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After an unexpected renewal of hostilities between the U.S. Department of Justice and two of the nation’s leading hospital chains, corporate health care lawyers are bracing for a possible new wave of costly health care fraud litigation. The latest government prosecutions draw attention to the controversial “Stark Physician Self-referral” law first enacted in 1989 as part of the Social Security Act. The law, subsequently amended in part and known as Stark I and Stark II, prohibits health care providers from billing the government for services given to patients who have been referred by doctors with a financial stake in the provider, such as a hospital. Unlike the closely related federal Anti-Kickback Act, the Stark laws so far have only been used in civil, not criminal, prosecutions. Still, legal experts say, both anti-fraud statutes can be enforced by government lawyers in the same lawsuit. And, now, it’s feared, that’s what is going to happen with increasing frequency. “Justice is poised” for the first time to prosecute systematically suspected Stark violations and to do so with a “vengeance,” says F. Lisa Murtha, chief compliance officer for Children’s Hospital of Philadelphia and treasurer of the Health Care Compliance Association based in that city. “Bolder, smarter, more creative,” is how Christopher G. Janney, a partner at Washington, D.C.’s ShawPittman, describes the anticipated Stark investigations. On March 16, the defense lawyers say, Justice Department lawyers intervened in eight pending whistleblower lawsuits seeking “hundreds of millions of dollars” in damages against Nashville, Tenn.’s HCA-The Healthcare Co. Among other things, HCA allegedly submitted false claims to the government involving patients referred to its hospitals by physicians who received kickbacks and “other financial incentives.” DOJ’s decision to come to the aid of the whistleblowers in a Washington federal courtroom was made after ongoing talks with HCA broke down and even though the company had recently settled other civil and criminal fraud charges for $840 million. Similarly, on Feb. 26, Justice lawyers intervened in a Miami whistleblower lawsuit against Santa Barbara, Calif.-based Tenet Healthcare Corp., even though that company, then known as National Medical Enterprises, paid $380 million to settle federal and state fraud charges in 1994. The main Stark allegation against Tenet is that one of its hospitals in Fort Lauderdale, Fla., during the mid-1990s had paid affiliated physicians “in excess of fair market value.” Lawyers for HCA, Tenet and the Justice Department declined to comment. ‘SHAM’ RELATIONSHIPS Prior to these cases, the Justice Department had already joined about 50 pending civil lawsuits against health care providers in which whistleblowers alleged Stark violations, but most of these cases involved extreme abuse. June Gibbs Brown, inspector general for the U.S. Department of Health & Human Services, called the “vast majority” of these investigations and lawsuits outright “sham compensation relationships” in a Sept. 29 letter to Rep. Pete Stark, D-Calif., who spearheaded the self-referral reform effort. And Kevin McAnaney, a high-ranking lawyer for the Office of Inspector General, which investigates government fraud allegations, insists that the government’s enforcement policy to sue only the worst Stark law offenders has not changed since Stark II took effect in January 1995. James Sheehan, chief of the U.S. Attorney’s civil division in Philadelphia, counsels a “wait and see” posture until new enforcement “priorities,” if any, are set later this year by the yet-to-be appointed chief of the DOJ’s civil division in Washington. Regardless, says a Justice Department spokesman, Acting Assistant Attorney General Stuart E. Schiffer, the chief of the department’s commercial litigation branch, is expected to continue to oversee most civil health care fraud enforcement activities. An increasingly nervous corporate defense bar sees mixed signals in recent events. For instance, it was widely assumed that the Bush Administration would be less confrontational with the health care industry — which had been complaining about overzealous anti-fraud efforts by government lawyers in the Clinton Administration — when it recently nominated Michael Chertoff, HCA’s lead outside counsel, to head the Justice Department’s criminal division. Also, the Health Care Financing Administration (HCFA), which oversees the Medicare and Medicaid programs, issued “clarifying” final regulations on Jan. 4 dealing largely with exceptions to the Stark laws’ general ban on self-referrals. Under those much-praised final rules, a new three-part test appears to allow hospitals to be more confident about paying a doctor belonging to a physician group for services rendered to its Medicare patients. “You’d have to be a Grinch not to see more good than bad here,” says Mark Gallant, who heads the health law practice at Philadelphia’s Cozen and O’Connor and who is a former senior attorney with both HCFA and the Justice Department. But, then, says Murtha, Justice intervened in the HCA and Tenet whistleblower suits and seemed to say that “Stark litigation was going to be very much a part of our lives.” Stark litigation will only accelerate later this year when HCFA issues promised additional final Stark rules that ostensibly “clarify” when sanctions can be imposed, says Gadi Weinrich, head of ShawPittman’s health care fraud practice group. Ironically, the additional clarity provided by HCFA’s latest Stark rules may also fuel more False Claims Act litigation. “With the more definitive rules,” says Paul E. Kalb, head of Sidley & Austin’s health care practices in Chicago and Washington, D.C., “government lawyers will feel more comfortable joining” whistleblower suits. Edward Kornreich, a partner in New York’s Proskauer Rose, says that this new clarity can make it harder for physicians and hospitals to “hide behind” an ignorance-of-the-law defense. Sanford V. Teplitzky, chairman of Ober, Kaler, Grimes & Shriver’s health law department in Baltimore, also says that “there remain many gray areas” among the still complex Stark rules that even the most compliance-conscious companies will inevitably violate. The risks of doing so are steep. HCA and Tenet are not just suddenly at risk of having to disgorge significant revenues received from referrals that are allegedly prohibited under the Stark laws, some of which go back to 1995 or earlier. Because the companies are also being sued under the False Claims Act by former employees — which is usually the case — they are exposed to additional fines amounting to three times the damages caused, as well as separate penalties of $5,000 to $10,000 per incident. “The Tenet and HCA cases remind us,” concludes Murtha, that Justice veterans are taking Stark violations more seriously than ever and will prosecute what they think are the worst offenders to the “fullest extent possible.”

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