Can an Arbitrator Rule Against a Hospital for Not Violating the Anti-Kickback Statute?

Here’s a nightmare.  An arbitrator rules against your hospital for failing to honor an agreement to refer Medicare patients to a home health agency.  Why?  Because the home health agency paid your hospital good money for the referrals, that’s why.  What’s more, your state’s highest court says it can’t listen to your argument that the ruling makes you liable for not violating the Anti-Kickback Statute.

That’s the way Jupiter Medical Center (JMC) described its situation in a petition to the United States Supreme Court.

Back in 2005 the Visiting Nurse Assoc. of Fla. (VNA) paid cash to purchase JMC’s own home health agency, as well as for space in the hospital’s discharge planning area.  VNA also agreed to take over JMC’s lease in another building and to buy “JMC’s market share of HHA [i.e., home health agency] referrals.”  The contract provided that if a JMC patient expressed no preference for a particular home health agency, JMC would inform the patient of its special relationship with VNA.

But JMC didn’t follow that procedure.  Instead, when a patient had no preference, discharge personnel used a rotation system to choose the agency, treating VNA the same as all other agencies.  JMC also stopped telling patients that it had a relationship with VNA, and it threw VNA out of its office space in the hospital.  VNA stopped paying rent on the space in the other building.

When JMC sued, VNA invoked the agreement’s arbitration provision.  The arbitrator found JMC in breach for failing to follow the agreed-upon discharge procedure and for throwing VNA out of its space in the hospital.  JMC was ordered to pay about $1.6 million.

JMC sued in federal court to vacate the order on the grounds that it interpreted the contract in a way that violated federal and state law, notably the Anti-Kickback Statute.  When the court dismissed for lack of subject-matter jurisdiction, JMC sued in state court.  Before the Florida Supreme Court, JMC argued that a court must decide whether a contract is legal before it can enforce an arbitrator’s award.  VNA argued that the arbitrator gets to decide the legality of the contract.

The Florida Supreme Court acknowledged that the federal circuits are divided on the issue, but it came down on the side of VNA, ruling that the Federal Arbitration Act contains the exclusive grounds for vacating or modifying an arbitration ruling, and that the grounds asserted by JMC are not among them.

On February 4 JMC filed its petition for certiorari with the U.S. Supreme Court.  Jupiter Med. Center v. Visiting Nurse Assoc. of Fla., U.S. No. 14-944.

Today’s post was contributed by Norman G. Tabler, Jr.

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