A federal judge has ruled that Bradford Regional Medical Center violated federal law by submitting claims to Medicare based upon referrals from physicians with whom the hospital had a prohibited financial relationship. As a result, damages owed by the hospital could exceed $20 million plus millions of dollars more in False Claims Act mandatory penalties.

The primary issue in the lawsuit concerns an arrangement under which Bradford Regional Medical Center (BRMC), located in Bradford, Pa., subleased a nuclear imaging camera from V&S Medical Associates in Bradford, Pa.

V&S used the camera to perform diagnostic tests in-house, rather than referring patients to the hospital, which had its own nuclear camera. As part of the sublease arrangement, BRMC agreed to pay V&S $23,655 per month, purportedly for certain "noncompete" agreements by V&S and its partners Peter Vaccaro, MD, and Kamren Saleh, MD.

On Nov. 10, Judge Maurice B. Cohill, Jr., federal judge for the U.S. District Court for the Western District of Pennsylvania, issued an opinion, maintaining that the hospital's relationship with Vaccaro, Saleh and V&S Medical Associates violated the federal Stark Act, which generally prohibits hospitals from submitting claims to Medicare based on referrals from physicians with whom the hospital has a financial relationship. 

In addition, the court held that a jury will have to determine whether the relationship also violated the federal Anti-Kickback Statute, which prohibits hospitals from paying physicians for Medicare referrals.

The ruling was issued in a whistleblower lawsuit filed under the federal False Claims Act, which allows individuals, known as relators, to bring an action on behalf of the government to recover losses caused by fraud.

"This case is especially important because it targets fraudulent and abusive practices that drive up the cost of healthcare," said Andrew M. Stone of Pittsburgh, an attorney for the relators. "BRMC pursued an ill-conceived and illegal strategy to control cardiac services in the community," Stone said.

The lawsuit contends that the arrangement was not in fact a bona fide sublease of equipment needed by the hospital, but was rather a disguised attempt to pay Vaccaro and Saleh for referrals. 

In his order, the judge agreed that the purpose of the sublease arrangement "was not simply to acquire a piece of equipment." Rather, according to the order, BRMC's CEO, George Leonhardt, "expected BRMC would get substantial referrals from Vaccaro and Saleh as a result of the sublease," and stated "that he would not have entered into the sublease arrangement if he knew that BRMC would not receive any referrals from Vaccaro and Saleh."

Indeed, the order stated that "BRMC did not believe that the [nuclear] camera was suited to its long-term needs, and knew that it would shortly replace the [nuclear] camera with another camera." The nuclear camera was never relocated to the hospital, but remained in V&S's office, and was not used for nuclear imaging tests after a few months.

The judge also found as a matter of law "that defendants have violated the Stark Act."

In addition to the Stark Act claim, the lawsuit also contends that the arrangement violated the Anti-Kickback Statute, which makes it unlawful to knowingly and willfully offer or pay any remuneration for referrals of services covered by a federal healthcare program. The court held that a jury must decide whether the defendants possessed the necessary intent to be liable under the Anti-Kickback Statute. However, the judge stated that "[i]n light of the record evidence, defendants will have a difficult challenge to prove to the fact-finder that they did not have the requisite intent."

According to documents filed in the lawsuit, V&S made thousands of inpatient and outpatient referrals to the hospital during the relevant time period, resulting in several million dollars of Medicare payments. According to Stone, based on claims already identified in the record, treble damages could be in excess of $20 million. "In addition," he said, "the False Claims Act imposes mandatory penalties of between $5,500 and $11,000 for each false claim, and there are many thousands of claims at issue."