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In what we believe to be the first criminal prosecution for deemed export violations in connection with university-based research, the director of a University of Tennessee (UT) research spin-off company that licenses UT-affiliated patents recently pled guilty in federal court to conspiring to violate the Arms Export Control Act. The director and a UT professor allowed a foreign student from China to have access to sensitive technical information in UT's plasma laboratory. Allowing a foreign national to have access to sensitive, controlled information in the United States is known as a "deemed export" because the information is deemed to be exported to the home country of the foreign national. None of the parties obtained a deemed export license. The professor was not charged.

This prosecution is part of what officials have described as an ongoing federal crackdown on China's efforts to obtain U.S. technology through commercial dealings, academic exchanges, and espionage. A number of countries are actively seeking out military and dual-use technology, and China is among the most aggressive, according to the U.S. Department of Justice. When universities and others have contracts with the U.S. military to manage sensitive research, they often explicitly agree not to disclose certain sensitive information to foreign nationals.

This case shows that not only corporations, research facilities and universities can be held liable, but individuals can and will be prosecuted by the Department of Justice for failure to obtain required deemed export licenses. Universities, research institutions, and individual professors and researchers often rely too heavily on the fundamental research exemption under U.S. export control laws and regulations. This exemption does not provide a blanket exception for all research activities as this prosecution demonstrates.

Our international trade group has assisted numerous clients with identifying and obtaining required deemed export licenses, providing export controls awareness training, and implementing export compliance policies and procedures.

The U.S. District Court for the Western District of Kentucky has dismissed a whistleblower lawsuit under the federal False Claims Act, holding that the relationships among the parties named in the lawsuit did not violate the physician self-referral law, known as the Stark Law, or the anti-kickback statute. United States ex rel. Villafane v. Solinger, No. 3:03-cv-519 (W.D. Ky. Apr. 8, 2008). The lawsuit, filed by a cardiologist and former medical school professor, alleged that the flow of funds between Kosair Children's Hospital (Kosair) in Kentucky and physician faculty members of the University of Louisville violated the Stark Law and the anti-kickback statute and thus, that claims submitted by Kosair to the Medicaid program were false claims.

The defendants filed a motion for summary judgment on the basis that the financial relationships qualified for the academic medical center (AMC) exception to the Stark Law. Following a lengthy hearing in which each component of the AMC exception was explored, the court dismissed the lawsuit. The opinion closely examines certain requirements of the exception, compliance with which were contested by the parties. Noteworthy is the court's discussion of the requirement that faculty provide substantial academic or clinical teaching services, which the court held did not require particular time record-keeping methodologies. The court also discussed the issue of fair market value compensation at length. The court consistently stated that the Stark Law regulatory text indicates a desire to provide flexibility to AMCs through the AMC exception and avoid application of its requirements in a hyper-technical manner.

Finally, the court considered whether the arrangement violated the anti-kickback statute. Noting an apparent conflict between what the Stark Law expressly permits via the AMC exception and what the anti-kickback statute seems to prohibit if the court were to consider the possibility of referrals to Kosair as indicative of improper intent, the court found that the arrangement did not violate anti-kickback law.

The Department of Justice's Antitrust Division seems out to prove yet again the old Washington maxim, "the cover up is worse than the crime." The government recently indicted a Bristol-Myers Squibb (Bristol-Myers) former Senior Vice President of Strategy for lying to regulators. The company had previously agreed to plead guilty in a related case. The new indictment claims the executive, Andrew Bodnar, lied to the Federal Trade Commission (FTC) about a patent settlement reached with its competitor Apotex, a company seeking to market a generic version of Bristol-Myers' marquee product, Plavix.

According to the indictment, Bristol-Myers was under a consent decree that required it to seek prior opinions from the government regarding its patent settlements to ensure that such settlements were not anti-competitive. Apparently, the government had raised precisely such concerns about a proposed Plavix settlement and sent the parties back to the negotiation table. That, according to the indictment, is where the trouble began. Evidently, Bodnar conducted the negotiations and cut an oral side deal with Apotex that was not reflected in the settlement document. When Apotex, but not Bristol-Myers, reported the additional terms to regulators, the FTC confronted Bodnar. According to the indictment, he lied by filing a false certification stating that the deal's terms were all contained in the written settlement.

The case is worth noting for several reasons. First, it should remind corporate actors of the perils of acting precipitously while under a settlement agreement or monitorship with the government. Even actions that might be permissible under normal business conditions, can raise serious issues in the context of such an agreement. Second, the prosecution demonstrates the government's continued emphasis on obstruction-related enforcement. It is one more in a series of high profile cases, from Arthur Andersen to Martha Stewart to Scooter Libby, in which prosecutors have failed to charge the underlying crime being investigated, but instead have based their only case on the defendant's interaction with the government. These cases serve as a continuing reminder of the importance of carefully counseled actions when dealing with government actors.

What Happened: The Department of Justice recently settled a False Claims Act case brought against Savannah, Georgia's Memorial Health University Medical Center (Memorial) and two of its physician groups by a whistleblower for $5.08 million. The underlying allegation in the case was that a Memorial physician group violated the Stark Law by distributing compensation purportedly provided by Memorial for teaching and indigent care services to only a small number of physicians to retain them as Memorial employees, rather than to the physicians who actually provided the teaching and indigent care services. The whistleblower alleged that the resulting physician compensation was not commercially reasonable and was in excess of fair market value. As with many whistleblower cases, this case was brought by a formerly employed physician.

What it Means: More than a W-2 employment relationship is needed to meet the Stark Law employment exception. Hospitals and health systems should review the compensation paid to employed physicians to ensure that the amounts are commercially reasonable and consistent with fair market value for the services provided by each physician.

Unique about this case is that it directly involved referrals made by hospital-employed physicians to the hospital, which should be unsettling to hospitals and health systems. Many times hospitals and health systems rely on the employment exception to the Stark Law, focusing on the fact of W-2 employment and not adequately considering that the exception also requires that the compensation be consistent with fair market value, not be determined in an amount that takes into account the volume or value of referrals made by the physician (other than personally performed services) and be commercially reasonable. For example, in the case of highly compensated employed physicians, the hospital may fail to obtain outside confirmation of the compensation to be paid as fair market value, which is recommended.

Hospitals and health systems should revisit their compensation policies and practices with respect to employed physicians to ensure that they comply with all elements of the employment exception to the Stark Law.

A radiologist employed by an imaging center blew the whistle on his boss, claiming that he and University MRI and Diagnostic Imaging Centers (University) facilities charged for CT scans with and without contrast, even though many were performed without contrast only, and performed additional scans that were not ordered by the referring physicians and, according to the government, not medically necessary. The government also alleged that the radiologist and his companies paid illegal inducements to referring physicians and chiropractors in the form of medical directorships, clinical research agreements and employment arrangements which exceeded fair market value, by offering facility use and equipment lease arrangements at below fair market value and through other arrangements that failed to comply with federal Stark and anti-kickback laws.

Under a settlement agreement announced April 14, 2008, the radiologist and University agreed to pay $7 million, as well as to refund any unallowable costs that had been paid by the government, in order to resolve the allegations. In addition to the settlement, the radiologist's business entities also entered into a corporate integrity agreement with the U.S. Department of Health and Human Services (HHS). The whistleblower will receive 25% of the spoils totaling more than $1.75 million as his share of the recovery.

The settlement, which ranks among the largest recoveries against a single physician's practice, underscores the government's intensified enforcement focus on quality, utilization and medical necessity of imaging services, as well as the financial relationships of the physicians who provide the services, especially in high utilization growth rate areas such as radiology. The federal government has recently had some success attacking medical directorship and consulting agreements including this case and a highly publicized case involving a group of orthopedic device manufacturers. Healthcare providers would be well-advised to review the terms of their medical director agreements and other arrangements with physicians to assure that such agreements cannot be characterized as "sham arrangements," designed to induce referrals in order to proactively address the federal government's compliance priorities before the agents come knocking.

On April 16, 2008, the HHS Office of Inspector General (OIG) published its draft Supplemental Compliance Program Guidance (CPG) for Nursing Facilities. The draft CPG is designed to help nursing facilities develop and implement programs to address areas of risk and governmental focus in their compliance programs. However, the CPG also contains anti-kickback guidance that should be considered by all healthcare providers and suppliers.

In particular, the CPG provides a useful list of screening criteria suggested by the OIG to evaluate provider relationships with third parties under the federal anti-kickback statute. Violation of the criteria, however, does not mean that a relationship is improper, only that it warrants further analysis. The OIG's criteria are:

1. Does the provider or supplier (or its affiliates or representatives) provide anything of value to persons or entities in a position to influence or generate federal healthcare program business for the provider or supplier (or its affiliates), directly or indirectly?
2. Does the provider or supplier (or its affiliates or representatives) receive anything of value from persons or entities for which it generates federal healthcare program business, directly or indirectly?
3. Could one purpose of the arrangement be to induce or reward the generation of business payable in whole or in part by a federal healthcare program?
4. Does the arrangement or practice have a potential to interfere with, or skew, clinical decision-making?
5. Does the arrangement or practice have a potential to increase costs to federal healthcare programs or beneficiaries?
6. Does the arrangement or practice have a potential to increase the risk of overutilization or inappropriate utilization?
7. Does the arrangement or practice raise patient safety or quality of care concerns?
8. What degree of influence do the parties have, directly or indirectly, on the generation of business for each other?
9. Were parties to a transaction selected to participate in an arrangement in whole or in part because of their past or anticipated referrals?
10. Does the remuneration take into account, directly or indirectly, the volume or value of business generated? Is the remuneration conditioned in whole or in part on referrals or other business generated between the parties? Is the arrangement itself conditioned, directly or indirectly, on the volume or value of federal healthcare program business? Is there any service provided other than referrals?
11. Is the remuneration fair market value in an arm's-length transaction for legitimate, reasonable, and necessary services that are actually rendered? Is the provider or supplier paying an inflated rate to a potential referral source? Is the provider or supplier receiving free or below-market rate items or services from the third party vendor? Is compensation tied, directly or indirectly, to federal healthcare program reimbursement? Is the determination of fair market value based upon a reasonable methodology that is uniformly applied and properly documented?
12. Are items and services actually needed and rendered, commercially reasonable, and necessary to achieve a legitimate business purpose?
13. Would acceptance of the remuneration diminish, or appear to diminish, the objectivity of professional judgment? If the remuneration relates to the dissemination of information, is the information complete, accurate, and not misleading?
14. Is the arrangement properly and fully documented in writing? Are the parties documenting the items and services they provide? Is the provider or supplier monitoring items and services provided by outside vendors? Are arrangements actually conducted according to the terms of the written agreements?