Hospital Settles Whistleblower Stark Act Case for $7 Million

A recent multi-million dollar settlement of alleged fraudulent billing claims against a hospital highlights the rise of whistleblower activity in the healthcare industry. 

In 2011, All Children’s Health System (“All Children’s” or “Hospital”) in St. Petersburg, Florida was sued by an alleged whistleblower and former director of physician staffing employed by an affiliate of All Children's.  The employee had alleged that All Children’s excessive compensation of its employed physicians violated the anti-kickback Stark Act1 and, as a result, the Hospital’s submissions for Medicaid reimbursement were fraudulent in violation of the False Claims Act (FCA). 

The United States declined to intervene in the action, and in April 2013, a Florida federal judge granted All Children's motion to dismiss the complaint, agreeing that the employee failed to specifically allege how the alleged Stark Act violation defrauded the government.  The court observed that “removed from the billing process of [All Children’s] and the referral practices of the accused physicians, [the employee] lacks the indicia of reliability that might otherwise excuse her failure to identify specific false claims or certifications.” Although the court rejected the employee’s argument that the allegedly fraudulent physician compensation system rendered all of its Medicaid claims inherently false and eliminated her need to allege specific false claims, the judge did give her leave to file an amended complaint.

The employee’s amended complaint specifically sought to tie the Stark Act violations to the fraudulent government billings.  In the amended pleading, the alleged excessive payments to physicians were outlined in great detail, including claims that All Children’s hired a pediatric surgeon with a base salary “nearly $200,000 more than the median fair market value salary for a pediatric general surgeon of his experience, and $80,000 more than the 90th percentile” and that the Hospital used “side letters” guaranteeing physicians additional compensation or benefits that were not part of their main employment agreements.  According to the employee, “The plan was simple — pay whatever it takes to guarantee that the medical procedures, ancillary services and referrals were directed to All Children’s Hospital. Defendants hired physicians and acquired private medical practices at any cost, disregarding statutory and regulatory limitations.”  These “false claims” were allegedly “submitted to the Florida Agency for Health Care Administration for reimbursement for services rendered as a result of improper referrals induced by Defendants’ wrongful conduct...”

The court denied All Children’s motion to dismiss the amended complaint, and scheduled a trial for April 2015.  Shortly after the court let the complaint stand, All Children's agreed to pay $7 million to settle the lawsuit.  On April 15, 2014, the judge approved the settlement which includes $4 million for the U.S. and $3 million for the State of Florida.  The whistleblower will receive a 26.5% share of the total recovery, according to her attorneys, which amounts to $1.86 million.

This case is significant in several respects. First, it provides a roadmap for pleading fraud with the required specificity in cases involving an alleged Stark Act violation.  Second, this settlement is one in an ever-growing trend of significant whistleblower/False Claim cases against healthcare systems.   

1 In general, the Stark Act: (a) prohibits a physician from making referrals for certain designated health services reimbursed by Medicare if the physician (or an immediate family member) has a financial relationship (ownership, investment, or compensation) with that entity; (b) prohibits the entity from presenting those claims for referred services to Medicare; and (c) creates certain exceptions to the preceding where the existence of the financial relationship does not pose a risk of program or patient abuse.


Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.