pottstown Hospital Co. LLC (Pottstown) violated the Anti-Kickback Statute (AKS) by contracting twice with him to be an on-call physician. The surgeon asserted that the real purpose of these contracts was to ensnare him in a scheme in which Pottstown paid him for on-call services in exchange for his exclusive referral of Medicare-eligible patients to Pottstown. The surgeon further alleged that Pottstown violated the federal False Claims Act (FCA) by falsely certifying compliance with the AKS each time it submitted a claim for payment to the government arising from services to Medicare patients that he referred. Finally, the surgeon asserted that the Community Health Systems Professional Services Corp. (CHSPSC) is liable for its role in authorizing and encouraging the on-call contracts that he claims supported the kickback scheme.

District court. The district court dismissed the surgeon’s claims because his complaint failed to state a claim under either the FCA or the AKS. In addition, because of the sparsity of the pleadings in his complaint and the lack of a draft amended complaint for the district court to consider, the district court made the dismissal with prejudice (see Doctor’s lack of facts saw claims kicked out of court, March 16, 2015).

Appeal. On appeal, the surgeon contended that his complaint was well pleaded. The Third Circuit, in a decision without precedential value, disagreed.

The Third Circuit noted initially that the complaint admitted of a contractual relationship between Pottstown and the surgeon that was indistinguishable from a standard business transaction. According to the court, the surgeon’s complaint relied heavily on the timing of his dismissals from Pottstown and the hospital discovering (in the case of the first contract) that he owned an interest in, and was referring patients to, a medical practice that was competing with Pottstown; and (in the case of the second contract) that he was employed by St. Joseph’s Medical Center, another hospital in the same geographic locale as Pottstown. The court also found that the surgeon claimed that he was the only on-call surgeon who was terminated in both instances. He was also convinced that this showed Pottstown retaliated against him because he was not referring Medicare patients exclusively to Pottstown.

The Third Circuit found two problems with the surgeon’s cause of action. First, he did not allege any facts to enable the court to distinguish the relationship between Pottstown and himself from a typical arms-length contract in which compensation is paid solely in exchange for on-call services. Specifically, the surgeon did not allege that, at the time that the contracts were executed, Pottstown did or said anything to infer that it intended to induce him to exclusively refer patients to Pottstown. Nor did the surgeon allege that Pottstown had no need for his on-call medical services or that his compensation greatly exceeded market expectations. As such, the complaint was devoid of anything indicating Pottstown’s intent to operate a kickback scheme.

Second, the court found that while the surgeon relied on his termination as the main evidence of Pottstown’s intent to engage in kickbacks, the record contained undisputed facts that undermined his claims. Specifically, the surgeon alleged that he and Pottstown were empowered to terminate both contracts at will. Both contracts also specified that the compensation was not in exchange for the referral of patients. The surgeon also alleged that, several months after terminating his first contract, Pottstown gave him a second on-call contract that did not impede him from retaining his interest in the rival practice. According to the court, this contradicted his assertion that Pottstown’s purpose for the original contract was to induce him into an exclusive referral scheme.

The court also found that because the claims against CHSPSC were premised on authorizing and encouraging Pottstown’s conduct, those claims would also fail.

The Third Circuit affirmed the order of the district court.

The case is No. 15-1748.

Attorneys: Robert A. Davitch (Sidkoff, Pincus & Green P.C.) for Alan E. Cooper. Alison C. Barnes (Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP) and John N. Joseph (Post & Schell, P.C.) for Pottstown Hospital Co. LLC, d/b/a Pottstown Memorial Medical Center. Daniel A. Culter (Burns White) for Community Health Systems Professional Services Corp.

Companies: Pottstown Hospital Co. LLC; Pottstown Memorial Medical Center; Community Health Systems Professional Services Corp.; St. Joseph’s Medical Center

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