Holland & Hart Healthcare Law Blog

Physician Recruitment Mutual Mistake

This is an extension to our previous post on Physician Recruitment Fraud (January 24, 2007).  There is more and more litigation surfacing between hospitals and recruited physicians when hospitals lure physicians into a new startup practice in their market and the physician is unable to sustain a viable practice in the new community.  The physician is forced to move on to earn a livelihood and the hospital for regulatory reasons feels it is obligated to enforce its contractual obligation with the physician for the repayment of the money if the physician leaves before the forgiveness period (typically 3 years). The physician did not sign on for serving in an Americorp or Peace corps lifestyle and raises a number of defenses including fraud in the inducement and mutual mistake.

Health Law Lawyer Thinking Outside Box Ends Up In One.

After reviewing many official advisory opinions from the Department of Health and Human Services Office of Inspector General, one might be forgiven an occasional fantasy that one might be able to do it better.  Rare is it that one actually has the opportunity to act on the impulse.  On November 13, 2006, the United States Attorney's Office for the Western District of Michigan issued a press release announcing the successful apprehension and prosecution of Michigan health law attorney, Philip Stoffan for mail fraud in apparently forging is own advisory opinion on a mock up of HHS-OIG stationery.  Mr. Stoffan's efforts were in support of an anticipated joint venture between his client, a physician group and a physician therapy group. No doubt the physician group was negotiating a turn key arrangement with the physical therapy group to provide therapy the group's patients to be billed for by the group. Some touchy issues there.

OIG CARVES UP “CARVE OUTS”

One of the devices frequently used by physician-Durable Medical Equipment (“DME”) supplier ventures to avoid Stark Law and federal anti-kickback statute exposure in business arrangements with physicians is to “carve out” federal program beneficiaries from the arrangements so that federal jurisdiction would not apply to the proposed arrangement. Assuming the absence of those pesky mini-Stark or mini-anti-kickback statutes extant in some states, “designated health services providers” would be free to introduce all sorts of financial incentives to physicians to refer patients to them for services, equipment and supplies.  In OIG Advisory Opinion No. 06-2, the HSS Office Inspector General issued yet another in a series of warnings that for a “carve out” of federal program beneficiaries to work there must be a complete carve out with no federal program referrals whatsoever in play.

JOINT VENTURE LIMITED LIABILITY COMPANY CAN SUE MEMBER’S PARENT WITHOUT CORPORATE AUTHORITY IN KENTUCKY

Lourdes Medical Pavilion, L.L.C. (“LMP”) recently found legs in its breach of non-competition agreement lawsuit against Catholic Healthcare Partner’s, Inc. (“CHP”), the “parent” company of LMP member.  Lourdes Hospital, Inc., when a U.S. District Court in Kentucky denied CHP’s Motion for Summary Judgment which argued that the suit should be dismissed because of the absence of corporate authority for LMP to bring the suit.  In Lourdes Medical Pavilion, L.L.C. v. Catholic Healthcare Partners, Inc., 2006 Westlaw 753080 (W.D. Ky.), the Court ruled that a provision in the Kentucky Limited Liability Company Act, (the “Act”)  KRS § 275.340 providing that “lack of authority of a member or manager to file suit on behalf of an LLC may not be used as a defense to an action filed by the LLC,” trumped provisions in the LMP Operating Agreement requiring majority approval to commence litigation.

Does it walk like a duck? Provider joint ventures and federal fraud enforcement.

In April of 2003 the HHS Office of Inspector General ("OIG") issued a special advisory opinion regarding what it describes as questionable contractual joint venture arrangements under the federal anti-kickback statute, section 1128 (b) of the Social Security Act. The principal concerns of the statute are the inducement of referrals that can (1) distort medical decision making; (2) cause over-utilization; (3) increase costs to federal healthcare programs; and (4)result in unfair competition by freezing and competitors who are un-willing to pay kickbacks.

Pathology Joint Venture Opinion Underscores Differences in Stark and Anti-kickback Statute Compliance.

Last month the Office of Inspector General issued OIG Advisory Opinion No. 04-17 concerning a proposed pathology joint venture whereby a company affiliated with an operating pathology laboratory would undertake to set up "turn key" pathology laboratories for physician groups specializing in urology, gastro-interology and dermatology. The venture anticipated that up to five separate and fully functioning laboratories would be set up in a single office building with pathologists and technical personnel floating from one to another.

OIG "JOINT VENTURE" ADVISORY OPINION NO. 03-12

On May 29, 2003, the HHS Office of Inspector General posted its advisory opinion on a proposed joint venture between a hospital and a radiology group to operate an ambulatory MRI facility where the radiological group would have an exclusive agreement to provide radiology services to the facility. The OIG determined the proposed transaction would not result in enforcement activity under the Stark or the federal anti-kickback statutes because of the referral limitations, practical and self-imposed, that the venturers reported to the OIG.