Third Circuit: Pottstown hospital did not violate Anti-Kickback Statute, False Claims Act

By Nicholas Malfitano | Jun 22, 2016

PHILADELPHIA – A federal appellate court recently rejected the notion that Pottstown Memorial Medical Center violated the Medicare and Medicaid Patient Protection Act of 1987 (Anti-Kickback Statute) and the False Claims Act.

Judges Thomas L. Ambro, Thomas M. Hardiman and Richard L. Nygaard from the U.S. Court of Appeals for the Third Circuit opted to uphold a District Court dismissal of Dr. Alan E. Cooper’s lawsuit versus Pottstown Hospital Company, LLC and Community Health Systems Professional Systems Corp. (CHSPSC).

Nygaard wrote the Court’s opinion in this matter.

“Cooper alleges that Pottstown violated the Anti-Kickback Statute by contracting twice with him to be an on-call physician. He asserts that, although he was unaware of the scheme, the real purpose of these contracts was to ensnare him in a scheme in which Pottstown paid him for on-call services in exchange for his exclusive referral of Medicare-eligible patients to Pottstown,” Nygaard said.

“Cooper further alleges that Pottstown falsely certified compliance with the Anti-Kickback Statute each time it submitted a claim for payment to the government arising from services to Medicare patients that he referred. Finally, he asserts that CHSPSC is liable for its role in authorizing and encouraging the on-call contracts that Cooper claims grounded the kickback scheme,” Nygaard continued.

Nygaard said a problem with Cooper’s complaint is that “he avers a contractual relationship between Pottstown and himself that is indistinguishable from a standard business transaction.”

“His claim relies heavily on the timing of his dismissals to Pottstown’s discovering (in the case of the first contract) that he owned an interest in, and was referring patients to, a medical practice that was competing with Pottstown; and (in the case of the second contract) that he was employed by St. Joseph’s Medical Center, another hospital in the same geographic locale as Pottstown,” Nygaard said.

According to Nygaard, Cooper also alleged he was the only on-call surgeon who was terminated in both instances, and is convinced this shows Pottstown retaliated against him because “he was not referring Medicare patients exclusively to Pottstown.” Nygaard said Cooper believed this was enough to survive a motion to dismiss.

Unfortunately for Cooper, Nygaard said, his complaint was “insufficient”, “devoid of any indicia of Pottstown’s intent to operate a kickback scheme” and “provides nothing beyond conclusory statements to the effect that Pottstown received large Medicare reimbursements from the government that flowed from illegal kickbacks.”

“The second problem is that, because he relies on his termination as the principal evidence of Pottstown’s intent to engage in kickbacks, the record before us contains undisputed facts that (even granting every inference in Cooper’s favor) undermine his claims,” Nygaard said.

“Cooper avers that he and Pottstown were empowered to terminate both contracts at will. Additionally, both contracts specified that the compensation was not in exchange for the referral of patients,” Nygaard added.

“Cooper also avers that, several months after terminating his first contract, Pottstown gave him a second on-call contract that did not impede him from retaining his interest in the rival practice. This contradicts his assertion that Pottstown’s purpose for the original contract was to induce him into an exclusive referral scheme.”

Nygaard also clarified it was undisputed the second contract “contained a non-compete employment clause that encompassed medical care facilities within a 30-mile radius.”

“Therefore, Pottstown was wholly within its right to terminate the contract upon discovering that Cooper had breached it by accepting employment at an excluded medical facility,” Nygaard stated.

Nygaard said the claims against CHSPSC “must also fail.”

“The District Court properly concluded that CHSPSC’s liability is premised on authorizing and encouraging Pottstown’s conduct regarding its contract with Cooper,” Nygaard said. “Therefore, by concluding that Cooper did not meet his burden in pleading Anti-Kickback Statute claims against Pottstown, it eliminated the basis for any argument that the claims against CHSPSC should stand.”

“Finally, we reject Cooper’s claim that the District Court erred by dismissing the claim with prejudice. Given the sparsity of his pleadings and the lack of a draft amended complaint for the District Court to review, the District Court was well within its discretion to deny Cooper an opportunity to amend,” Nygaard commented.

The appellant is represented by Robert A. Davitch of Sidkoff Pincus & Green, in Philadelphia.

The appellees are represented by John N. Joseph of Post & Schell in Philadelphia, Alison Barnes and Richard Sauber of Robbins Russell Englert Orseck Untereiner & Sauber in Washington, D.C., plus Stuart Turville O’Neal III and Daniel A. Cutler of Burns White in West Conshohocken.

U.S. Court of Appeals for the Third Circuit case 15-1748

U.S. District Court for the Eastern District of Pennsylvania case 2:13-cv-01137

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at

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