Cooper v. Pottstown Hosp. Co. — June 2016 (Summary)

ANTI-KICKBACK LAW

Cooper v. Pottstown Hosp. Co.
No. 15-1748 (3d Cir. June 10, 2016)

The United States Court of Appeals for the Third Circuit affirmed a motion to dismiss in favor of a hospital against a surgeon, holding that the lower court correctly ruled that the surgeon failed to plead facts to show that a hospital’s on-call contracts were not just business arrangements but rather intended to induce referrals.

While working as an independent contractor at the hospital, the surgeon entered into a contract to provide on-call services at the hospital.  Subsequently, the surgeon obtained a financial interest in a competing surgical facility.  The hospital terminated the surgeon’s on-call contract after he refused the hospital’s requests for him to divest his interest in the facility.

Soon after, the hospital entered into another on-call contract with the surgeon that allowed him to retain his financial interest in the surgical facility, as long as he did not gain employment with another hospital within 30 miles.  The surgeon secured new employment at another hospital within the 30-mile radius, so the hospital terminated his second on-call contract.  The surgeon brought suit, claiming that the hospital’s on-call contracts were covert ways of inducing exclusive referrals to the hospital, in violation of the Anti-Kickback Statute.

The appeals court reasoned that, ultimately, the surgeon failed to accuse the hospital of anything indicating that the hospital had the intent to operate a kickback scheme.  The fact that the hospital granted the surgeon a second contract, which did not stop him from retaining his interest in the rival practice, contradicted the surgeon’s assertions that the purpose of the original contract was to force him into an exclusive referral scheme.  Moreover, because the second contract contained a non-compete employment clause, the hospital was within its right to terminate the contract upon discovering that the surgeon had breached the contract by accepting employment at a medical facility forbidden by the contract.  Consequently, the appeals court ruled that the lower court was correct in dismissing the case.