On August 7, 2014, Judge Castel of the Southern District of New York dismissed a False Claims Act (“FCA”) complaint that was based primarily on allegations that the defendant Hospital improperly focused on referral revenue in its physician compensation decisions. The Court insisted that an FCA complaint must set forth specific facts supporting the allegations regarding the impropriety of the payments and at least representative actual claims submitted.

The action was commenced in 2007 and remained under seal for almost seven years while the United States and the State of New York investigated the allegations. The United States and State of New York declined to pursue the matter in June 2013. The whistleblower that commenced the action then elected to proceed with the litigation without the government’s assistance seeking over $2 billion in damages and penalties.

The Court held that an FCA complaint that merely describes a fraudulent scheme does not satisfy Federal Rule of Civil Procedure 9(b). Rather, an FCA complaint must set forth facts sufficient to raise a plausible inference that false claims were submitted and specifically identify at least examples of such false claims that were submitted for payment. (The Second Circuit Court of Appeals has not decided whether a FCA complaint must identify examples of allegedly false claims, and other Circuits are divided on the issue. District Courts in the Second Circuit have also reached conflicting results.)

Perhaps more significantly, the Court also held that the mere allegations that a hospital paid a physician more than the physician generated in revenue or that it took referral revenue into consideration is not sufficient to state a claim that the hospital’s payments to the physician violated the FCA through underlying violations of the Anti-Kickback Statute and the physician self-referral law (the “Stark Law”). Rather, the Court explained that a hospital may take into account a physician’s “overall worth to the hospital” in making compensation decisions.

In sum, the Court’s thoughtful and well-reasoned decision is an important development in this area of the law.

Edward S. Kornreich, Sigal P. Mandelker, and Roger A. Cohen of Proskauer represented the defendant Hospital with assistance from Proskauer lawyers Yafang Deng, Jessica Heimler, and Andrew Merten.

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Photo of Edward S. Kornreich Edward S. Kornreich

Past long-standing chair of Proskauer’s Health Care Department, Ed Kornreich is a recognized authority on the legal, regulatory and business issues related to health care services.

Areas of Concentration

Ed works primarily on health care transactions, regulatory compliance, health care payment and governance…

Past long-standing chair of Proskauer’s Health Care Department, Ed Kornreich is a recognized authority on the legal, regulatory and business issues related to health care services.

Areas of Concentration

Ed works primarily on health care transactions, regulatory compliance, health care payment and governance issues for varied providers (both for-profit and not-for-profit), vendors, GPOs, distributors and entrepreneurs. His approach combines sensitivity to meeting regulatory business goals with a comprehensive and realistic assessment of the health care environment, and he is particularly experienced in dealing with the complex issues related to integrated health care systems.

Industry Experience

After working for the Legal Aid Society, Ed entered private practice, where he helped represent a major public hospital corporation in a series of reimbursement disputes with the state and federal governments, and counseled New York area hospitals and nursing homes on reimbursement and operational issues. Thereafter, Ed served as General Counsel of St. Luke’s-Roosevelt Hospital Center, one of the largest teaching hospitals in New York. After leaving St. Luke’s-Roosevelt Hospital Center, Ed joined Proskauer as a Partner in 1990.

Thought Leadership

Ed frequently writes and lectures on Medicare and Medicaid reimbursement, health care integration, not-for-profit law and corporate governance issues, and the application of federal and state anti-kickback and “Stark” laws to health care transactions.