Florida Hospital Settles for $85 Million in Closely Watched Stark Law Case

The popularity of “profit sharing” arrangements that reward physician groups for keeping costs down and quality up added to interest in the a Florida Stark law case that was partially settled this week.

Halifax Health, a 654-bed not-for-profit hospital in Daytona Beach, agreed to pay the U.S. Department of Justice $85 million to settle allegations that an arrangement the hospital had entered into with six physicians from the Medical Oncology Practice Management Group violated Stark laws.

The Stark laws prohibit hospitals from paying kickbacks to physicians in return for the physicians sending their Medicare patients to the hospital for treatment, and the arrangement with the Medical Oncology Practice Management Group was indeed suspicious. According to the government’s suit, in 2005, the group became eligible to share in the hospital’s incentive compensation (bonus) pool, which was equal to 15 percent of the operating margin for the hospital’s medical oncology program. The group then distributed the amount the hospital gave it for bonuses among its six oncologists based on their amount of work they did at the hospital and not on the quality of the work they did as defined by objective measures.

The Stark laws allow for an exception when there is a bona fide employment relationship, but the government contends that the hospital’s claim to this exception was invalidated by the bonuses being tied to how many patients each oncologist referred to the hospital.

The arrangement went on for three years before Elin Baklid-Kunz, 47, of Enterprise, Fla., a former Halifax Hospital employee involved in compliance and revenue services, filed a whistleblower (qui tam) suit against the hospital. The government joined the case in 2011.

The settlement does not resolve allegations that the hospital also increased payments by admitting patients that should have been treated as outpatients only.  Atlanta lawyer Marlan Wilbanks, JD, who represents Baklid-Kunz, told Reuters that those issues are set for trial in July and could carry liabilities of up to $400 million, including $70 million in Medicare losses and penalties.

Halifax Health’s 2013 financial statement, posted on its website, put its total assets at a little over $955 million. However, the government was seeking damages in excess of $1 billion.

In its 2013 financial report, Halifax Health’s leaders said that “any attempts to negotiate a settlement prior to trial would be strictly for the purpose of minimizing the legal expenses associated with defending this claim, and not an admission of wrongdoing by the Medical Center.”

According to Halifax’s financials, it had paid more than $16 million to outside firms to assist in its defense since the start of the suit. Half that amount was spent just in the fiscal year ended September 30, 2013.

Between its legal costs and the potential bankruptcy it might endure if it lost, it is perhaps unsurprising that Halifax settled.