Now is Not the Time to Relax: Record Settlements in Stark Law and False Claims Cases


In early May 2024, the University of Pittsburgh Medical Center (UPMC) agreed to pay $38 million to resolve a False Claims Act case based on alleged Stark Law violations. The size of the settlement in United States ex rel. J. William Bookwalter, III, M.D., et al. v. UPMC is believed to be among the largest FCA settlements in U.S. history where the U.S. Department of Justice (DOJ) chose not to intervene. It follows on the heels of what is reported to be the largest ever Stark Law-based False Claims Act case, the DOJ’s December 2023 settlement in United States ex rel. Thomas Fischer v. Community Health Network, Inc. In the Community Health Network (CHN) case, where DOJ did elect to intervene, the Indiana-based health system defendant agreed to pay $345 million to resolve claims that compensation to certain employed physicians violated the Stark Law and False Claims Act.

Both cases serve as reminders of the critical importance of being able to demonstrate that compensation in hospital-physician financial arrangements is consistent with fair market value and does not take into account the volume or value of referrals or other business generated between the parties. The UPMC case also goes far in debunking the notion that a decision by DOJ not to intervene in an FCA case essentially means that the matter is over. While the burden certainly becomes higher when DOJ passes on intervention, the settlement in UPMC will likely operate as strong motivation for private litigants to continue pursuing matters they believe have merit.

Physicians and Chief Financial Officers Make for Good Relators

In FCA parlance, the person who brings the action on behalf of the federal government is known as the “relator”. The relators in the UPMC case were three former employees: a neurosurgeon, a neuropsychologist and a surgical technologist. The allegations were straightforward; UPMC, it was claimed, paid neurosurgeons compensation that was “well above fair market value” as a way of inducing them to refer patients to various locations within the health system. This supposedly occurred through a combination of base payments and productivity bonuses. The relators argued that this meant the arrangement violated the Stark Law and that claims billed to Medicare and Medicaid in violation of the Stark Law are actionable under the False Claims Act (FCA).

The CHN case involved similar types of allegations, including that the defendant paid salaries that exceeded fair market value and could be as much as twice what the physicians received in their own private practices along with incentive bonuses that were based on the physicians hitting referral targets. The case also included an allegation that CHN retained a valuation firm and knowingly provided it with false data so that the firm would render a favorable opinion on the physicians’ compensation. The relator in CHN was the system’s former Chief Financial Officer and, for a time, Chief Operating Officer. He had responsibility and oversight for CHN’s finances and operations.

The Fulcrum: DOJ’s Choice on Intervention

When an FCA case is filed the DOJ is given the opportunity to “intervene” and take over the matter. If that happens, DOJ prosecutes the case directly. Intervention is a critical turning point; if it occurs, the government’s vast resources can be brought to bear in the matter. This frees the relator and their counsel from the burden involved in having to pursue the action on their own.

The potential penalties that can be imposed under the FCA are so significant that health care organizations often feel they have no choice but to settle a matter when the DOJ has intervened. In 2024, for example, the minimum, per-claim penalty under the FCA is $13,946 and the maximum per-claim penalty is $27,894. This is on top of the “treble” damages (three times the amount of the actual damages the government has sustained) that can be imposed. The notion of litigating the matter against DOJ can be very daunting in light of what can often be business-shuttering financial exposure.

Where DOJ decides not to intervene, private litigants can pursue the matter themselves on behalf of the government. However, when this happens they are left to do all of the work, and cover all of the expenses, on their own. The time and cost associated with pursuing an FCA case, particularly where the issues are complex, can be so significant that private litigants often choose not to go forward. The historic importance of intervention is illustrated by the data; in 2023, for example, 81% of the FCA recoveries occurred in cases where DOJ elected to intervene.

Intervention is also important for a different reason. The potential amount available to the relator is higher in cases where DOJ does not intervene. In those situations, the relator can receive between 25% and 30% of the total recovery (as compared to a share of between 15% and 25% if DOJ does intervene). In the recent UPMC settlement, the relator’s share is reported to be 29%, which translates to a payout of more than $11 million.

Fair Market Value & the Volume or Value of Referrals and Other Business Generated

The overarching Stark Law principle that, in general, compensation between physicians and the entities to which they refer patients for designated health services (DHS) should be consistent with fair market value has on the books for decades. Similarly, it is well established that an entity’s financial relationship with a referring physician cannot take into account the volume or value of those referrals or other business that the physician generates.

Nevertheless, compliance with these two issues has tended to be the primary area of focus in most of the more well known Stark Law and False Claims Act enforcement actions that have occurred over the years. There are a variety of reasons for this. For one, “inpatient and outpatient hospital services” are the most broadly defined categories of designated health services (DHS) under the Stark Law. This means that physicians who provide services on behalf of hospitals tend to generate much higher volumes of DHS referrals as compared to physicians who work in other settings. Two, hospital reimbursement is generally higher than payment in most other care settings. This means the total dollar amount that can be implicated for DHS furnished in physician / hospital arrangements is usually higher than DHS provided in other settings. Finally, in what is probably something of a self-fulfilling prophecy, most of the more famous Stark Law / FCA matters that have occurred in the past have involved hospital—physician arrangements. That likely has the knock-on effect of driving regulatory agencies, government attorneys, potential whistleblowers and the qui tam law firms that bring these cases to focus more and more on the same kinds of arrangements.


So what lessons do cases like UPMC and CHN have for the health care industry?

  • Not all valuations are created equal. The level of scrutiny prosecutors and enforcement agencies have applied to fair market value analyses has increased dramatically over the years. DOJ and other agencies have a stable of experts available to drill into valuations and challenge underlying assumptions, methodologies and conclusions. Parties should ensure that the valuations or other bases or approaches they use to support physician compensation would be likely to survive the kind of scrutiny that has been used in recent years. Quite a bit can be learned by going back and seeing what the government’s experts have said about some of the valuations that have come before them in various enforcement actions.
  • Watch out for positive and negative correlations. In 2020, CMS rewrote the Stark Law’s rules on determining whether compensation takes into account the volume or value of referrals to focus on whether there is a “positive” or “negative” correlation between referrals, or other business that a physician generates, and compensation. The agency explained that answering this question requires application of a “mathematical formula”. While applying these tests to some compensation methodologies can be straightforward, that is not always the case. Parties that have adopted unique, novel or complex bonus pools or incentive programs—or parties who may have adopted a clear cut method in the past, but have perhaps shifted the formula to something more nuanced over time—may want to sit with CMS’ explanation of the volume / value standard. In particular, it can be helpful to think about how the methodology at issue would be understood by an objective, third party who is not familiar with your organization or its history and past practices. Would they see the kind of positive or negative correlation on which CMS is focused?
  • Many of the larger False Claims Act, Stark Law and Anti-kickback Statute matters that have occurred over the years have been based, at least in part, on internal communications, like emails or meeting minutes, that can be read to suggest the existence of problematic intent. At best, these documents often show a misunderstanding of relevant concepts or poor word choices among the writers. Hospitals, physicians and other providers will do well to consider whether they have conducted an appropriate of degree of training and internal education on these and other critical regulatory principles or whether some sort of refresher or updated compliance materials might make sense for their organization.

If you have questions about the Stark Law or False Claims Act, please contact Jesse Berg or your Lathrop GPM attorney.