On March 10, 2014, Halifax Hospital Medical Center and Halifax Staffing, Inc. (collectively, “Halifax”) entered into a settlement agreement and a corporate integrity agreement (“CIA”) to resolve claims brought under the False Claims Act (“FCA”), alleging Halifax entered into improper incentive compensation arrangements with certain physicians in exchange for Medicare referrals. Halifax agreed to, among other things, pay $85 million in damages, with nearly a quarter of the settlement to go to the qui tam relator, and admit that it violated the Stark Law as described in an earlier ruling by the court. The settlement is said to be one of the largest for Stark Law violations.

Under the CIA, which has a five-year term, Halifax must retain an Independent Review Organization (“IRO”) to perform annual reviews for submission to the OIG on whether Halifax is complying with the terms of its CIA. The CIA also requires the Board of Commissioners of Halifax to be responsible for the review and oversight of matters related to compliance with Federal health program requirements and the obligations of the CIA, including meeting at least bimonthly to review and oversee the compliance program and considering the results of the compliance program reviews required by the CIA. In addition to the IRO, Halifax must retain a “Board compliance expert” to assist the Board of Commissioners in fulfilling these responsibilities during the term of the CIA. The CIA also includes the standard reporting and certification requirements found in these types of agreements. The settlement and corresponding CIA arises out of a June 2009 lawsuit filed by qui tam relator, Elin Baklid-Kunz, the Director of Physician Services at Halifax. Relator’s lawsuit alleged improper billing practices and unnecessary medical admissions in violation of the FCA, and separate Stark Law violations based on alleged improper incentive compensation arrangements whereby physician bonus payments were divided and varied based on the volume of Medicare referrals by each physician. This, in turn, led Halifax to falsely certify compliance with the Stark Law and submit claims in violation of the FCA.

In October 2011, the Government intervened as to the Stark Law-related claims, but declined to intervene as to relator’s remaining FCA claims alleging improper billing practices and unnecessary medical admissions. In November 2013, the Court granted partial summary judgment for the Government, finding a Stark Law violation in fact occurred due to the incentive compensation arrangement, but found a genuine dispute of fact regarding the extent of the violation and whether Halifax acted “knowingly” as required to state a claim under the FCA. The Court also did not address relator’s remaining FCA claims and thereafter severed, for purposes of trial, the “knowledge” and damages elements of the alleged Stark Law violations from relator’s remaining FCA claims alleging improper billing practices and unnecessary medical admissions.

The March 10, 2014 settlement resolves only the alleged Stark Law violations. The remaining FCA violations advanced by relator for improper billing practices and unnecessary medical admissions are set for trial on July 8, 2014.

Though beyond the scope of this discussion, the Halifax case also dealt with the attorney client privilege and whether such privilege had been waived by Halifax by virtue of the manner in which the internal investigation had been handled. As a result, practitioners should carefully review the court’s analysis of this issue.