On March 15, a federal district court in the Western District of Pennsylvania endorsed CMS commentary from November 2015 that dramatically liberalized the “written agreement” requirement of core Stark exceptions, thus providing some new insights as to what may be the outer limits of CMS’s new approach. When ruling on cross motions for summary judgment filed by the relator and the medical center and physician defendants, respectively, the court issued an opinion (U.S. ex rel. Emanuele v. Medicor Associates) that in some cases accepted—and in other cases rejected—a ‘collection of documents’ defense with respect to a series of medical directorship arrangements, some of which had initially been memorialized by a formal contract but allowed to repeatedly expire, and others which were never formally memorialized.
The Court focused on whether each of the respective medical directorship arrangements satisfied the “written agreement” requirement for either the Stark fair market value compensation (FMV) or personal services exceptions. Both of these exceptions require that the arrangement be in writing and signed by the parties.
The Court confirmed that to meet the “written agreement” requirement of the FMV or personal service arrangements exceptions, there does not need to be a single formal contract that encompasses all material aspects of the relationship. Rather, a collection of documents may potentially suffice. For some of the medical director arrangements before the Court, the Court found the original executed agreements, subsequent addenda, invoices, and checks were sufficient to meet the “written agreement” requirement, even though these agreements were expired for months at a time.
Conversely, when it addressed a Womens’ Cardiac Services Director arrangement, the Court refused to recognize a written agreement where a draft was unsigned and had apparently never been circulated, a formal contract was never ultimately executed, and documents such as emails and memoranda only referenced the directorship in very general terms. The Court emphasized that a collection of documents, to effectively satisfy the writing requirement, must contain at least some documentation bearing the signature of the parties, and at a minimum must outline (1) identifiable services, (2) a timeframe, and (3) a rate of compensation. Curiously, the Court appeared to imply that the defendants had not provided signed and endorsed checks with respect to this arrangement, and the opinion does not indicate whether payment amounts corresponded to the terms of the draft agreement, so it is difficult to tell whether pleading and proving additional facts could have potentially salvaged even this arrangement.
The Court similarly rejected a ‘collection of documents’ defense with respect to a Cardio-Vascular Chair position, as a cited document “suggest[ed] that several critical terms had yet to be determined, rather than that they had been agreed upon.”
The Court also refused to apply the Stark isolated transaction exception to a payment for various invoices for services provided under the Womens’ Cardiac Services Director arrangement and the Cardio-Vascular Chair position. According to the Court, the payment issued in the instant case was not an isolated transaction, but rather was better characterized as the first installment in a series of payments, as the parties continued to provide services and payments related to those arrangements for the fifteen months following the initial payment. The Court also included dicta that may serve as a caution to providers considering whether to rely on aggressive uses of the isolated transaction exception, when it further stated that this exception “typically arises only in the context of uniquely singular transactions,” such as the purchase of a physician’s medical practice.
While future commentary and other cases will undoubtedly continue to flesh out the exact parameters of Stark’s “written agreement” requirement, the Emanuele decision should generally afford parties further comfort in relying on the November 2015 liberalizations for many common fact patterns, while demonstrating that courts are not hesitant to scrutinize particularly aggressive applications of a “collection of documents” defense.
The Stark discussion that the Court references appears at pages 71,314 through 71,316 of the November 2015 final rule and commentary.