Third Circuit Revises Prior Decision Removing Opinion that Simply Alleging Physician Productivity-Based Compensation May be Sufficient to Support a False Claims Act Complaint
In United States ex rel. Bookwalter v. UPMC, the relators alleged that a number of neurosurgeons employed by the University of Pittsburgh Medical Center, and the Medical Center, submitted false claims for both physician and hospital services that were related to compensation arrangements that the surgeons had with the Medical Center. Specifically, the surgeons’ contracts provided for a base salary and an annual Work Unit (wRVU) quota. If the surgeon exceeded his quota, then he would be paid a $45 bonus for every extra Work Unit. However, if the surgeon failed to meet his quota, his future base salary could be lowered.
The government settled the claims as related to physician services for $2.5 million and declined to intervene as to the hospital services aspect of the complaint. The relators chose to proceed, but the district court dismissed their complaint for failure to state a claim. In a September 2019 ruling, the Third Circuit reversed, holding that the relators’ complaint did sufficiently state a claim for violation of the False Claims Act.
The Third Circuit’s September opinion in UPMC caused concern for hospitals and health systems because it suggested that the mere allegation that a surgeon is paid productivity-based compensation is enough to survive a motion to dismiss a Stark Law-based FCA complaint because the amount of productivity-based compensation paid to a surgeon employed by the hospital arguably correlates with the volume of the surgeon’s referrals for inpatient hospital services.
But, on December 20, 2019, the Third Circuit granted a petition for rehearing and vacated its original decision. The revised decision does not contain the opinion that a relator could sufficiently allege a Stark Law and FCA violation by claiming that an employed physician’s compensation for personally-performed services correlated with the volume or value of his referrals to the hospital for corresponding hospital services. The revised opinion explicitly declined to address the meaning of whether compensation impermissibly “varies with” the volume of value of referrals if there is merely a correlation between the compensation and the referrals, as opposed to a causal relationship. Instead, the court focused on whether the compensation arrangement “takes into account” referrals, finding that the “surgeons’ suspiciously high compensation suggests causation.”
In the revised opinion, the court found that the relators’ complaint sufficiently stated a claim because it included additional, specific facts (assumed true for purposes of assessing the complaint) that made it plausible that the surgeons’ pay far exceeded their fair market value. Those facts were that (1) some surgeons’ pay exceeded their collections, (2) many surgeons’ pay exceeded the 90th percentile of neurosurgeons nationwide, (3) many surgeons generated Work Units far above industry norms, (4) the surgeons’ bonus per Work Unit exceeded what the defendants collected on most of those Work Units, and (5) the government alleged in its settlement agreement that the Medical Center had fraudulently inflated the surgeons’ Work Units.
The revised opinion does ease some concern that a hospital may run afoul of the Stark Law and FCA simply with a physician employment agreement containing a productivity bonus for personally-performed services. However, the court still found that relators sufficiently alleged a claim and allowed the lawsuit to proceed. This highlights the importance of ensuring that compensation arrangements with physicians are for fair market value and are commercially reasonable.
- Aaron M. Danzig