The U.S. Court of Appeals for the Third Circuit recently reversed summary judgment granted by the U.S. District Court for the Middle District of Pennsylvania in favor of a hospital and its anesthesia providers who asserted protection under the "personal services" exemption to Federal Stark Law ("Stark") and the Federal Anti-Kickback Statute ("AKS"). United States ex rel. Kosenske v. Carlisle HMA, Inc., No. 07-4616 (3rd Cir. 2009).
The Plaintiff in the Qui Tam action was a member of the anesthesiology group, Blue Mountain Anesthesia Associates, PC ("the Group") which entered into a written contract with Carlisle Hospital and Health Services ("CHHS") for the exclusive right to provide anesthesiology services at the hospital. Pursuant to this exclusive service arrangement, CHHS agreed to provide office space, supplies, equipment and personnel for the Group's use at no charge when the Group was providing anesthesiology services to patients at the hospital. The contract contemplated that the Group would administer pain management services in addition to its more traditional anesthesia-related responsibilities, although, importantly, no pain management services were being provided when the contract was executed in 1992.
In 1998, CHHS built a new stand-alone facility containing an outpatient ambulatory surgery center and a pain clinic, located about three miles from the hospital. From the day of its opening, the Group provided pain management services to patients in the pain clinic and, in exchange, was given rent-free space and equipment in the pain clinic and support personnel at no charge. As with the anesthesia services, the Group's member physicians submitted claims to Medicare for the professional services performed during these visits, and CHHS submitted claims for the facility and technical component of the visits. The parties did not amend the 1992 agreement to include this additional facility or new range of responsibility.
CHHS sold the hospital, surgery center, and other assets to Carlisle HMA ("Carlisle") in 2001. In furtherance of the sale, Carlisle and the Group conducted the business relationship as if the agreement with CHHS remained in effect. Both entities continued to submit claims to Medicare for their respective costs.
Plaintiff discontinued his practice with the Group and filed suit in 2005 alleging that Carlisle was noncompliant with Stark and the AKS, even though when submitting its claims for facilities costs to Medicare it had certified that it was in compliance. The Third Circuit agreed, making several important holdings:
(1) The office space, medical equipment and personnel provided by Carlisle to the Group at no charge constituted remuneration in-kind and evidenced a financial relationship arrangement under the Stark Law;
(2) No written agreement set forth the pain management relationship because the pain clinic was substantively different from inpatient anesthesia services addressed by the 1992 contract; and
(3) Even if the 1992 contract was construed to apply to the pain management relationship, the agreement did not contemplate the provision of free office space, equipment and staff provided at the pain center. Therefore, the 1992 agreement did not specify the compensation to be paid over the term of the arrangement, as required by the personal services exception.
The Court acknowledged that, although arrangements between anesthesiologists and hospitals typically do not raise Stark or AKS concerns because anesthesiologists do not refer patients to the hospital, physicians seeing patients in a pain management clinic may refer patients to the hospital for tests or other procedures. After the Group expanded into providing pain management services, its members developed their own clientele capable of being referred to the hospital; thus, the Group was no longer a simple efficiency, but a referral source with a compensation relationship with the hospital.
Kosenske serves as a reminder of the importance of adequately documenting all relationships between hospitals and physicians and the need to keep such documentation current. This case also highlights that supplying space, equipment and personnel by a hospital to its hospital-based service provider is not per se illegal; rather, the value of the space, equipment and personnel must be factored into an analysis of whether the overall arrangement is consistent with fair market value.
