Patient Referral Gambit Could Close In on Tenet

(CN) - Tenet Healthcare cannot dismiss claims that it violated anti-kickback laws by leasing office space at below-market rates to referring physicians, a federal judge ruled.

Real estate investor Marc Osheroff sued Tenet in 2009, alleging that the health care provider had defrauded the government by offering doctors office space at rates below fair market value, as well as other benefits, in exchange for Medicare and Medicaid patient referrals.

Osheroff, whose company owns and operates a medical office building adjacent to one of Tenet's hospitals in Hialeah, Fla., claimed that Tenet had violated two federal statutes: the Anti-Kickback Statute and Stark Law.

The Anti-Kickback Statute bars health care providers from knowingly paying physicians to push Medicare or Medicaid patients their way.

The Stark Law prohibits doctors from referring patients to medical facilities in which they have a financial interest. It nevertheless lets medical providers lease space to referring physicians when rental charges are consistent with fair-market value and not dependant upon the volume of patient referrals.

Osheroff argued, however, that Tenet's rates fell way below fair market value.

Tenet countered that the claims failed to show intentional fraud or the existence of a prohibited financial arrangement with physician-tenants. It also argued that Osheroff had failed to establish a benchmark of fair-market value under which Tenet leased space to doctors.

U.S. District Judge Paul Huck refused, however, to dismiss most claims. Osheroff could use Tenet's Medicare provider agreements and hospital cost reports to show that Tenet had falsely certified compliance with federal laws in seeking payments from the government, according to the ruling.

Huck disagreed with Tenet that it could not be held liable for "promises to comply with health care laws in the future."

Tenet received payment from the government for services the government would not have reimbursed had it known of Tenet's alleged anti-kickback violations, according to the March 27 ruling.

"If that weren't the case, and Tenet's promise of future compliance was nothing more than just that - a promise that didn't affect Tenet's standing to seek payment from Medicare - healthcare providers like Tenet 'would be virtually unfettered in [their] ability to receive funds from the government while flouting the law,'" Huck wrote.

By claiming that its services complied with federal laws, Tenet may also have made misrepresentations in its cost reports that influenced Medicare payment decisions, the judge added.

Huck also found that Osheroff's detailed allegations as to the benchmark of fair market value in Tenet's lease terms may support a claim under the False Claims Act.

"It may very well be the case that Tenet's attack on relator's methodology of arriving at a benchmark of fair market value is entirely appropriate," the ruling states. "But at this stage in the litigation, it is not the court's role to weigh the merits of relator's and Tenet's respective positions. Under the court's very circumscribed review, the court's role is only to determine whether relator plausibly alleges that Tenet was charging its physician-tenants rent that was inconsistent with fair market value - not to determine definitively whether the figure relator advances, in fact, represents fair market value."

Osheroff does not have to allege that the alleged below-market-rate leases led physicians to refer patients to Tenet. His claim that Tenet was motivated to offer cheap office space at least in part to induce patient referrals satisfies the pleading burden under the Anti-Kickback Statute, according to the ruling.

What's more, Osheroff offered enough details to support the claim that Tenet offered below-market-rate leases to induce referrals. For instance, Osheroff alleged that Tenet understated the size of the office space to charge referring physicians less, and required non-referring physicians to pay a higher rate per square foot than referring physicians, the ruling adds.

Huck dismissed Osheroff's claim that Tenet made a fraudulent statement to avoid or decrease its obligation to the government, but allowed Osheroff to amend it.

The judge stayed the action on Friday, asking the parties to file a joint proposal regarding trial and discovery matters.

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