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U.S. EX REL PERALES v. ST. MARGARET'S HOSP.

February 7, 2003

UNITED STATES OF AMERICA EX REL., CONSTANTINO PERALES, M.D., PLAINTIFFS,
V.
ST. MARGARET'S HOSPITAL, AN ILLINOIS NOT FOR PROFIT CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Mihm, District Judge

    ORDER

This matter is now before the Court on Plaintiff's Motion for Partial Summary Judgment (False Claims Relating to Practice Purchases) and numerous Motions for Partial Summary Judgment by Defendant. For the reasons set forth below, Plaintiff's Motion for Partial Summary Judgment [#194] is DENIED. Defendant's Motion for Summary Judgment Nos. 1, 2, 3, 4, 5, 6, 7, and 8 [#185, #186, #187, #188, #189, #190, #191, and #192] are GRANTED.

FACTUAL BACKGROUND

Plaintiff, Constantino Perales ("Perales"), is a licensed physician in the State of Illinois and is currently practicing in the area of Occupational Medicine.*fn1 He previously had a contractual relationship with Defendant, St. Margaret's Hospital ("SMH"). SMH is located in Spring Valley, Illinois, and is engaged in providing health care services to the public. However, SMH also owns six community health centers in the surrounding area.

In late 1994, a dispute arose between Perales and SMH over payment allegedly due from Perales' practice. This dispute ultimately resulted in state court litigation. On October 21, 1998, Perales filed this action seeking to recover damages and civil penalties against SMH pursuant to the False Claims Act ("FCA"), 31 U.S.C. § 3729 and 3730, based on his allegations that SMH submitted fraudulent claims to the federal government for payment.

In part, Perales alleges that after 1995, SMH purchased a number of private medical practices and then immediately employed the selling physician or placed him/her under contract for services in the same practice. At various times, SMH signed contracts to purchase the medical practice of various physicians, including Dr. Shawn Bailey, Dr. Alejandro Bernal, Dr. Silvio Davito, Dr. Ramon Inciong, Dr. L. P. Lukancic, Dr. David Schlagheck, Dr. Vinai Pira, Dr. E.R. Ressurreccion, Jr., Dr. A.J. Sellett, and Dr. Margaret Stanmar (hereinafter referred to collectively as the "Selling Physicians"). With the exception of Dr. Stanmar, who died shortly after the purchase of her practice, each of the Selling Physicians became an employee of SMH for at least a year following the purchase; some of the Selling Physicians continue to be employed by SMH. In this employment capacity, each of the Selling Physicians referred patients to and ordered services from SMH.

Perales contends that the prices paid to the Selling Physicians were above fair market value and did not exclude the value to SMH of an expected stream of referrals and orders following the sale. Perales claims that the future referrals and orders violated both the Stark Statute's prohibition on referrals by physicians in financial relationships with a provider for designated health services and the Antikickback Statute's prohibition on offering and payment as inducement for the referral of health care services that may be paid for by federal health programs. Perales therefore maintains that because SMH did not disclose the existence of prohibited referrals in making claims for payment to the federal government while at the same time certifying the truth, accuracy, completeness, and correctness of its claims, those claims constituted false claims under the FCA.

Perales has now moved for partial summary judgment on this issue, and SMH has filed multiple motions for partial summary judgment. The matters are fully briefed, and this Order follows.

LEGAL STANDARD

A motion for summary judgment will be granted where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party has the responsibility of informing the Court of portions of the record or affidavits that demonstrate the absence of a triable issue. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2552 (1986). The moving party may meet its burden of showing an absence of material facts by demonstrating "that there is an absence of evidence to support the non-moving party's case." Id. at 2553. Any doubt as to the existence of a genuine issue for trial is resolved against the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513 (1986); Cain v. Lane, 857 F.2d 1139, 1142 (7th Cir. 1988).

If the moving party meets its burden, the non-moving party then has the burden of presenting specific facts to show that there is a genuine issue of material fact. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56 (1986). Federal Rule of Civil Procedure 56(e) requires the non-moving party to go beyond the pleadings and produce evidence of a genuine issue for trial. Celotex Corp., 106 S.Ct. at 2553. This Court must then determine whether there is a need for trial — whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may be reasonably resolved in favor of either party. Anderson, 106 S.Ct. at 2511.

DISCUSSION

This case is brought pursuant to the FCA. The FCA provides both criminal and civil penalties for presenting a false claim for payment against the Government. United States v. Bank of Farmington, 166 F.3d 853, 857 (7th Cir. 1999). The terms of the FCA establish liability for any person who:

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval; (2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government; (3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid . . .

31 U.S.C. § 3729(a). It also includes a qui tam provision that allows a private party to bring suit on behalf of the United States to allege fraud upon the United States; however, the United States retains an interest in the qui tam relator's suit. If the claim is proven, this party will receive a percentage of the recovery. Bank of Farmington, 166 F.3d at 857-58.

In an attempt to identify purportedly false claims for purposes of bringing this FCA action, Perales has attempted to derive falsity from claims submitted pursuant to allegedly illegal referral relationships in violation of the Antikickback Statute and Stark statute. The Antikickback Statute (the "AKS"), 42 U.S.C. § 1320a-7b, is a criminal statute which makes it a felony for:

whoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person — (A) to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under subchapter XVIII of this chapter or a State health care program, or (B) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under subchapter XVIII of this chapter or a State health care program. . . .

42 U.S.C. § 1320a-7b(b)(2). Thus, the AKS focuses on the circumstances surrounding the referrals themselves.

The Stark Act is designed to prevent abusive self-referrals. Under the Stark Act, a physician is prohibited from making any referral to a provider of designated health services if the physician has a "financial relationship" with the provider, unless an exception applies. 42 U.S.C. § 1395nn(a). Financial relationship is further defined as a compensation arrangement between the physician and the provider, and a compensation arrangement is defined as "any arrangement involving any remuneration between a physician (or immediate family member of such physician) and an entity other than an arrangement involving only remuneration described in subparagraph (C)." 42 U.S.C. § 1395nn(a)(2) and (h)(1)(A). Under this statute, a healthcare provider is prohibited from submitting claims to government payors for services rendered to patients referred in violation of the statute, and government payors are prohibited from paying such claims. 42 U.S.C. § 1395(g)(1).

I. Perales' Motion for Partial Summary Judgment and SMH's Motion No. 3

Perales contends that by paying more than fair market value for the practice purchases noted above, SMH paid remuneration for referrals and therefore violated the AKS and Stark. Although Perales cites several portions of the statutes and implementing regulations, these are really irrelevant unless he can establish the central premise of his argument, which is that in purchasing the practices of the Selling Physicians, SMH paid more than fair market value. SMH denies that any of the practices purchases were for more than fair market value and has filed its own motion seeking summary judgment to this effect.*fn2

As support for his claim, Perales offers a December 22, 1992, opinion letter from the Department of Health and Human Services Associate General Counsel, Office of Inspector General, to someone in the Internal Revenue Service as a standard for evaluating the fair market value concept. The letter states in relevant part:

[I]t is necessary to scrutinize the payments (including the surrounding facts and circumstances) to determine the purpose for which they have been made. As part of this undertaking, it is necessary to consider the amounts paid for the practice or as compensation to determine whether they reasonably reflect the fair market value of the practice or the services rendered, in order to determine whether such items in reality constitute remuneration for referrals. Moreover, to the extent that a payment exceeds the fair market value of the practice, or the value of the services, it can be inferred that the excess amount paid over fair market value is intended as payment for the referral of program-related business.
When considering the question of fair market value, we would note that the traditional or common methods of economic valuation do not comport with the prescriptions of the antikickback statute. Items ordinarily considered in determining the fair market value may be expressly barred by the antikickback statutes' prohibition against payments for referrals. . . . The fact that a buyer in a position to benefit from referrals is willing to pay a particular price may only be a reflection of the value of the referral stream that is likely to result from the purchase.

The Court is mindful that while opinion letters such as this may be considered as persuasive precedent, opinion letters lack the force of law, are not entitled to Chevron-style deference, and are not binding in this proceeding. Christensen v. Harris County, 529 U.S. 576, 120 S.Ct. 1655, 1662 (2000). That being said, while it is clear that a hospital's acquisition of a physician's practice could implicate the AKS or Stark, the opinion letter does not state that the circumstances discussed automatically result in a per se violation. To the contrary, the opinion expressly indicates that an examination of the facts and circumstances surrounding the purchase must be made on a case by case basis.

In support of his argument that the practice purchases exceeded their fair market value, Perales cites to the deposition of its expert witness, Robert Keene ("Keene"). After reviewing the representative practice evaluation that was produced in discovery, Keene noted that the report included a projected growth rate for practice revenue of 30% over two years. He then testified that "My comment here is simply that I have not ever seen a practice that was charging 30 percent below what they would be paid a service if they billed . . . just that item." (Keene Dep. at 72.) He then acknowledged that other factors such as finding things that weren't billed for, improper coding, neglecting the collection of accounts receivable, and other factors could influence this factor and could have been included in the calculation. Id. at 71-73.

Initially, the Court notes that nowhere in the above cited portion of the deposition does Keene condemn the practice evaluation or offer any opinion that the evaluation resulted in the payment of more than fair market value to the Selling Physicians. In fact, Keene stated that he did not review the fee schedule and had no opinion about whether the 30% figure was inaccurate in any way. (Keene Dep. at 73.) When taken in context, the statement Perales relies on is essentially non-probative of any material fact in issue. In fact, Keene repeatedly testified that he found nothing in the practice valuation reports about valuing referrals for the hospital, that he had no evidence that any money was paid based on the report for referrals to the hospital, and that he had no problem at all with the methodology that was used in the reports.

From this non-probative statement, Perales then jumps to the unsupported conclusion that had SMH "paid what the valuation stated, the payment would thus have been above fair market value and have acted as an inducement to make referrals." This is utterly insufficient to meet his burden as the movant to demonstrate that there are no genuine issues of material fact in issue with respect to the practice purchases, particularly in light of the fact that SMH has introduced evidence from the drafter of the practice evaluation explaining that the 30% growth rate was specific to that particular practice because that particular physician was not pursuing accounts receivable and was charging prices that were below the industry standard, both of which were identified by Keene as legitimate factors that could be considered in this area. The Court has stated before and will now state again, Perales' unsupported beliefs and conjecture, no matter how ardently asserted, do not rise to the level of proof necessary to survive an opponent's motion for summary judgment, much less warrant the granting of his own dispositive motion.

Perales next points to the deposition of Tim Muntz ("Muntz"), SMH's CEO, that was apparently taken in conjunction with another court case. Perales cites to page 37, lines 11-14 for the proposition that SMH purchased these practices to maintain physician allegiance to the hospital, but the text cited supports no such proposition. Similarly, he identifies portions of pages 43, 44, 47, and 48 for the proposition that purchasing the practices was a way to assure that the business it was getting from the physicians was not going to go elsewhere. Again, the cited references are not supportive of this assertion, leaving his assertions fundamentally unsupported.*fn3

During his deposition, Muntz did testify that where a physician had always used more than one hospital, "part of our planning was that some of that allegiance could switch to St. Margaret's in that process." (Muntz Dep. at 42.) When the text surrounding this quotation is also considered, it is clear that Muntz is speaking in conjunction with retaining that physician as an employee after a practice purchase and not just with respect to a practice purchase in and of itself. He also stated that in purchasing a practice, SMH wanted to obtain the "[physician] compliment (sic) that is necessary to be of service in the way that we — to maintain the level of services that we have built up," which is certainly suggestive of the desire to retain the physician's services in the area in order to compete with other area hospitals. (Muntz Dep. at 33.) While Muntz acknowledged that a desire to retain patient flow from doctors that might take their patients to another hospital by affiliating with a competitor was also a consideration, SMH's internal thought process that patients might keep coming to SMH after a practice purchase and employment situation is a far cry from an admission or even circumstantial evidence that SMH paid for the value of future referrals in purchasing those practices. (Muntz Dep. at 46.)

Perales then states that SMH paid more for non-compete agreements with Selling Physicians than it paid to physicians who were already its employees. With all due respect, so what? Physicians with established practices have more of an ability to compete with other hospitals than physicians who have always been employees of the hospital and whose patients have therefore also been clients of the hospital. There is nothing logically sinister about this fact, and Perales has produced no facts casting any legitimate suspicion in this respect. More importantly, this detail, even if accepted as true, does not establish that the practice purchases were for more than fair market value.

As very aptly stated by an esteemed colleague, Judge Moran, in the Northern District of Illinois:

The Anti-Kickback Act does not prohibit hospitals from acquiring medical practices, nor does it preclude the seller-doctor from making future referrals to the buyer-hospital, provided there are no economic inducements for those referrals. To comply with the statute, the hospital must simply pay fair market value for the practice's assets.

U.S. ex rel. Obert-Hong v. Advocate Health Care, 211 F. Supp.2d 1045, 1049 (N.D.Ill. 2002).

Similarly, a hospital's purchase of a medical practice could implicate Stark's prohibition on financial relationship between referring physicians and hospitals benefitting from such referrals. However, as Judge Moran noted, "the statute contains an exception for isolated transactions. Purchasing a doctor's practice outright would seem a quintessential example." Id. at 1050. Despite allegations concerning future referrals based on an employment relationship, in the absence of evidence ...


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