On May 9, 2024, the University of Pittsburgh Medical Center (UPMC), a large nonprofit healthcare system that owns a number of hospitals, medical practices, and other subsidiaries, announced that they would pay $38 million to settle a longstanding Stark Law case which had triggered a violation of the False Claims Act (FCA).¹ The lawsuit claimed that several of UPMC’s surgeons ordered complex and unnecessary procedures to increase their earnings.² This Health Capital Topics article will discuss the UPMC settlement and the allegations underlying the case.

The Stark Law prohibits physicians from referring Medicare patients to entities with which the physicians or their family members have a financial relationship for the provision of designated health services (DHS).³ Further, when a prohibited referral occurs, entities may not bill for services resulting from the prohibited referral.⁴ Under the Stark Law, DHS include, but are not limited to, the following:

1. Inpatient and outpatient hospital services;
2. Radiology and certain other imaging services;
3. Radiation therapy services and supplies;
4. Certain therapy services, such as physical therapy;
5. Durable medical equipment; and,
6. Outpatient prescription drugs.⁵

Civil penalties under the Stark Law include overpayment or refund obligations, a potential civil monetary penalty of $15,000 for each service, or up to $100,000 per arrangement or scheme, and exclusion from Medicare and Medicaid programs.⁶ Further, violation of the Stark Law can trigger a violation of the False Claims Act (FCA).⁷ The FCA prohibits any person from knowingly submitting, or causing to submit, false claims to the government.⁸ FCA violators are liable for treble damages (i.e., “three times the government damages”), as well as for a penalty linked to inflation.⁹ Not only does the FCA give the U.S. government the ability to pursue fraud, it also enables private citizens to file suit on behalf of the federal government through what is known as a “qui tam,” “whistleblower,”  or “relator” suit.¹⁰

The lawsuit against UPMC was originally filed on behalf of three UPMC-employed medical professionals, J. William Bookwalter, a neurosurgeon, Robert Sclabassi, a neurophysiologist, and Ann Miltina, a surgical technologist.¹¹ The three plaintiffs had alleged that UPMC incentivized neurosurgeons to perform their surgeries at UPMC’s facilities in order to increase the revenue received from the government.¹² In return, the physicians were rewarded with compensation that was above fair market value.¹³ The suit also alleged that some UPMC neurosurgeons had submitted claims for assisting with procedures which they did not directly supervise, perform, or assist.¹⁴ UPMC had previously claimed that the compensation packages which were offered to physicians, including bonuses for productivity, were all the industry standard.¹⁵

In 2016, UPMC settled a portion of the claims for $2.5 million, but the federal government had declined to intervene on the rest of the allegations which were brought forth by the plaintiffs.¹⁶ In 2019, after the plaintiffs continued to pursue their claims which were not addressed by the settlement in 2016, an appeal was granted after a district court had previously dismissed the plaintiffs’ claims.¹⁷ The Third Circuit Court of Appeals had reversed the decision of the district court, denied the motion to dismiss which was filed by defendants, and ordered the qui tam action to proceed to the discovery phase of the lawsuit.¹⁸

In a statement, UPMC’s Chief Communications Officer and Vice President Paul Wood stated that the healthcare system was “pleased to have resolved this matter, twelve years after it first started. The settlement, which includes no admission of liability, allows UPMC to keep its focus where it belongs—on providing world-class care to our patients.”¹⁹ The firms representing the plaintiffs said that “this kind of recovery would simply be impossible without the bravery and commitment of whistleblowers willing to incur enormous risk to do the right thing on behalf of the taxpayers.”²⁰ Mark Simpson, founder of the Simpson Law Firm, stated that “The Stark Law was enacted to ensure that the clinical judgment of physicians is not corrupted by improper financial incentives.”²¹

As an agreement of the settlement, UPMC will be allowed to deny all allegations of any wrongdoing.²² The three professionals each will receive $11 million, and the rest of the settlement amount ($27 million) will be paid out to the federal government.²³ The amount that the plaintiffs receive is a reward for whistleblowers that alert the government of fraudulent practices.²⁴ The $38 million settlement is believed to be one of the largest recoveries in a False Claims Act case where the U.S. declined to intervene.²⁵