Court Rejects Qui Tam Attack on Standard On-Call Contract

On June 10 the Third Circuit affirmed a lower court’s dismissal of a physician’s qui tam action against Pottstown Memorial Medical Center (PMMC) for violating the Anti-Kickback Statute (AKS) and False Claims Act (FCA).  And it’s a good thing because the basis of his claim was an on-call coverage arrangement that is common across the country—“indistinguishable from a standard business transaction,” in the words of the court.

Orthopedic surgeon Alan Cooper alleged that in 2010 he entered into an on-call contract with PMMC, terminable without cause by either side on 60 days’ notice and paying him $650 per on-call day.  He alleged that when a new surgical hospital opened nearby, PMMC executives urged him to divest his interest in it and that when he didn’t comply, PMMC terminated his contract.

Cooper alleged that in March 2011 he entered into a new on-call contract with PMMC allowing him to retain his interest in the surgical hospital but barring him from providing services to any other facility within 30 miles.  He alleged that the next month PMMC informed him that his employment contract with PMMC wouldn’t be renewed because of his stake in the for-profit hospital, but that his on-call contract would remain in effect.

According to Cooper, loss of his employment contract with PMMC caused him to enter into an employment contract with St. Joseph’s Hospital, and PMMC, citing that relationship as a violation of his noncompetition covenant, terminated the on-call contract.

In his qui tam action Cooper took the position that his on-call contracts were actually a scheme to induce him to refer Medicare patients to PMMC in violation of the AKS and that since PMMC’s Medicare claims falsely certified compliance with the AKS, they violated the FCA, as well.  As he saw it, PMMC’s termination of his contracts for involvement with other hospitals proved his theory.

The district court wasn’t impressed with Cooper’s theory, finding it “implausible.”  The court noted that Cooper didn’t allege that PMMC had no legitimate business need for the contracts or that his compensation was higher than fair market value.  In addition, he certified in the contracts that he wasn’t being paid for referrals.

What’s more, the court found “more plausible explanations” than Cooper’s theories for terminating the contracts.  The court noted that PMMC had a right to terminate the first contract without cause and did so upon learning of Cooper’s interest in a competing facility.  The court also noted that the second contract had a noncompetition covenant, which Cooper violated.

So the district granted Pottstown’s motion to dismiss.  Cooper appealed, and on June 10 the Third Circuit affirmed.  In doing so the court noted that Cooper failed to “aver any facts to enable the Court to plausibly distinguish the relationship between Pottstown and himself from a typical arms-length contract in which compensation is paid solely in exchange for on-call services.”  Secondly, even granting every inference in his favor, Cooper’s allegations conceded that PMMC had a right of termination under the contracts, and in the contracts he acknowledged that he was not being paid for referrals.

The case is Cooper ex rel. United States v.  Pottstown Hosp. Co., No. 15-1748 (3d Cir. 2016).

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