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Third Circuit Upholds Dismissal of FCA Suit Against Pottstown Memorial Medical Center

On June 10, 2016, the Third Circuit Court of Appeals upheld a 2015 decision that dismissed allegations of kickbacks in violation of the False Claims Act (FCA) against Pottstown Memorial Hospital (Pottstown).  The decision, concerning physician “on call” contracts, provides important guidance about the drafting of hospital-physician contracts in a competitive environment.

The suit, Alan E. Cooper v. Pottstown Hospital Co. LLC et al., was brought by Dr. Alan E. Cooper, MD, who had maintained an “on call” contract with Pottstown and alleged that (a) the contract had been voided because of his refusal to divest his stake in a competing hospital and (b) the contract was actually a kickback meant to ensure that he referred patients only to Pottstown.

In March, 2015, The Honorable Norma L. Shapiro of the U.S. District Court for the Eastern District of Pennsylvania disagreed, granting the Defendants’ Motion to Dismiss. At that time, Judge Shapiro noted that the doctor’s theory of kickbacks was “implausible,” and that discussions about divesting the doctor’s stake in a competing hospital came after the contract was executed.

The Third Circuit agreed with the lower court’s dismissal, noting that “two problems undermine Cooper’s cause.”

“…he [Dr. Cooper] does not aver any facts to enable the Court to plausibly distinguish the relationship between Pottstown and himself from a typical arms-length contract in which compensation is paid solely in exchange for on-call services. He does not allege that, at the time that the contracts were executed, Pottstown did or said anything to ground an inference that it intended to induce him to exclusively refer patients to Pottstown. Nor does he aver, for instance, that Pottstown had no need for his on-call medical services or that his compensation greatly exceeded market expectations. His complaint is devoid of any indicia of Pottstown’s intent to operate a kickback scheme.”

“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. 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.  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.” (emphasis added)

The Third Circuit affirmed the District Court’s decision to dismiss Cooper’s claim with prejudice.

(Editor's Note: Post & Schell Principal John N. Joseph represented and defended Pottstown Memorial Hospital in the suit.)

Disclaimer: This post does not offer specific legal advice, nor does it create an attorney-client relationship. You should not reach any legal conclusions based on the information contained in this post without first seeking the advice of counsel.