Physician Employment Agreements: Potential Risks under Stark Law, Anti-Kickback Statute, False Claims Act


Healthcare employers, human resource directors, in-house counsel, and other professionals who routinely deal with contracting issues should understand that physician employment arrangements are unlike other employment contracts. Physician employment (and independent contractor) agreements pose unique and heightened risks that deserve utmost caution.

Often, providers concentrate on addressing issues of general importance (e.g., termination provisions and restrictive covenants) and those that frequently cause friction between employers and physicians (e.g., clinical contact time commitments and on-call coverage). However, unique risks arise from the potential application of a multitude of fraud and abuse laws, including:

Potential Penalties

Penalties for violating Stark, the AKS, or FCA can be devastating to providers, large and small.

Potential penalties include:

Enforcement

Only the government can enforce Stark and the AKS directly — neither statute provides private citizens with the right to enforce them through a private right of action.

However, the FCA not only provides for a private right of action (a “qui tam” case), but, if successful, the private litigant (“relator”) is entitled to receive 15%-25% of the damages awarded to the government. This significantly increases the risk of Stark or AKS enforcement through the FCA, as these cases often involve millions, tens of millions, or even hundreds of millions of dollars in alleged damages. This is a powerful incentive for individuals to become relators and for attorneys to pursue qui tam cases on the relator’s behalf. A relator can be almost anyone with knowledge of the alleged fraud but is often a current or former employee of the organization alleged to have violated the FCA through Stark or the AKS.

How real is the threat of enforcement?

In fiscal year 2018 the U.S. Department of Justice obtained more than $2.8 billion in settlements and judgments from civil fraud and abuse cases, with $2.5 billion involving the healthcare industry.

Example

How quickly can the potential damages escalate?

The oft-cited United States v. Rogan, 459 F. Supp. 2d 692 (N.D. Ill. 2006), upheld on appeal in 2008 [517 F.3d 449 (7th Cir.)], provides a good example of the basic math:

This exemplifies the way damages will rapidly escalate in any FCA case based on Stark and the AKS.


Jackson Lewis P.C. © 2024
National Law Review, Volumess IX, Number 350