United States Ex Rel. Singh v. Bradford Regional Medical Center

Citations: 752 F. Supp. 2d 602; 2010 U.S. Dist. LEXIS 119355; 2010 WL 4687739Docket: Civil 04-186

Court: District Court, W.D. Pennsylvania; November 10, 2010; Federal District Court

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Dilbagh Singh, M.D. and Paul Kirsch, M.D., along with V. Rao Nadella, M.D. and Martin Jacobs, M.D., initiated a qui tam lawsuit under the federal False Claims Act against Bradford Regional Medical Center (BRMC), V. S Medical Associates, LLC, and doctors Peter Vaccaro, M.D. and Kamran Saleh, M.D. The plaintiffs allege that the defendants submitted false claims to Medicare due to referrals from Drs. Vaccaro and Saleh to BRMC, violating the Stark Act and the Anti-Kickback Act.

BRMC, a non-profit hospital in Bradford, Pennsylvania, previously employed Drs. Vaccaro and Saleh before they established V. S Medical Associates, LLC in April 2000. Both doctors had been significant referral sources for BRMC until 2001 when they considered acquiring a nuclear camera for in-house testing, potentially impacting BRMC's nuclear medicine revenues. The CEO of BRMC expressed concern over the financial implications of this development, particularly regarding the establishment of a cardiology service at the hospital, as key diagnostic services might shift to the physicians' offices, undermining hospital operations.

On April 3, 2001, Mr. Leonhardt expressed concerns to Drs. Vaccaro and Saleh about their plans to acquire a nuclear camera, indicating it could harm the hospital's finances and hinder cardiologist recruitment. Despite ongoing discussions regarding a potential joint venture aligned with Stark II Safe Harbor exceptions, the doctors proceeded with the acquisition. In May 2001, BRMC instituted a Policy on Physicians with Competing Financial Interests, declaring that physicians with financial ties to competing entities would be ineligible for hospital privileges. Following the acquisition, Drs. Vaccaro and Saleh altered their referral practices, performing nuclear imaging tests in their office instead of referring patients to BRMC, although their inpatient and outpatient referral practices remained unchanged. BRMC raised concerns about potential reductions in other referrals due to the new capabilities of V. S. Mr. Leonhardt informed the doctors of the Policy's implications, warning that their operations could jeopardize their hospital privileges. In December 2001, BRMC formed a committee to investigate possible violations by V. S and requested information from the doctors. In January 2002, their lawyer, Marc Raspanti, contested the Policy, claiming it violated federal anti-kickback laws and the Stark Statute by conditioning hospital privileges on referral streams. He emphasized that even minor inducements for referrals could breach anti-kickback laws and criticized the hospital's peer review process as harassment targeting doctors perceived to have financial conflicts of interest.

In May 2002, BRMC's Board determined that Drs. Saleh and Vaccaro had significant competing financial interests and informed them. On June 11, 2002, Mr. Leonhardt suggested discussions between BRMC and V.S. Medical Associates regarding a potential collaboration involving diagnostic services, which could include a joint venture. A subsequent letter on June 26 proposed that BRMC might enter an "under arrangement" relationship with a physician-owned diagnostic center, which would conduct tests and be compensated by BRMC for services rendered to hospital patients, while BRMC would handle billing. This venture aimed to provide not only nuclear imaging but also other diagnostic procedures like CTs and MRIs that V.S. was not offering at the time. Mr. Leonhardt emphasized compliance with the Stark statute in structuring the venture.

BRMC engaged Stroudwater Associates for an analysis of the proposed joint venture, leading to multiple meetings from December 2002 to March 2003 among BRMC representatives and the doctors along with their legal counsel to address disputes related to the Policy. A sublease arrangement was also considered as a resolution. In a January 17, 2003 letter, V.S.’s attorney criticized BRMC’s threats to revoke medical privileges as coercive and requested legal opinions on the nuclear camera venture's legality. On February 5, 2003, another V.S. attorney emphasized the need for an advisory opinion from the Office of the Inspector General to ensure the venture's legality.

By early 2003, discussions shifted towards a sublease of the nuclear camera from V.S. On February 11, 2003, it was noted that the existing equipment of V.S. could meet their nuclear medicine needs. Ultimately, on April 16, 2003, the parties entered into an Agreement for the sublease of the nuclear camera, while still pursuing the under arrangements venture, with Drs. Vaccaro and Saleh signing the Agreement and agreeing to its terms.

BRMC entered into a Sublease Agreement to sublease GE Equipment from V. S for providing diagnostic tests to its patients. V. S agreed not to compete with BRMC in nuclear cardiology services during the sublease term. From April to September 2003, BRMC and V. S negotiated the final sublease terms, during which V. S shared performance data with BRMC. To ensure fair market value for the sublease, BRMC commissioned an assessment from accountant Charles T. Day, who concluded the proposed payments were reasonable based on expected revenue comparisons. Although Drs. Vaccaro and Saleh were informed of the valuation but did not receive Mr. Day's report, Mr. Leonhardt relied on it and sought Board approval to proceed with the sublease. He projected a profit of $402,000 from additional referrals post-execution. The finalized Equipment Sublease, effective October 1, 2003, had a five-year term, with BRMC paying V. S $6,545 monthly for the nuclear camera and $23,655 for other rights, including a non-compete agreement. This non-compete clause prohibited Drs. Vaccaro and Saleh from operating competing facilities within thirty miles of BRMC during the joint venture's development. The parties did not seek legal advisory opinions from the Office of the Inspector General prior to the sublease. The sublease was intended to facilitate substantial patient referrals from Drs. Vaccaro and Saleh, with Mr. Leonhardt stating he would not have proceeded had he known the referrals would not materialize.

The Equipment Sublease between V. S and BRMC was established with approximately three years remaining on V. S's primary lease with GE. The Sublease required the GE camera to be moved to BRMC, but it remained at V. S's offices. BRMC paid V. S $2,500 monthly in rent, along with additional payments for administrative expenses. BRMC also incurred a billing fee of 10% on collections for tests performed with the GE camera, with V. S billing BRMC specific amounts from November 2003 to April 2004 for these services. After deductions, V. S made payments to BRMC for various months, with a net payment of $4,879.84 for October 2003 and a final invoice of $1,090.29 due in June 2004. The GE camera was utilized for nuclear tests for about five months, after which BRMC planned to replace it with a new camera as it did not meet its long-term needs. BRMC asserts that the camera was never relocated due to this anticipated replacement. Additionally, Defendants allege a separate agreement for temporary use of V. S's space and services, which Relators dispute. In April 2004, V. S leased a new CardioMD Nuclear Camera from Philips Medical Capital LLC, agreeing to repay an early termination fee to GE. BRMC guaranteed V. S's obligations under the Philips lease and reimbursed V. S for related payments. The Philips camera was not placed in V. S's office as stipulated in the lease, generating contention over the Equipment Sublease’s applicability to the Philips camera. Payments related to the Philips lease and the GE buyout were scheduled through various dates, with non-compete payments under the Equipment Sublease running until September 30, 2008.

Defendants assert that Section 5 of the Equipment Sublease addressed the implications of equipment changes or upgrades. After the early buyout of the GE lease, V. S acquired ownership of the GE camera, which was donated to Hamot Medical Center in December 2006. Dr. Saleh has been under contract with BRMC as a Case Management Medical Director at a monthly salary of $2,000 since at least January 1, 2006, and had a prior contract for an unspecified duration before that date. Additionally, since March 1, 2006, both Dr. Saleh and Dr. Vaccaro have held separate contracts with BRMC to provide internal medicine services for Bradford Recovery Systems, each earning $2,000 per month.

BRMC has submitted numerous Medicare claims for services where Drs. Vaccaro or Saleh were listed as attending physicians. Relators allege that BRMC sought to gain patient referrals for diagnostic nuclear imaging from these doctors, who previously referred patients to BRMC until they acquired their own GE nuclear camera. Following this acquisition, BRMC threatened to revoke their hospital privileges, leading to negotiations resulting in a sublease arrangement where BRMC leased the GE camera from V. S. The sublease payments included a "pass-through" amount equal to V. S’s payment obligations to GE, plus a fee for a non-compete agreement.

Relators claim this arrangement was designed to secure patient referrals unlawfully. They highlight that the GE camera remained at V. S's facility, leading BRMC to incur additional rental and operational costs, including a 10% fee for billing and collections for tests performed on the camera. The use of the GE camera ceased when V. S acquired a new Philips camera, with Philips buying out V. S’s GE lease for $200,000. BRMC guaranteed and made payments for both the GE and Philips camera leases, despite the GE camera remaining in V. S's possession until its donation. No formal written agreements exist regarding the payments for rent, the collection fee, or the lease buyout terms. Defendants maintain that their arrangement was lawful and a fair resolution to a dispute, asserting that it did not compel the doctors to refer patients to BRMC.

Defendants assert that their arrangement does not constitute a prohibited financial relationship and claim that compensation was not influenced by the volume or value of referrals from Drs. Vaccaro and Saleh. They argue that even if a financial relationship existed, it would fall under a statutory or regulatory exception. Defendants dispute Relators' portrayal of their relationship, explaining that a GE camera was at V. S's office due to delays in acquiring a new camera. They also state that a written agreement was established for the rental of V. S’s space and services, and that a Philips camera replaced the GE camera in accordance with the GE sublease provisions.

Currently, cross-motions for summary judgment are filed by Relators and Defendants. The court will deny Defendants' motions for summary judgment and grant in part and deny in part Relators' motion. Summary judgment is appropriate when evidence shows no genuine issue of material fact exists, allowing the moving party to be entitled to judgment as a matter of law, without weighing evidence or making credibility determinations.

Relators allege that Defendants violated the Stark Act and the Anti-Kickback Act by submitting Medicare claims based on referrals from physicians with whom they have a financial relationship, unless an exception applies. Falsely certifying compliance with these Acts when submitting claims to federally funded programs is actionable under the False Claims Act (FCA). The FCA imposes liability for knowingly presenting false claims or making false records to secure government payment.

Relators are seeking a legal judgment on all their claims, or alternatively, partial summary judgment on several key issues: 

1. Establishing a financial relationship between BRMC and Drs. Vaccaro and Saleh that falls under the Stark Act.
2. Arguing that none of the exceptions to the Stark Act apply to the Defendants.
3. Claiming that BRMC provided remuneration to the V. S Defendants, who accepted it as an inducement for referrals of medical services that are reimbursable under federal healthcare programs, violating the Anti-Kickback Act.
4. Asserting that none of the "safe harbor" provisions of the Anti-Kickback Act apply to the Defendants.
5. Stating that BRMC submitted claims to Medicare based on referrals from Drs. Vaccaro and Saleh, receiving payment in violation of the Stark and Anti-Kickback Acts.
6. Claiming the V. S Defendants were responsible for the submission of these claims.
7. Asserting that the Defendants acted knowingly, as defined by the False Claims Act.

In response, BRMC and the V. S Defendants are moving for summary judgment to dismiss the Complaint, arguing that:

1. No financial relationship exists between BRMC and either Dr. Vaccaro or Dr. Saleh as defined by the Stark Act.
2. If such a relationship were found, it would fall under the permitted exceptions of the Stark Act.
3. Any financial relationship does not violate the Anti-Kickback Act due to applicable safe harbor provisions.
4. BRMC did not certify compliance with the Stark or Anti-Kickback Acts when submitting claims to Medicare or Medicaid, which limits the Stark Act's applicability.
5. The V. S Defendants have not made false claims or statements to the Government and had no reason to believe their actions could lead to such claims.
6. The V. S Defendants lack the necessary scienter for violations of the False Claims Act.

The legal analysis will first focus on determining the existence of a financial relationship as per the Stark Act, followed by considerations of exceptions, claims submitted based on referrals, and damage assessments. The Anti-Kickback Act will also be analyzed with respect to the intent behind payments made by BRMC and the applicability of safe harbor provisions, alongside an examination of the Defendants’ knowledge regarding the False Claims Act.

A physician is prohibited from referring patients to an entity for designated health services if there is a financial relationship with that entity, as outlined in 42 U.S.C. 1395nn(a)(1). Consequently, if Dr. Saleh or Dr. Vaccaro has a financial connection with BRMC, they cannot refer patients to BRMC for such services, and BRMC cannot submit claims to Medicare, Medicaid, or other entities for services provided under a prohibited referral.

A "financial relationship" exists if a physician has an ownership interest or a compensation arrangement with an entity, as defined by the Stark Act. A compensation arrangement involves any form of remuneration between a physician and an entity. The term "remuneration" encompasses any payment or benefit, whether directly or indirectly, in cash or in kind.

Relators assert that a direct financial relationship exists between BRMC and Drs. Vaccaro and Saleh due to a sublease agreement that involves both the hospital and the doctors personally, as they signed the agreements individually. Additionally, they argue that the arrangement provides remuneration by relieving the doctors of personal liability for a lease related to medical equipment. The relators further contend that changes to Stark regulations as of December 4, 2007, establish a direct financial relationship irrespective of the previous definitions of remuneration. The relators highlight that both doctors hold personal service contracts with BRMC, further supporting their claims.

In response, the defendants argue that the doctors' individual signatures on the agreements do not necessarily indicate they are parties in their personal capacities, though they provide no evidence to substantiate this claim.

Defendants' lack of argument is interpreted as an acknowledgment that the doctors are individually involved in the sublease agreements. They contend that even if the doctors are considered parties, no direct financial relationship exists since payments were made by BRMC to V. S rather than directly to Dr. Saleh or Dr. Vaccaro. However, the Stark Act's focus is on whether there was any remuneration between the doctors and BRMC, defined broadly to include any benefits, direct or indirect.

Relators assert that the doctors benefitted financially from BRMC's payment on the GE lease and guaranty, particularly since they personally guaranteed V. S's obligations to GE. The argument is made that BRMC's $200,000 guaranty buyout provided substantial economic benefits to the doctors. Defendants counter that any benefits received were incidental and derived from V. S, not directly to the doctors. Despite this, the text emphasizes that Dr. Saleh and Dr. Vaccaro received significant benefits from BRMC's guaranty, which alleviated their personal liability.

The sublease involved BRMC subleasing a GE nuclear camera from V. S for five years, despite a three-year remaining lease with GE. Before the lease expired, BRMC guaranteed the buyout and made payments, effectively relieving the doctors of their $200,000 liability. V. S retained possession of the camera, later donating it to another hospital. Defendants argue that without BRMC's payments, the doctors would have remained liable; however, acknowledging the benefit of a third-party guaranty is crucial, as it represents a substantial benefit qualifying as remuneration under the Stark Act.

Consequently, it is concluded that a direct financial relationship existed between BRMC and the doctors for the duration of the sublease. Additionally, prior to December 4, 2007, Stark regulations did not specifically define "direct compensation arrangement" but did include a definition for "indirect compensation arrangement."

An "indirect compensation arrangement" is defined as one where a physician's aggregate compensation reflects the volume or value of referrals for designated health services (DHS). If compensation flows directly to the physician, it constitutes a "direct compensation arrangement." Prior to the December 4, 2007 Stark regulation changes, physicians could avoid direct arrangements by receiving remuneration through their professional practice. However, the Stark Phase III regulations closed this loophole by allowing physicians to "stand in the shoes" of their practice, establishing direct compensation if payments are made directly between the physician and the entity providing DHS, with limited exceptions.

Under the new regulations, arrangements previously deemed indirect due to referral-based remuneration now qualify as direct without needing to analyze the referral volume. Relators claim a direct financial relationship existed between BRMC and the doctors post-regulation, while Defendants contend that a sublease arrangement is permitted under a grandfather clause, which allows certain arrangements to remain valid if they met the criteria before September 5, 2007. Defendants argue that since the Equipment Sublease expired in September 2008, the "stands in the shoes" provision is inapplicable. Conversely, Relators maintain that the financial relationship persisted beyond September 2008, citing ongoing payments related to leases, thus making the arrangement subject to the new regulations.

Relators contend that post-sublease financial arrangements do not qualify for the exception under 411.357(p), leading to the conclusion that Defendants cannot utilize the grandfather clause. The financial relationship in question is characterized as a direct financial relationship as of the effective date of the "stands in the shoes" provision. Additionally, Relators argue that the doctors' personal service contracts with the hospital establish a direct financial relationship; however, it is determined that these contracts alone do not demonstrate a sufficient connection to the Stark Act and lack relevance to the False Claims allegations.

Relators also assert the existence of an indirect financial relationship between BRMC and Drs. Saleh and Vaccaro. The definition of "indirect compensation arrangement" requires an unbroken chain of financial relationships, with aggregate compensation reflecting referral volume. While there is agreement on the unbroken chain between BRMC and the physicians, the parties dispute the other elements. Relators present two alleged indirect compensation arrangements: first, they argue that BRMC's compensation to V. S under sublease arrangements considers anticipated referrals from the doctors; second, they reference a separate arrangement where BRMC paid V. S a billing fee of 10% on collections for tests performed on the GE camera, which they claim varied directly with the number of referrals.

In response, BRMC and the V. S Defendants maintain that no indirect financial relationship exists under the Stark Act, asserting that payments are fixed and do not vary based on referrals, are fair market value, and represent a sound business arrangement. They further argue that even if an indirect relationship were established, the Stark Act exceptions would apply.

Three preliminary issues are addressed before examining whether an unlawful indirect compensation arrangement exists. Defendants assert that since payments from BRMC to V. S are fixed and do not vary with patient referrals from Drs. Saleh or Vaccaro, no unlawful agreement exists. However, the critical inquiry is whether this fixed compensation "takes into account" or "reflects" referral volume or value. Defendants argue that the focus should be on the relationship between V. S and the doctors, while Relators argue it should focus on the relationship between BRMC and V. S. The relevant Stark regulation, 42 C.F.R. 411.354(c)(2)(ii), indicates that the relationship is indeed between BRMC and V. S, given that Drs. Saleh and Vaccaro have ownership in V. S, which has a compensation arrangement with BRMC. The regulation requires assessing whether the aggregate compensation reflects referrals generated for BRMC by the physicians.

Furthermore, Relators assert that "anticipated referrals" can indicate that compensation accounts for referral value or volume, supported by Stark regulations and CMS interpretations. The definition of "fair market value" within the regulations emphasizes that compensation must not consider anticipated referrals. CMS acknowledged that recruitment arrangements might anticipate referrals but clarified that any remuneration must not be linked to the volume or value of such referrals. Consequently, payments that do not consider referral volume or value, like unconditional moving expense reimbursements, comply with the regulations.

CMS has clarified its interpretation of the "value or volume standard" relating to physician compensation arrangements. Specifically, compensation arrangements that require a physician to refer to a particular provider will not be disqualified from compliance with the Stark Act, provided that the payments are fixed in advance, align with fair market value, do not consider the volume or value of referrals, and meet all other regulatory requirements. The relevant regulation allows for compensation conditioned on referrals as long as it adheres to these standards.

Relators argue that BRMC's compensation to V.S. is influenced by referrals, citing the Report of accountant Charles T. Day, which was prepared for BRMC prior to entering into the Equipment Sublease. The report, while undated, was confirmed by BRMC to have been created just before the agreement and aimed to assess the fair market value of the sublease. Mr. Day's appraisal included a non-compete clause intended to safeguard three revenue streams, and he provided a table comparing expected revenues under the non-compete agreement against the payments made.

Day's analysis was based on the assumption that physicians would likely refer patients to BRMC if not financially incentivized elsewhere, even though the agreements did not mandate such referrals. BRMC acknowledged that this assumption was integral to the fair market value assessment, and Mr. Leonhardt testified that he relied on Day's report to evaluate the non-compete's market value.

The noncompete agreement aimed to prevent Drs. Vaccaro and Saleh from having financial incentives to refer patients away from BRMC, thereby expecting them to refer a significant portion of business back to the hospital. Mr. Leonhardt required Board approval for the Equipment Sublease, which was supported by a written summary indicating expected profits that included anticipated referrals from the doctors. The Board subsequently approved the sublease based on this evidence, suggesting that the compensation for the physicians factored in the volume and value of their referrals.

Defendants, including Mr. Leonhardt and others, provided affidavits defending the compensation structure; however, these affidavits did not counter the evidence that referrals influenced compensation. Mr. Leonhardt described the negotiation process for the non-compete payments, noting that they began with an amount representing V. S's profits from operating a nuclear camera, which was then lowered through negotiation. The Third Circuit Court of Appeals has noted that negotiated agreements between parties with referral potential may not reflect fair market value, as they can disguise non-fair-market-value compensation. Leonhardt's assertion that the sublease payments did not consider anticipated referral volumes is seen as a legal conclusion rather than a factual rebuttal.

Mr. Leonhardt testified that the sublease's purpose was to support BRMC's charitable mission by providing cardiology services, not to induce referrals from the V. S Defendants. The sublease did not contain any provisions requiring referrals, including a non-compete clause. However, his testimony does not dismiss evidence indicating that the arrangement considered anticipated referrals. The amounts paid under the sublease were pre-determined before Mr. Day's report and Mr. Leonhardt's presentation, suggesting they were not influenced by those documents. Nevertheless, the Day Report's analysis was based on the assumption of likely referrals from physicians, and Leonhardt's presentation reflected an expected profit for BRMC from the lease agreement, which relied on business from V. S. The agreement on payment amounts prior to the Day Report indicates that the parties recognized the non-compete's value relative to potential business from V. S.

Defendants claim that the projected financial impacts prepared by Stroudwater Associates and Mr. Day were based on potential losses from terminating Dr. Saleh and Dr. Vaccaro, which supports Relators' argument that the compensation arrangement considered anticipated referrals. Defendants assert that Relators have not shown with sufficient evidence that the compensation arrangement is not at fair market value, emphasizing that the burden of proof lies with Relators. They maintain that the arrangement must be presumed valid under a "bright line" rule, which does not factor in referrals. Defendants did not present evidence supporting the fair market value of the compensation in their primary briefs or in their responses to the Relators' motion for summary judgment.

Defendants argue that a "bright-line rule" exists for determining whether compensation arrangements consider referrals, asserting that the Equipment Sublease meets this criterion. According to Defendants, the rule posits that compensation does not account for referrals if it is fixed in advance, does not change based on referral volume, and results in fair market value compensation. They cite the case United States ex rel. Villafane v. Solinger, which emphasizes that without evidence of above-fair-market value compensation or provisions for payment adjustments based on referrals, intent alone cannot establish a violation of the Stark law. Defendants contend their arrangement is compliant because the sublease payments are fixed and commercially reasonable. They further argue that the payments are not above fair market value due to a non-compete provision, which does not compel referrals to BRMC. The "bright-line rule" referenced is derived from CMS's Phase I implementing regulations concerning the Stark Act, specifically addressing exceptions related to referrals and compensation. CMS indicates that fixed compensation must represent fair market value; excess payments could imply consideration of referral volume. Relators challenge the fair market value of the Equipment Sublease, while acknowledging that determining fair market value is complex, despite the apparent straightforwardness of applying the bright-line rule once established. Both parties maintain conflicting positions on the fair market value issue.

Relators argue that the assessment of fair market value should only be considered after a defendant claims an exception, placing the burden on defendants to demonstrate the applicability of such exceptions. They assert that the initial inquiry should focus on whether an indirect compensation agreement exists, which requires determining if the compensation "takes into account" referrals, without needing a fair market value analysis. Relators contend that compensation arrangements that consider referrals cannot be classified as fair market value.

Conversely, defendants maintain that their fixed compensation arrangement, which does not account for referrals under the "bright line" rule, shifts the burden to Relators to prove that the arrangement is not fair market value in order to establish it as an indirect compensation agreement. Defendants acknowledge the necessity for their arrangement to meet fair market value criteria but argue that this analysis should proceed without considering referral-related evidence.

The summary indicates that there is ambiguity regarding the resolution of this issue. However, a review of the Stark Act, associated regulations, and relevant case law suggests that the determination of fair market value is deferred until defendants raise it as a defense. The Stark Act necessitates examining whether a prohibited financial relationship exists through an indirect remuneration arrangement, which may be overt or covert. To identify an indirect compensation arrangement, regulations stipulate that the aggregate compensation must reflect or consider referrals.

The interpretation of the Stark Act and its regulations indicates that the inquiry should prioritize determining the existence of an indirect compensation arrangement before addressing exceptions related to fair market value. The clarity diminishes when considering CMS's directive for uniform application of the volume or value standard, which frequently incorporates the term "fair market value." CMS emphasizes that this uniformity applies in the context of exceptions and has revised regulations regarding the scope of the volume or value standard.

The Stark Act mandates that compensation arrangements must reflect fair market value for services or leased equipment, excluding any inflation related to a physician's revenue-generating capabilities. To establish a "bright line" rule, CMS uniformly applies this interpretation across various provisions, including employee arrangements and indirect compensation. CMS clarified that certain arrangements, such as payments based on percentages of gross revenues or collections, do not consider referral volume if compensation is predetermined and remains fixed without regard to referrals. Defendants argue that this CMS response should dominate the interpretation of the volume or value standard despite its secondary status to the primary interpretation. They further contend that the definition of "indirect compensation agreement" necessitates that fixed compensation agreements must be proven by relators to not meet fair market value criteria, despite the definition lacking such language. The Villafane decision, cited by Defendants, limited its scope to the Academic Medical Center exception, emphasizing that the burden of proof for fair market value lies with the defendant physicians rather than relators. This court found the physicians’ salaries to align with fair market value before addressing whether those salaries considered referral volume. The Villafane Court's examination ultimately confirmed that fixed compensation agreements must not take into account referral volume or value.

Relators in the Villafane case contended that the referral of patients by physicians to a pediatric hospital, which contributed funds to partially pay their salaries, demonstrated that the fixed salaries accounted for these referrals, thereby failing to meet legal exceptions. The Court rejected this argument, referencing CMS guidelines that state a fixed compensation arrangement is not deemed to take referrals into account if it does not vary over time. A fixed payment could only be considered as taking referrals into account if it exceeds fair market value. The Court emphasized that a compensation arrangement must not exceed fair market value and must lack provisions that adjust payments based on referral volume for it to be considered compliant under the Stark law. It clarified that intent alone cannot establish a violation if the arrangement shows no overt violation regarding compensation levels or referral conditions. The Court noted that since the compensation did not fluctuate with referrals, the primary issue was whether the salaries were above fair market value. If the defendants had not proven compliance with fair market value standards, the arrangement would not qualify for the exception. The burden of proof lies with the defendants to demonstrate that their fixed compensation arrangement aligns with fair market value. Although Relators initially presented evidence to argue that the arrangement considered anticipated referrals, the Court found their case compelling enough to suggest the arrangement might indeed be above fair market value, based on the definition of fair market value as the price in arm's-length transactions consistent with market value.

"General market value" refers to the price an asset would fetch through genuine negotiations between informed buyers and sellers, or the remuneration in a service agreement, both conducted at arm's length without any party being in a position to influence the other through business referrals. This value is typically assessed based on completed transactions for similar assets in the same market at the time of acquisition, or by examining comparable service agreements, ensuring that the pricing does not consider anticipated or actual referral volumes or values. For equipment leases described under specific regulations, "fair market value" is defined as the rental value for general commercial purposes, excluding adjustments for the lessor's potential patient referral proximity. Rental payments should not factor in costs incurred by the lessor for property development or maintenance. The Centers for Medicare & Medicaid Services (CMS) stipulates that any commercially reasonable method can be used to establish fair market value, emphasizing that evidence must demonstrate that compensation aligns with typical payments for similar services in the relevant location, without the influence of referral relationships. The determination of what constitutes fair market value can vary based on the context, placing the burden of proof on the parties involved. CMS has also clarified that "commercially reasonable" valuations should be specific to the particular business context rather than general practices. Concerns were raised regarding the restrictions on considering referral volumes or values, with some commenters arguing that as long as compensation is not based on a physician's own referrals, the fair market value exception should remain valid and useful.

A fixed compensation agreement that does not explicitly reflect the value or volume of referrals may be permissible according to Defendants' argument, which aligns with comments received. CMS's response indicates that such arrangements can still pose a risk of abuse, even if compensation does not correlate with a physician's referral volume or value. The Stark Act mandates that compensation arrangements should reflect fair market value for services provided, without artificially inflating payments based on the physician's revenue-generating capacity. 

Defendants present expert testimony from James H. Jordan, asserting that the compensation amounts exchanged represent fair market value. They argue that Relators fail to adequately challenge this expert opinion, instead merely criticizing it without substantial counterarguments. Additionally, Defendants highlight that Relators' expert, Sal Barbera, did not offer an opinion on the fair market value of the arrangements and lacks the qualifications to do so. This absence of a countering expert opinion means there is no significant dispute on the fair market value issue. Defendants primarily reference their expert's report to support their claims but do not provide detailed analysis beyond general citations.

BRMC's primary brief references an expert report solely to support its argument for a safe harbor exception, asserting that the payments made were commercially reasonable. According to the report, the total payments align with what is necessary for the business purpose of the rental. In its reply, BRMC cites Mr. Jordan's deposition to illustrate his extensive review of documentation and direct involvement in preparing his expert report. The Defendants, in their Joint Opposition Brief, reference their expert's entire report to claim that they have established "fair market value" through an independent appraisal, but fail to provide specific citations or detailed explanations from the report to substantiate their position.

The Defendants argue that the compensation arrangement reflects fair market value because the amount of non-compete payments corresponds to the business the doctors would refer to BRMC. They assert that both parties evaluated their respective sacrifices and gains in the agreement. The Defendants maintain that the compensation does not exceed the fair market value of potential referrals and does not depend on them. They also highlight that the arrangement alleviated the threat of privilege revocation for the doctors while allowing BRMC to acquire a nuclear camera, advantageous for hiring a cardiologist.

However, the expert report presented by Mr. Jordan is characterized as primarily reinforcing the Defendants' claims without providing significant independent analysis. The non-compete payments are viewed as equitable for both parties, reflecting the financial implications of the doctors exiting the nuclear camera business versus the hospital's expected gains from the doctors ceasing to refer patients to their own camera. The negotiations implicitly considered the anticipated referrals, despite the Defendants not explicitly stating this. They also mention that BRMC considered relevant information before finalizing the sublease arrangement.

Simply considering referrals does not imply that payments account for the volume or value of those referrals. Defendants argue that even if referrals were considered, it does not mean the compensation was determined based on them. In response, BRMC asserts that fixed payments make the consideration of referrals irrelevant. However, BRMC acknowledges that while referrals are mentioned in various documents, this does not mean the arrangement must account for them. The conclusion drawn is that the compensation arrangement between BRMC and the doctors is inflated to compensate for the doctors' ability to generate revenue through referrals. The compensation amount was influenced by anticipated referrals, thus rendering it not to be "fair market value" under the Stark Act.

According to section 411.351, "fair market value" is defined as the result of genuine negotiations between informed parties who cannot generate business for each other, and compensation that does not consider the volume or value of referrals. Compensation arrangements that factor in anticipated referrals will exceed what would be paid without the referral potential. In this case, the compensation exceeds the norm due to the referral capabilities of Dr. Saleh and Dr. Vaccaro for BRMC's nuclear camera business. Therefore, it is established that the total compensation received by the doctors considers the anticipated referrals.

Furthermore, BRMC is found to have either actual knowledge or acted recklessly regarding the fact that the aggregate compensation took into account the volume or value of referrals, leading to the conclusion that an indirect compensation arrangement exists under the Stark Act.

Regarding the 10% collections fee arrangement, it is argued that this compensation varies with the number of referrals to the GE machine at V.S.'s office. As the volume of referrals increases, so does the compensation paid to V.S. Defendants contend that the 10% fee complies with regulations as unit-based compensation that does not take referrals into account.

Payment structures based on a percentage of collections, such as a 10% billing fee, do not comply with 42 C.F.R. 411.354(d)(2) and are classified as indirect compensation arrangements. The compensation varies with the volume of referrals to BRMC, which was aware of this variance. Following the establishment of a financial relationship, the burden shifts to the defendants to demonstrate the applicability of exceptions to the Stark Law and corresponding safe harbors under the Anti-Kickback Act. The defendants claim their arrangements fit within several exceptions, including the Indirect Compensation Arrangement Exception, safe harbors for Personal Services and Management Contracts, Equipment Rental, and Space Rental. However, the requirements for these exceptions necessitate that compensation be at fair market value and not linked to referrals' volume or value. The arrangement in question does not meet this fair market value requirement, as it is influenced by referral volume. Furthermore, all exceptions require that the compensation arrangement be documented in writing, signed by the parties, and explicitly outline the services or equipment involved. The defendants failed to satisfy both the fair market value and written agreement requirements, thus none of their arrangements qualify for protection under the relevant exceptions or safe harbors.

Defendants claim that a valid "Spaces and Service Agreement" exists between BRMC and V. S, established through a proposal letter and an invoice from V. S dated October 2, 2003. This agreement pertains to the temporary use of V. S's office space and services for GE Equipment leased by BRMC. Defendants assert that BRMC's Chief Financial Officer approved the proposal, thereby formalizing the agreement. The letter details monthly charges, including rent, utilities, secretarial support, and additional costs for medical testing, totaling $4,879.84 for October 2003. It also indicates that these charges would be due on the 30th of each month. Subsequent documentation includes a detailed statement of charges for that month, which contains handwritten notes and initials, suggesting payment processing. However, the credibility of the Defendants' claims regarding the existence of this written agreement is questioned, with BRMC arguing that the arrangements are inadequately supported by the evidence presented, being largely conclusory in nature. BRMC contends that the agreements were indeed formalized in writing and signed, fitting within specific compensation arrangement exceptions.

The Space and Services Agreement was documented through a written proposal and invoice from V. S, with payment authorized by BRMC's Chief Financial Officer, establishing its validity as a written agreement. Defendants claim the existence of this agreement but fail to provide evidence beyond their assertions, with no substantial arguments or supporting documentation presented. BRMC counters that the former CFO signed the invoice to authorize terms related to the temporary use of GE Equipment, dismissing Defendants' arguments as lacking merit, particularly regarding minor charges such as a $70 laundry bill. BRMC's Concise Statement of Material Facts lacks citation to record evidence affirming a formal written agreement, and evidence cited by the V. S Defendants does not demonstrate the existence of such an agreement. While V. S provided a letter and invoices, the initials on the October 2003 statement are not authenticated as a signature of agreement. An affidavit from BRMC's former CFO indicates that the initials indicated approval for payment, not the acceptance of a separate written agreement. Defendants did not provide testimony or evidence from key individuals to support their claims, and the initial October 2, 2003 letter from V. S remains a unilateral statement without BRMC's signature. Overall, the initials signify payment approval rather than a formal agreement.

An analysis of the October 2, 2003 letter and the October 2003 Statement reveals a lack of mutual agreement on the terms of the "Spaces and Services Agreement." The letter specifies a 10% charge on billings, which is absent in the October Statement, and the Statement includes charges for a Physicist and "Supplies per Tests" not mentioned in the letter. Consequently, a formal written agreement does not exist between the parties for these terms. It appears an oral agreement was made with some defined and some undefined terms, intended to last on a month-to-month basis. Thus, the Defendants do not meet the written agreement criteria for the "Spaces and Services Agreement" to qualify for any exception or safe harbor.

Additionally, the Defendants have not provided evidence of a written sublease concerning the Philips Camera between BRMC and V. S. The only documented agreement is the Equipment Sublease, which explicitly references the GE Camera. The Defendants assert that the October 1, 2003 Equipment Sublease serves as the written agreement for the Philips Camera, citing Section 5, which allows for equipment changes or upgrades. Section 5 details that BRMC can change or upgrade equipment at its discretion without negatively impacting V. S. However, the provisions in Section 5 do not substantiate the existence of a separate written sublease for the Philips Camera, as the focus remains on the GE Equipment and the conditions surrounding potential changes.

No written sublease exists for the Philips Camera between BRMC and V. S., with the only existing contract pertaining to the GE Camera. This agreement did not account for any new or upgraded equipment, including the Philips Camera, which was acquired later. Section 5 of the Equipment Sublease allows for upgrades under general principles but does not permit mere substitution while maintaining other terms. Payments made by BRMC for the Philips Camera, totaling $4,494.77 monthly for rental and $2,299.14 for service, are not referenced in the Equipment Sublease, which continues to apply to the now-unused GE Equipment. Consequently, without a new contract specifying the Philips Camera as required by regulatory exceptions, no written agreement exists. BRMC's prior guaranty to Philips does not constitute a sublease. Additionally, there was no written obligation for BRMC to reimburse V. S. for the GE buyout, nor for V. S. to retain the GE Camera post-purchase. As a result, defendants fail to meet the criteria for exceptions or safe harbor provisions. 

Regarding claims submitted by BRMC, it has been established that BRMC submitted claims to Medicare for designated health services based on referrals from Drs. Vaccaro and Saleh, as confirmed by spreadsheets produced by CMS and BRMC's admissions in discovery responses.

BRMC contends that it cannot ascertain whether the referrals listed in the CMS spreadsheets are prohibited without reviewing each patient's medical record. However, BRMC has previously admitted to submitting claims based on these referrals. The assertion now made by BRMC, alleging misidentification of physicians in the claims, lacks supporting examples. Furthermore, any challenge to these referrals should have been raised during discovery.

The analysis finds that BRMC has a financial relationship with the physicians involved, who have made referrals leading to claims submitted by BRMC, indicating a violation of the Stark Act (42 U.S.C. § 1395nn(a)(1)). Nonetheless, it is inconclusive at this stage whether this violation was done knowingly in relation to the False Claims Act, necessitating a deferred ruling on damages until further proceedings occur.

Under the Anti-Kickback Act (42 U.S.C. § 1320a-7b), it is unlawful to solicit or receive remuneration for referrals. The focus is on whether BRMC's payments were intended to induce referrals from the doctors. The relators argue that BRMC's arrangements were aimed at securing these referrals, supported by evidence of a sublease arrangement. While there is indication that the Defendants considered the value of referrals, it cannot be legally determined that they acted "knowingly and willfully" in their payments for these referrals. The evidence suggests that BRMC was addressing a dispute with the doctors regarding referral business lost to another entity, V.S., which further complicates the determination of intent.

V. S recognized BRMC's intention to eliminate competition in the nuclear camera business while retaining potential future revenue from their own operations. To address this, V. S sought compensation from BRMC for the economic loss incurred by leasing the GE Camera and agreeing not to compete. During negotiations, V. S calculated the value of this loss based on past and projected performance, resulting in a compensation request higher than what BRMC offered, but an agreement was eventually reached. Evidence may allow a fact-finder to determine that Dr. Vaccaro and Dr. Saleh did not knowingly solicit or accept remuneration from BRMC for patient referrals, and that BRMC did not knowingly pay for such referrals. The Anti-Kickback Act necessitates proving intent, while the Stark Act prohibits consideration of referrals regardless of intent. Defendants argue they never mandated referrals to BRMC, which could support a finding that no illicit intent existed. Additionally, the lack of requirement for patient referrals might lead to an inference of missing intent. A fact-finder may also examine the implications of the rural context and the limited options for referrals, questioning whether the doctors had genuine freedom in their referral decisions. Relators argue that Dr. Vaccaro and Dr. Saleh could have continued using their own camera to avoid legal issues and that BRMC's threats to revoke privileges lacked seriousness due to inaction during negotiations. These matters are left for determination by a fact-finder at trial.

Genuine issues of material fact exist that prevent a determination of whether Defendants violated the Anti-Kickback Act. Under Section 3729 of the False Claims Act, liability applies to anyone who knowingly submits a false claim for payment to the U.S. Government or makes a false record to facilitate such a claim. The terms "knowing" and "knowingly" encompass actual knowledge, deliberate ignorance, or reckless disregard of the truth, without requiring proof of specific intent to defraud. Relators contend that Defendants acted "knowingly," supported by evidence indicating that Defendants and their attorneys recognized from the outset that their discussions about a sublease and related arrangements raised legal concerns under the Stark Act and the Anti-Kickback Act. Correspondence from attorneys highlighted the potential violations and the need to structure ventures to comply with federal law. This evidence suggests that, during negotiations, Defendants were aware that their potential arrangements could violate the relevant statutes.

Genuine issues of material fact exist that prevent a determination of whether Defendants acted "knowingly" under the False Claims Act. Evidence suggests that Defendants may have recognized BRMC's intent to lease the GE Camera to regain referrals lost to V.S. However, there is also evidence indicating Defendants made efforts to avoid requiring referrals and based their business decisions on fair market value. Although the evidence does not strongly support Defendants, who entered the Equipment Sublease while aware that the arrangement could violate the Stark Act and Anti-Kickback Act, it is not conclusive enough to legally establish their knowledge. Consequently, Defendants' motions for summary judgment are denied, while Relators' motion is granted in part and denied in part. An appropriate order will follow.