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United States ex rel Singh v. Bradford Regional Medical Center

November 10, 2010

UNITED STATES, EX REL., DILBAGH SINGH M.D., PAUL KIRSCH, M.D., V. RAO NADELLA, M.D., AND MARTIN JACOBS, M.D., PLAINTIFFS,
v.
BRADFORD REGIONAL MEDICAL CENTER, V & S MEDICAL ASSOCIATES, LLC, PETER VACCARO, M.D., KAMRAN SALEH, M.D., AND DOES I THROUGH XX, DEFENDANTS.



Opinion

Dilbagh Singh M.D., Paul Kirsch, M.D., V. Rao Nadella, M.D., and Martin Jacobs, M.D., commenced this qui tam action pursuant to the federal False Claims Act (―FCA‖), 31 U.S.C. §§ 3729, et seq., against Bradford Regional Medical Center (―BRMC‖), V&S Medical Associates, LLC (―V&S‖), Peter Vaccaro, M.D., and Kamran Saleh, M.D. The Relators, Drs. Singh, Kirsch, Nadella, and Jacobs, allege that Defendants submitted, or caused to be submitted, false claims for payment to the Medicare program arising out of referrals from Drs. Vaccaro and Saleh to BRMC in violation of the Stark Act, 42. U.SC. § 1395nn, and the Anti-Kickback Act, 42 U.S.C. § 1320a-7b.

I. Factual Background

Defendant BRMC is a Pennsylvania non-profit corporation. BRMC owns and operates a hospital in Bradford, Pennsylvania, providing inpatient and outpatient hospital services to the residents of McKean County and surrounding areas.

Defendants Drs. Saleh and Vaccaro specialize in the practice of internal medicine in Bradford, Pennsylvania. Prior to April 2000, Drs. Vaccaro and Saleh were employed by BRMC. In April 2000, they purchased their practice from BRMC and formed V&S Medical Associates, LLC (―V&S‖). Defendant V&S is a limited liability company, the members of which are Drs. Saleh and Vaccaro. Drs. Saleh and Vaccaro are sole and equal owners of V&S. Drs. Saleh and Vaccaro are currently members of the medical staff of BRMC.

Relators are Dilbaugh Singh, M.D., Paul Kirsch, M.D., V. Rao Nadella, M.D., and Martin Jacobs, M.D. Relators are all physicians who practice in Bradford, Pennsylvania, and are or were members of the medical staff of BRMC. The Relators provide the same or similar services to patients as Drs. Saleh and Vaccaro.

Prior to 2001, Drs. Vaccaro and Saleh were a significant source of referrals to BRMC, both for inpatient admissions and for outpatient procedures, including diagnostic tests performed on a nuclear imaging camera located at BRMC. (Leonhardt Dep. at 18; BRMC 30(b)(6) Dep. at 97, 129, 175; Saleh Dep. at 17-22; Vaccaro Dep. at 18-20, 24.) In 2001, V&S began to consider obtaining a nuclear camera and installing it in its office, thus allowing V&S to perform nuclear imaging tests in-house, rather than referring such tests to BRMC.

In March 2001, upon learning of V&S's plans to acquire their own nuclear camera, BRMC's CEO, George Leonhardt, asked BRMC's senior vice-president of operations, Glen Washington, for information about Vaccaro and Saleh's nuclear medicine referrals, in order to determine ―what kind of impact could that have on us.‖ (Leonhardt Dep. at 94-95.)

Mr. Washington informed Mr. Leonhardt that annual gross nuclear medicine revenues were approximately $2,798,578.00, of which approximately $2,274,094.00 were outpatient revenues. (Email from Washington to Leonhardt, March 14, 2001 10:03 a.m.) Mr. Washington told Mr. Leonhardt that Drs. Vaccaro, Saleh, and Jamil (a physician who rented space in V&S's office) ordered 42.5% of the hospital's nuclear studies, and that V&S had enough nuclear medicine patients to support their own machine. (Email from Washington to Leonhardt, March 14, 2001 10:24 a.m., Saleh Dep., at 7-8).

Because Drs. Vaccaro and Saleh were a major referral source to the hospital, Mr. Leonhardt became concerned that their acquisition of a nuclear camera would have a ―very detrimental impact on [BRMC's] attempt to establish a cardiology service.‖ (BRMC 30(b)(6) Dep. at 94; see also, BRMC 30(b)(6) Dep. at 97; Leonhardt Dep., at 5-6.). From BRMC's perspective if key cardiology diagnostic services were offered in the offices of internal medicine physicians such services would not be available to support the work that the cardiologist would do at the hospital. (BRMC 30(b)(6) Dep. at 105.)

On April 3, 2001, Mr. Leonhardt met with Drs. Vaccaro and Saleh and explained that their acquisition of a nuclear camera would negatively impact the hospital's financial position and affect the recruitment of a cardiologist. (Saleh Dep., at 38-40; Letter from Leonhardt to Vaccaro and Saleh, July 30, 2001.)

Between April 3, 2001 and June 1, 2001, Mr. Leonhardt met with Drs. Vaccaro and Saleh on several more occasions. (Saleh Dep. at 61-62; Letter from Leonhardt to Vaccaro and Saleh, July 30, 2001.) In a subsequent letter, Mr. Leonhardt noted that the parties discussed the possibility of entering into a joint venture ―within the Safe Harbor exceptions to Stark II.‖ (Letter from Leonhardt to Vaccaro and Saleh, July 30, 2001; Saleh Dep. at 62.) However, despite these discussions, Drs. Vaccaro and Saleh decided to go ahead with their plans to acquire a nuclear imaging camera. (Saleh Dep. at 39-40.)

In May 2001, BRMC adopted a Policy on Physicians with Competing Financial Interests. The policy provided that, if a physician had a financial relationship with a competing health care entity that might have a significant impact upon the hospital, that physician would be ineligible for hospital privileges. (BRMC 30(b)(6) Dep. at 83, 86-87.) Specifically, the Policy states that ―a practitioner who has a financial relationship with, or an ownership or investment interest in, any competing health care entity or services that has or may have a significant impact (as determined by the Board) upon the Medical Center: (i) shall be ineligible to be granted appointment (initial or reappointment) or clinical privileges to practice at the Medical Center and its facilities, and (ii) shall be ineligible for continued appointment and clinical privileges to practice at the Medical Center.‖ (Policy on Physicians with Competing Financial Interests, May 23, 2001, at 1.)

In June 2001, V&S entered into a 63-month lease with General Electric (―GE‖) for a nuclear camera. (Saleh Dep. at 164-165.) Drs. Vaccaro and Saleh each executed personal guaranties in favor of GE. After the GE camera was placed in V&S's office, the doctors' changed their referral practices with respect to nuclear imaging. Rather than referring patients to BRMC for nuclear imaging tests as they had done previously, Drs. Vaccaro and Saleh began to perform such tests in their own office, thus decreasing their nuclear referrals to BRMC. (Saleh Dep. at 37; Vaccaro Dep. at 25; BRMC 30(b)(6) Dep. at 128; Leonhardt Dep. at 6-7.) However, their referral practices with respect to inpatient admissions and other outpatient procedures did not change as a result of acquiring the nuclear camera. (Saleh Dep. at 37.)

BRMC was concerned that V&S might also reduce its other inpatient and outpatient referrals to the hospital. Among other things, although V&S did not currently offer CT scans or MRIs in their office, BRMC was concerned that they might begin to do so, thus reducing their referrals to the hospital for such procedures. (Leonhardt Dep. at 57-58; Report of Charles T. Day, undated, at 14.)

After adopting the Policy against competing interests, Mr. Leonhardt told Drs. Vaccaro and Saleh that they were subject to the policy and faced the possibility of losing their hospital privileges if they continued competing against the hospital. (Saleh Dep. at 43-45; Vaccaro Dep. at 42; Leonhardt Dep. at 19-20.) Drs. Saleh and Vaccaro were informed by BRMC that by operating a nuclear camera in their office, the doctors would likely be in violation of the new Policy.

In December 2001, the Board of BRMC appointed a fact-finding committee to determine if V&S was in violation of the Policy and requested information from Drs. Saleh and Vaccaro as part of this effort. (Letter from Leonhardt to Saleh, 1/2/2002; Letter from Leonhardt to Vaccaro, 1/28/2002.)

In January 2002, Drs. Saleh and Vaccaro, through their legal counsel Marc Raspanti, Esquire, objected to BRMC's Policy and its application to Drs. Saleh and Vaccaro. (Letter from Raspanti to Leonhardt, 1/22/2002; Letter from Kabala to Vaccaro, 12/4/2001.) In the letter Mr. Raspanti stated that the hospital's Policy and Procedures ―violate federal law, in particular, the federal anti-kickback criminal statute.‖ (Raspanti Letter, 1/22/2002, at 1 (citing Kabala Letter, 12/4/01).) Mr. Raspanti also noted that the Stark Statute and the False Claims Act provide civil penalties ―for those who enter into arrangements which compensate based upon referrals.‖ (Raspanti Letter, 1/22/2002, at 2.) Finally, Mr. Raspanti asserted that the ―Medical Center is conditioning privileges on referrals streams. This is precisely the type of arrangement that the anti-kickback laws were intended to prevent.‖ (Id.)

On February 15, 2002, Mr. Raspanti sent another letter to Mr. Leonhardt, noting that ―the anti-kickback laws are violated even where only ‗one purpose' of a payment or exchange is to induce referrals.‖ (Letter from Raspanti to Leonhardt, 2/15/2002, at 1.) Mr. Raspanti also noted that, since July 2001, Drs. Vaccaro and Saleh had been subject to numerous case reviews, and that ‗[s]uch harassment of physicians who are perceived as having a financial conflict of interest is an absolute abuse of the peer review process.‖ (Id. at 5.) Mr. Raspanti stated: ―We know of no case that more clearly establishes a hospital's attempt to extract an exclusive referral stream from a physician.‖ (Id.)

In May 2002, the Board of BRMC made a preliminary determination that Drs. Saleh and Vaccaro had significant competing financial interests pursuant to the Policy, and so informed them of that fact. (BRMC 30(b)(6) Dep. at 128.) On June 11, 2002, Mr. Leonhardt sent a letter to Drs. Vaccaro and Saleh indicating that BRMC and V&S Medical Associates should discuss ―[w]hether there is interest... in working together in regard to the equipment and services in question, be it through a joint venture or other appropriate means.‖ (Letter from Leonhardt to V&S, 6/11/2002.)

In a June 26, 2002 letter, Mr. Leonhardt proposed the possibility of BRMC entering into a relationship ―whereby diagnostic services could be provided by the hospital ‗under arrangement' with an entity owned by physicians.‖ (Letter from Leonhardt to V&S, 6/26/2002; BRMC 30(b)(6) Dep. at 134.) The proposed joint venture was offered to all physicians on the BRMC medical staff and contemplated a physician-owned diagnostic center, formed by the staff physicians, to provide diagnostic tests. (Letter from Leonhardt to V&S, 7/30/2001; Leonhardt Letter, 6/26/2002; BRMC 30(b)(6) Dep. at 135.) This diagnostic center would enter into a contract with BRMC, whereby the center would be paid a fixed amount for each test furnished to hospital patients. (Leonhardt Letter, 6/26/2002.) The hospital, not the diagnostic center, would then bill the patient or third-party payors for the service. (Id.) This proposed ―under arrangements‖ venture would not simply provide nuclear imaging tests, but would also provide other diagnostic procedures such as CTs and MRIs, which were not then being provided by V&S. (Leonhardt Dep. at 72, 73.) In his letters to Drs. Vaccaro and Saleh, Mr. Leonhardt stressed the need to structure the venture in such a way that it satisfied the Stark statute. (Leonhardt Letter, 6/26/2002; Leonhardt Letter, 7/30/2001.)

BRMC engaged Stroudwater Associates, a consulting firm, to perform an analysis of the proposed ―Under Arrangements‖ Joint Venture. (BRMC 30(b)(6) Dep. at 135-136.)

Between the months of December 2002 and March 2003, several meetings were held between representatives of BRMC and Drs. Saleh and Vaccaro, as well as their respective legal counsel, regarding the possibility of resolving their dispute concerning the Policy. (Leonhardt Dep. at 37-44.) During these meetings, a possible sublease arrangement was also discussed and considered as an option to resolve the dispute while the proposed Joint Venture was under consideration. (Id. at 43.)

In a January 17, 2003 letter to BRMC's counsel, V&S's attorney, Mr. Raspanti, stated as follows:

In [the January 10, 2003] letter, the Medical Center directly threatens to revoke the medical staff privileges of Drs. Saleh and Vaccaro based upon their refusal to be coerced into a poor medical, and even worse, business decision.

(Letter from Raspanti to Alan J. Steinberg, 1/17/2003, at 1.) Mr. Raspanti described BRMC's conduct with respect to the Policy as ―shocking, disappointing and, quite frankly, economic blackmail.‖ (Id. at 2.) Mr. Raspanti asked for ―[a]ll opinions concerning the legality of the nuclear camera venture‖ contemplated between BRMC and physicians on the hospital medical staff. (Id. at 3.) He further stated: ―I am sure that we can all agree that neither party wishes to become involved in a business venture which is in violation of federal or state law.‖ (Id. at 3 n.4.)

In a February 5, 2003 letter, Edward Kabala, an attorney for V&S, stated as follows: While the ―under arrangements‖ [joint venture] process may be entirely legal, we would want to be sure that we will get an unconditional opinion or an advisory opinion from the Office of the Inspector General, to the effect that the final arrangement and the process that led to it would not be deemed inappropriate. (Letter from Kabala to Steinberg, 2/5/2003, at 4.)

The parties considered it essential that they obtain an advisory opinion from the Office of the Inspector General regarding the legality of the venture before entering into any ―under arrangements‖ joint venture. (Kabala letter, 2/5/2003, at 4; BRMC 30(b)(6) Dep. at 138; Saleh Dep. at 101.)

At some point in early 2003, the parties began discussing an alternative resolution, under which BRMC would agree to sublease the nuclear camera from V&S. (Letter from Steinberg to Jodeen Hobbs, 3/14/2003; Letter from Kabala to Steinberg, 2/11/2003; BRMC 30(b)(6) Dep. at 126-127, 139, 151; Leonhardt Dep. at 36-37.) In a February 11, 2003 letter, V&S's attorney Mr. Kabala stated that Vaccaro, Saleh, and V&S Medical Services ―have indicated that all of their Nuclear Medicine Studies can be accommodated by a combination of their current camera and those at BRMC.‖ (Kabala Letter, 2/11/2003, at 2.)

On April 16, 2003, the parties entered into an Agreement providing that the parties would enter into a sublease for the nuclear camera, while continuing efforts to develop an under arrangements venture. (Sublease Agreement, April 16, 2003.) Drs. Vaccaro and Saleh individually signed this Agreement, agreeing to be bound by its terms. (Id. at 4.)

The Sublease Agreement provided that BRMC would sublease the GE Equipment from V&S, and then use the GE Equipment to provide diagnostic tests for patients of BRMC. (Id. at §1.) V&S would, in turn, agree to a covenant not to compete with the provision of nuclear cardiology services by BRMC for the term of the Sublease Agreement. (Id. at §7(a).) Section 6 of the Sublease Agreement allowed BRMC to change or upgrade the equipment at its discretion, while section 5 required the parties to continue good faith efforts with respect to the development of the proposed ―under arrangements‖ joint venture. (Id. at §6, §5.)

From April through September, 2003, BRMC and V&S negotiated the specific terms of an eventual final sublease agreement. During this time V&S provided BRMC with data regarding its performance of nuclear camera services in its office.

Before entering into a final sublease, BRMC had a ―fair market value‖ assessment prepared by an accountant, Charles T. Day. (Leonhardt Dep. at 54; BRMC 30(b)(6) Dep. at 146-148.) BRMC sought this report to determine whether BRMC was paying fair market value under the proposed sublease arrangement. (Leonhardt Dep. at 54-55; BRMC 30(b)(6) Dep. at 148-149.) In September 2003, the Board of BRMC received Mr. Day's report. The report concluded that the amounts to be paid pursuant to the proposed sublease were reasonable. (BRMC 30(b)(6) Dep. Appx., at 146-149.)

In performing his fair market value analysis, Mr. Day compared the revenues BRMC expected to generate with the sublease in place to the revenues BRMC expected to receive without the sublease in place. (Report of Charles T. Day, C.P.A.; Leonhardt Dep. at 55-56.) The projections were based on the expectation that V&S would refer such business to the hospital if the sublease arrangement was approved. (Id.) According to Defendants, the basis of Mr. Day's report was what benefits BRMC would have lost had it terminated the medical staff appointment and clinical privileges of Drs. Vaccaro and Saleh pursuant to BRMC's Policy. BRMC advised Drs. Vaccaro and Saleh that its valuation expert indicated that he could support the fair market value of the Sublease, however neither Vaccaro nor Saleh received or reviewed a copy of Mr. Day's written valuation.

Mr. Leonhardt considered and relied on Mr. Day's report before executing the Equipment Sublease. (Leonhardt Dep. at 55-56.) Mr. Leonhardt had to obtain Board approval to enter into the sublease arrangement. (Leonhardt Dep. at 65-66.) He prepared a summary of the sublease arrangement to use in his presentation to the Board. (Id. at 67, 68.) This summary indicated that BRMC expected to generate $402,000 in profit from the additional nuclear imaging referrals expected to be made by V&S following execution of the sublease. (Id. at 71-72; Summary, April 2003, attached as doc. 8 to Relators' Appx. (Doc. 117).) Mr. Leonhardt made a presentation to the Board and obtained formal approval for the sublease arrangement. (Leonhardt Dep. at 72-73.) The V&S Defendants did not see a copy of the internal summaries regarding the Sublease that were prepared for the BRMC Board of Directors.

Effective October 1, 2003, BRMC and V&S entered into an Equipment Sublease, which set forth in more detail the terms of the preliminary Sublease Agreement. (BRMC 30(b)(6) Dep. at 183-184; Equipment Sublease, Oct. 1, 2003.) The Equipment Sublease was for a five-year term expiring on September 30, 2008. The Equipment Sublease called for BRMC to pay V&S $6,545 per month, representing the amounts due from V&S to GE for the GE nuclear camera under V&S's lease with GE. (Equipment Sublease, at §2(d)(i)(1).) The Equipment Sublease also called for BRMC to pay V&S $23,655 per month for all other rights under the Equipment Sublease, including the covenant not to compete. (Id. at §2(d)(i)(2).) The Equipment Sublease expressly provided that if the proposed ―under arrangements‖ joint venture is successfully implemented then the Equipment Sublease would automatically terminate. (Id. at §2(c).)

Drs. Vaccaro and Saleh individually signed the Equipment Sublease, specifically agreeing to be bound by the terms and conditions of the covenant not to compete set forth in Section 14. (Id. at 17.) Section 14 of the Equipment Sublease provides that Drs. Vaccaro and Saleh will not own or operate competing nuclear cardiology imaging equipment within thirty miles of BRMC, and will not provide other outpatient diagnostic imaging services within thirty miles of BRMC while the proposed ―under arrangements‖ joint venture is in development or give BRMC a right of first refusal for any other competing diagnostic imaging services if the ―under arrangements‖ venture is not implemented. (Id. at §14.)

The parties did not seek or obtain an advisory opinion on the legality of the arrangement from the Office of the Inspector General before entering into the Equipment Sublease. (BRMC 30(b)(6) Dep. at 191.)

The purpose of the Sublease Agreement and the Equipment Sublease was not simply to acquire a piece of equipment. (30(b)(6) Dep. at 140, 146, 154-157; Leonhardt Dep. at 57.) Mr. Leonhardt expected BRMC would get substantial referrals from Drs. Vaccaro and Saleh as a result of the sublease. (BRMC 30(b)(6) Dep. at 146, 154-156; Leonhardt Dep., at 57.) Mr. Leonhardt stated in reply to a hypothetical question that he would not have entered into the sublease arrangement if he knew that BRMC would not receive any referrals from Drs. Vaccaro and Saleh. (Leonhardt Dep. at 53.)

When the Equipment Sublease was entered into, there were only about three years left in the term of V&S's primary lease with GE. (BRMC 30(b)(6) Dep. at 144.)

The Equipment Sublease stated that ―[s]ubsequent to the execution of this Sublease, the Equipment will be moved to the Sublessee [BRMC].‖ (Equipment Sublease, at 4.) Mr. Leonhardt believed that other physicians would not want to have their diagnostic work done at V&S's office. (Leonhardt Dep. at 40.)

Although the Sublease stated that the GE camera would be delivered to BRMC, the camera remained in V&S's offices. (BRMC 30(b)(6) Dep. at 74-75; Saleh Dep. at 152, 153.) BRMC paid V&S $2,500 per month in rent, as well as payments for secretarial and other administrative expenses (on top of the Equipment Sublease payments) to keep the camera at V&S's offices. (Saleh Dep. at 152-158.)

Following the execution of the Equipment Sublease, BRMC paid V&S a billing fee equal to 10% of all collections for tests performed on the GE camera. (Saleh Dep. at 152-154.)

Based upon its collections, V&S billed BRMC the following amounts for billing services:

Statement DateAmount November 2003$2,492.23 December 2003$2,764.27 January/February 2004$4,243.84 March 2004$2,926.83 April 2004$817.33 June 2004$3,075.57

(Saleh Dep. at 151-160; V&S Medical Associates Billing Documents, Oct. 2003-June 2004, attached as doc. 41 to Relators' Appx.)

In connection with its use of the GE camera following execution of the Equipment Sublease, V&S made actual payments to BRMC (after deductions for space rental, 10% billing fee, and other charges) of the following amounts:

$4,593.94 (November 2003)

$4,317.68 (December 2003)

$7,652.33 (February 2004)

$6,715.37 (March 2004).

For the October 2003 invoice, BRMC made a net payment to V&S of $4,879.84. The final invoice in June 2004 showed an amount due from BRMC of $1,090.29. (Saleh Dep. at 151-160; V&S Billing Documents, Oct. 2003-June 2004.)

The GE camera was used for four or five months, through about March 2004, after which it was not used to perform nuclear tests. (Leonhardt Dep. at 78; Saleh Dep. at 158.)

At the time it entered into the sublease, BRMC had one nuclear camera of its own, and wanted to obtain a second camera. Mr. Leonhardt acknowledged, however, that BRMC did not need three cameras. (Leonhardt Dep., at 49-50.) BRMC did not believe that the GE camera was suited to its long-term needs, and knew that it would shortly replace the GE camera with another camera. (BRMC 30(b)(6) Dep. at 74-78; Leonhardt Dep. at 49, 78.)

BRMC avers that during sublease negotiations the hospital had determined that it would replace the GE Equipment with a new nuclear cardiology camera. According to BRMC, it was because the hospital was anticipating acquiring a new camera that the GE Equipment was never relocated to BRMC in accordance with the Sublease Agreement and the Equipment Sublease. Additionally, Defendants allege that because the GE equipment was not moved, BRMC and V&S entered into a separate agreement for temporary use of the space and services of V&S by BRMC. BMRC explains that the space and services agreement came into effect by way of a ―proposal‖ letter from V&S, along with a V&S invoice. Defendants claim that BRMC agreed to the proposal letter when BRMC's then Chief Financial Officer ―approved and executed‖ the V&S invoice. (BRMC's Concise Statement of Facts, at ¶ 19; V&S Defendants' Concise Statement of Facts, at ¶ 21.) Relators dispute that Defendants entered into a space and services agreement.

On April 6, 2004, V&S entered into a five-year lease with Philips Medical Capital LLC, for a CardioMD Nuclear Camera, with a monthly rental fee of $4,450.40 (adjusted periodically). (Master Lease Agreement between V&S Medical Associates and Philips Medical Capital LLC, April 6, 2004, and Master Lease Schedule No. 01.) In addition, Philips paid approximately $200,000 to GE as an early termination fee to buy out the GE lease. (Master Lease Schedule No. 02 to Master Lease Agreement, April 16, 2004.) V&S agreed to repay this amount in 60 monthly installments of $3,958.13 (adjusted periodically). (Id.) BRMC executed a guaranty of V&S's obligations to Philips. (Guaranty to Master Lease Agreement, April 6, 2004, and Addendum to Guaranty, April 22, 2004.)

Since the execution of the Philips lease documents, BRMC has reimbursed V&S for its payments under the Philips lease, and has also reimbursed V&S for its payments to Philips relating to the buyout of the GE camera. (Leonhardt Dep. at 81-85, 89.) In addition, BRMC pays V&S $2,299.14 per month for a Philips service agreement. The payments for the Philips camera and Philips service agreement were scheduled to run through January 2010; the payments for the buyout of the GE camera ran through December 2009; and the non-compete payments under the Equipment Sublease ran through September 30, 2008.

Although the lease agreement was between Philips and V&S, the Philips camera was not placed in V&S's office because the lease specified that the camera would be located at the hospital. (Master Lease Schedule No 01, at ¶ 2; Leonhardt Dep. at 80; Saleh Dep. at 52.) BRMC and V&S did not enter into a written sublease agreement with respect to the Philips camera. (Leonhardt Dep. at 89; Saleh Dep. at 52-53.) We note that this is a major point of contention between the parties as Defendants contend that the October 1, 2003 Equipment Sublease is the written sublease agreement between BRMC & V&S regarding the Philips camera. Defendants argue that Section 5 of the Equipment Sublease contemplated and provided for the effects of a change or upgrade in equipment.

Upon the early buyout of the GE lease, V&S obtained ownership of the GE camera, and in December 2006, made a charitable donation of the GE camera to Hamot Medical Center. (Letter from Drs. Vaccaro and Saleh to Hamot Medical Center, Dec. 11, 2006; Letter from Hamot Medical Center to Drs. Vaccaro and Saleh, Dec. 12, 2006.)

Since at least January 1, 2006, Dr. Saleh has had a contract with BRMC to serve as a Case Management Medical Director, for which he is paid $2,000 per month by BRMC. (Saleh Dep. at 173-174, 175-176.) Dr. Saleh testified that he had a similar contract for a period of time before January 1, 2006, although he could not remember how long before. (Saleh Dep. at 175.) In addition, since at least March 1, 2006, Dr. Saleh has had a separate contract with BRMC to provide certain internal medicine services for Bradford Recovery Systems, for which he is paid a specified amount. (Saleh Dep. at 171-172, 175-176.) Dr. Saleh testified that he might have had a similar agreement prior to March 1, 2006. (Saleh Dep. at 172-173.)

Since at least March 1, 2006, Dr. Vaccaro has had a contract with BRMC to provide certain internal medicine services for Bradford Recovery Systems, for which he is paid $2,000 per month. (Vaccaro Dep. at 50-52.) Dr. Vaccaro testified that he might have had a similar contract for a prior year. (Vaccaro Dep. At 52.)

BRMC has submitted numerous claims to Medicare for inpatient and outpatient hospital services, and has received payment for such claims, where Drs. Vaccaro or Saleh were identified as the attending physician in box 82 of the UB-92 claim form. (Responses to Relators' Second Request for Admissions to BRMC, Request No. 1.) Such claims were submitted electronically using the UB-92 format. (BRMC 30(b)(6) Dep. at 12-17, 26.) For inpatient claims, the ―attending‖ physician is the same as the admitting physician. (BRMC 30(b)(6) Dep. at 18.) For outpatient claims, the ―attending‖ physician is the same as the ordering physician. (Id.)

Relators allege that BRMC sought to gain substantial patient referrals for diagnostic nuclear imaging from Drs. Vaccaro and Saleh and V&S. Drs. Vaccaro and Saleh had a history of referring patients to BRMC for nuclear imaging until they invested in their own General Electric nuclear camera. With their own camera they no longer needed to refer patients to BRMC for imaging. BRMC threatened to revoke the doctors' hospital privileges, which led to lengthy negotiations. Eventually, BRMC and the V&S Defendants entered into an arrangement whereby BRMC would sublease the GE camera from V&S. BRMC's monthly sublease payments consisted of a ―pass-through‖ amount to lease the camera (equal to the amount V&S owed GE under its lease) and an additional amount for a covenant not to compete. Relators claim that this arrangement was designed so that BRMC would obtain patient referrals from V&S and Drs. Vaccaro and Saleh in return for payments in violation of the law.

In support of their claim that the sublease was intended to gain patient referrals, Relators allege the following: the GE camera, which BRMC was paying for, remained at V&S's office; because the camera remained at V&S's office, BRMC paid an additional amount to V&S for rent and other expenses; BRMC also paid V&S a 10% fee for handling the billing and collections on behalf of BRMC for tests performed on the GE camera while it remained at V&S's office; the parties ceased using the GE camera when V&S leased a new nuclear camera from Philips, although the Philips camera was located at BRMC; as part of the lease with V&S, Philips bought out the remainder of V&S's GE lease for $200,000 in exchange for monthly payments from V&S; however, BRMC executed a guaranty on the payments and in fact did make the payments for the GE lease buyout; in addition to BRMC continuing to make payments on the GE sublease even though the GE camera was no longer being used, BRMC also made payments for V&S's lease for the Philips camera and a service agreement; despite BRMC's payments to V&S on the sublease, and the buyout of the GE lease, the GE camera remained in possession of V&S until they gave it away as a charitable donation; there is no signed written agreement between the parties for (i) payment of the rent and other expenses; (ii) the 10% collection fee; (iii) payment for the Philips camera and service agreement; or (iv) the buyout of the GE lease.

Defendants deny that their arrangement was unlawful. Defendants explain that their arrangements were a reasonable and fair resolution to a dispute, and do not require the doctors to refer patients to BRMC. According to Defendants, their arrangement does not meet the definition of a prohibited direct or indirect ―financial relationship.‖ Defendants allege, among other things, that compensation from the arrangement did not vary with or take into account the volume or value of referrals from Drs. Vaccaro and Saleh. In addition, even if their arrangement did meet the definition of a ―financial relationship‖, it is still permitted as it falls within a statutory or regulatory exception.

Defendants also take exception to Relators' characterization of their relationship. Defendants maintain that the GE camera remained at V&S's office because BRMC intended to obtain a new camera, but acquisition of the camera was delayed longer than expected. Defendants also allege that the parties did enter into a written agreement for rental of V&S's space and use of V&S services. In addition, Defendants contend that the Philips camera replaced the GE camera pursuant to a provision in the GE sublease, and thus it was the written agreement regarding the sublease of the Philips camera.

Presently before the Court are cross-motions for summary judgment filed by the Relators (Doc. 110), BRMC (Doc. 113), and Drs. Vaccaro and Saleh and V&S (Doc. 124).

For the reasons that follow, we will deny Defendants' motions for summary judgment and grant in part and deny in part Relators' Motion for Summary Judgment.

II. Standard of Review

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c), Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Summary judgment may be granted only if the moving party establishes that there exists no genuine issue of material fact and that it is entitled to judgment as a matter of law. Id. Summary judgment is appropriate only when the record evidence could not lead a reasonable jury to find for the non-moving party. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248-249 (1986). In evaluating a motion for summary judgment the court does not weigh the evidence or make credibility determinations. Reeves v. Sanderson Plumbing Products, Inc., 120 S.Ct. 2097, 2110 (2000). Rather than evaluating the evidence and determining the truth of the matter, the court determines whether there is a genuine issue for trial. Anderson, 477 U.S. at 249. In reviewing the evidence, the court draws all reasonable inferences in favor of the non-moving party. Reeves, 120 S.Ct. at 1210; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986).

III. Discussion

Relators allege that Defendants submitted claims to Medicare in violation of the Stark

Act and the Anti-Kickback Act. Both the Stark Act and the Anti-Kickback Act prohibit a health care entity from submitting claims to Medicare based on referrals from physicians who have a ―financial relationship‖ with the entity, unless a statutory or regulatory exception (or ―safe harbor‖) applies. 42 U.S.C. §§ 1395nn(a)(1); 1320a-7b(b). ―Falsely certifying compliance with the Stark or Anti-Kickback Acts in connection with a claim submitted to a federally funded insurance program is actionable under the FCA.‖ United States ex rel. Kosenke v. Carlisle HMA, Inc., 554 F.3d 88, 95 (3d Cir. 2009) (citing United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir. 2004) (other citations omitted). Section 3729 of the False Claims Act imposes liability, in relevant part, on any person who:

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government... a false or fraudulent claim for payment or approval;

(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;....

31 U.S.C. § 3729(a)(1)-(2).

Relators seek judgment as a matter of law on all their claims. In the alternative, Relators seek partial summary judgment on the following issues:

1. A financial relationship existed between BRMC and Drs. Vaccaro and Saleh pursuant to the Stark Act;

2. None of the exceptions under the Stark Act apply to Defendants;

3. BRMC offered and paid remuneration to the V&S Defendants, and the V&S Defendants solicited and accepted such remuneration as an inducement or reward for referrals of medical services payable under federal healthcare programs in violation of the Anti-Kickback Act;

4. None of the ―safe harbor‖ provisions under the Anti-Kickback Act apply to Defendants;

5. BRMC submitted claims for payment to Medicare based on referrals from Drs. Vaccaro and Saleh pursuant to the Stark and Anti-Kickback Acts, and received payment from Medicare for such claims;

6. V&S Defendants caused the submission of such claims; and

7. Defendants acted knowingly, as that term is used in the False Claims Act. BRMC and the V&S Defendants move for summary judgment and dismissal of the Complaint, arguing that judgment as a matter of law is appropriate with respect to the following:

1. There is no direct or indirect financial relationship between BRMC and either Dr. Vaccaro or Dr. Saleh as defined by the Stark Act and accompanying regulations;

2. Even if Defendants' financial relationship were considered to fall within the Stark Act, the relationships are permitted under the exceptions of the Stark Act;

3. Any financial relationship between BRMC and V&S and/or Drs. Saleh and Vaccaro do not violate the Anti-Kickback Act because the relationships fit within the applicable safe harbor provisions of the Act;

4. BRMC made no certifications of compliance with the Stark Act or Anti-Kickback Act when it submitted claims to Medicare, Medicaid, or any other federal health care program, and the Stark Act only applies to claims submitted to Medicare and Medicaid;

5. The V&S Defendants have not made any false or fraudulent claims for payment, and have not used or made a false record or statement, to the Government, nor did they have any reason to believe that their actions would or could cause the filing of a false claim or use of a false record or statement;

6. The V&S Defendants do not possess the required scienter for any violation of the False Claims Act.

We begin with the Stark Act. We will first determine if a financial relationship exists between BRMC and Drs. Vaccaro and Saleh, either direct or indirect, which ―trigger[s] the restrictions by the Stark and Anti-Kickback Acts on the submissions of claims for services rendered following ‗referrals' by a physician having a ‗financial relationship' with the service provider.‖ Kosenke, 554 F.3d at 91. If a financial relationship exists, we then must determine whether any exception applies that permits the relationship. If no exception applies, we then turn to the issues of whether BRMC has submitted claims for designated health services based upon referrals from Drs. Vaccaro and Saleh, and the amount of damages.

Next, we examine the Anti-Kickback Act, keeping in mind that the requirements of the Anti-Kickback Act and its implementary regulations are for the most part the same as the Stark Act. Here, we must determine if the payments by BRMC were knowingly intended to induce or reward referrals, and if so, whether any of the Act's safe harbor provisions apply. Finally, we ...


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