Early this year, the United States Third Circuit Court of Appeals issued a decision that should cause hospital administrators and group medical practice compliance officers to immediately contact their legal counsel to determine whether their physician contracts are current. This case, Kosenske v. Carlisle HMA, is the result of an action brought by a former anesthesiology group member practicing at Carlisle Hospital.

In short, in 1992 Dr. Kosenske’s former anesthesiology group entered into an exclusive contract with the Carlisle Hospital for the provision of anesthesiology services, including agreeing to provide coverage at the hospital 24/7. In exchange, the hospital agreed to provide all necessary staff, space, equipment and supplies and also agreed to exclude any other anesthesiology groups from practicing at the hospital. Some six years later, the hospital built a free standing ambulatory surgery center which included a pain management clinic. Dr. Kosenske’s former anesthesiology group and the hospital treated the new facility as being covered by the 1992 contract relating to anesthesiology services at the Carlisle Hospital.

Apparently Dr. Kosenske had a falling out with his anesthesiology group and established a separate practice. He then filed a qui tam action (under the Federal False Claims Act) alleging that the Anti-Referral and Stark Law provisions were being violated by his former anesthesiology group and the hospital at the ASC.

The Third Circuit Court of Appeals found that because a separate written contract had not been established for the ASC, Stark Laws were violated. The case has been referred back to the Federal District Court to determine further matters, including damages.

As this case makes clear, hospitals and group practices must ensure that any relationship they have is covered by current and appropriate written contracts. Also, Stark Law exceptions which require that personal service contracts must be in writing, require such contracts be for a term of one (1) year, must be complete, and must document compliance with fair market value determinations. Failure to properly document this relationship, even if the relationship otherwise would be fully defensible, can result in expensive and harmful litigation.

We urge you to carefully review not only your existing contracts, but to review all your existing relationships with hospitals, clinics and ASCs to move them into full compliance.

If you would like a copy of the Third Circuit Court of Appeals case, also feel free to call. We will be glad to e-mail a copy to you promptly.

If at anytime we may be of assistance in this review, please feel free to call.

Paul J. Wallace