A federal appeals court has affirmed the dismissal of a False Claims Act lawsuit against Thomas Health System, rejecting allegations that the West Virginia health system’s physician compensation arrangements violated the Stark law and Anti-Kickback Statute.
The U.S. Court of Appeals for the Fourth Circuit held that productivity-based physician compensation tied to work relative value units does not constitute payment based on the volume or value of referrals under the Stark law. The Stark law prohibits hospitals from billing for certain services referred by physicians with whom the hospital has a financial relationship unless that relationship meets one of the law’s exceptions.
The court clarified that compensation is considered to be based on the volume or value of referrals only when the formula used to calculate compensation includes the physician’s referrals as a variable, and, according to a June 4 blog post from law firm Davis Wright Tremaine, a standard wRVU-based model does not meet that threshold.
The court also declined to treat hospital subsidies to affiliated physician groups or compensation at or above the 90th percentile as evidence of fraud, noting that 10% of physicians will always fall above that threshold by definition.
Applying Rule 9(b)’s heightened pleading standard, the court found that the relator’s complaint identified only ordinary healthcare business practices rather than a specific fraudulent act, writing that the complaint must “identify the fire” rather than merely point to smoke, according to the blog post.
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