Updated: Jul 10, 2022
Law360 (September 17, 2019, 7:31 PM EDT) -- The Third Circuit on Tuesday revived three whistleblowers' claims that the University of Pittsburgh Medical Center violated the Stark Act and the False Claims Act, ruling that its neurosurgeons' pay structure allegedly incentivized them to conduct extra procedures that would require more hospital services to be billed to Medicare.
The appeals court said UPMC's method of paying surgeons a base salary plus bonuses for exceeding a yearly quota of "work units" for the personal services they provide gave surgeons a reason to put in extra work, which the three whistleblowers said multiple surgeons accomplished by inflating their hours or doing unnecessary surgeries.
Since those extra surgeries led to more referrals to the hospital for recovery, nursing care and follow-up visits, two members of the three-judge panel said there was at least a prima facie case that the practice violated the Stark Act, which prohibits doctors from submitting Medicare claims for referrals to entities with whom the doctor has a financial relationship.
"The surgeons' contracts make it very likely that their pay varies with their referrals. And the relators also make a plausible case that the surgeons' pay is so high that it must take referrals into account," wrote Judge Stephanos Bibas, joined on the majority opinion by Judge Julio M. Fuentes. "All these facts are smoke; and where there is smoke, there might be fire."
The Third Circuit reversed the dismissal of the case and remanded it to the U.S. District Court for the Western District of Pennsylvania for further proceedings. It said the whistleblowers had pled their case well enough to move ahead, and it would be up to UPMC to show that there were exceptions to the Stark Act that applied.
Two doctors and a surgical technician filed the qui tam lawsuit in 2012, alleging that surgeons at UPMC and three subsidiaries had submitted false claims for physician services and hospital services. The U.S. intervened on the physician services claim in 2016 and secured a $2.5 million settlement from UPMC, but left the hospital services claim to be pursued by the whistleblowers.
The appellate court agreed with the whistleblowers that whenever a neurosurgeon performed a surgery or other procedure at UPMC, they made a "referral" for associated hospital claims to Medicare for things including nursing services, bed and board, and other overhead. And although the surgeons' pay was not directly related to the number of referrals they made, the panel said the Stark Act's ban on pay that "varies with, or takes into account, the volume or value of referrals" fit the whistleblowers' description of UPMC's pay structure, where doctors' bonuses would vary with the amount of work they put in, and, therefore, the number of referrals they made for hospital services.
"If the surgeons met their quota of work units, they protected their base salaries. And if they exceeded that quota, they earned a bonus for each additional work unit," the opinion said. "The more procedures they did at the hospitals, the more referrals they made, and the more they would earn by maintaining their base salaries and earning higher bonuses. And just as their salaries flowed, they also ebbed: the fewer procedures they did, the fewer referrals they made, and the less they got paid. Thus, their aggregate compensation varied with their referrals' volume and value."
While there are dozens of exceptions to the Stark Act, the panel said the burden was on UPMC to show how and why they applied. UPMC had argued that the surgeons' pay did not take referrals into account and was in line with the fair-market value for their services, but the appeals court was unconvinced.
The majority opinion noted that many of the UPMC surgeons' pay exceeded the 90th percentile for neurosurgeons nationwide, and they generated work units that were well above the 90th percentile as well.
"Aggregate compensation that exceeds fair market value is smoke. It suggests that the compensation takes referrals into account," the opinion said. "That much smoke makes fire plausible."
Circuit Judge Thomas L. Ambro concurred with the majority that the case should be revived, but he disagreed with its interpretation of the "varies with" part of the law that allegedly tied the surgeons' pay to the amount of referrals they generated."
Although I concur with the judgment of the majority that the relators here have done enough to survive a motion to dismiss, I cannot agree that correlation alone is enough to show that compensation 'varies with, or takes into account, the volume or value of referrals,'" Judge Ambro wrote. "Instead I would hold that this language requires some showing of an actual causal relationship to establish an indirect compensation arrangement under the Stark Act."
Such an interpretation could cast too broad a net and allow plaintiffs to combine the Stark Act and the False Claims Act to bring lawsuits against many hospitals that pay their doctors bonuses based on work units, he said.
"I worry we are sending signals to hospitals throughout the Third Circuit, and the nation, that their routine business practices are somehow shady or suspicious and could leave them vulnerable to significant litigation, with all the trouble and expense that brings," Judge Ambro wrote.
Counsel for UPMC and the whistleblowers did not respond to requests for comment Tuesday. A representative of UPMC declined to comment.
Judges Thomas Ambro, Stephanos Bibas and Julio Fuentes sat on the panel for the Third Circuit.
The whistleblowers are represented by G. Mark Simpson of the Simpson Law Firm LLC, Andrew M. Stone of the Stone Law Firm LLC, and Patrick K. Cavanaugh and Stephen J. Del Sole of Del Sole Cavanaugh Stroyd LLC.
UPMC is represented by Kirti Datla, Jonathan L. Diesenhaus, Jessica L. Ellsworth, Mitchell J. Lazris and Sarah C. Marberg of Hogan Lovells.
The case is J. William Bookwalter III et al. v. UPMC et al., case number 18-1693, in the US Court of Appeals for the Third Circuit.