Court Rejects Argument That Contracts Were Too Vague To Satisfy AKS Safe Harbors

A federal district court in Tampa recently rejected a relator’s argument that regulatory safe harbors to the Anti-Kickback Statute (AKS) concerning rental and service arrangements were inapplicable to certain contracts governing the provision of space, equipment, and services on the ground that the contracts were not specific enough.

At issue in United States ex rel. Armfield v. Gills, Case No. 8:07-cv-2374-T-27TBM (M.D. Fla.) is the relationship between an ophthalmologic surgical center and a physician providing preoperative eye examinations within the surgical center complex. The relator contends that the rental, equipment, and services agreements between the center and the leasing physician were intended to induce referrals to the physician, including the relator’s referral for a preoperative examination, in violation of the AKS and False Claims Act. The opinion arose out of the relator’s motion for summary judgment on the defendants’ affirmative defense that the arrangements at issue fall within the AKS regulatory safe harbors governing space and equipment rental and personal services. 42 C.F.R. § 1001.952.

The relator did not dispute the agreements met the basic requirements of the safe harbors. Each challenged arrangement was the subject of a written agreement signed by the parties, negotiated in an arm’s length transaction for a period of not less than a year, and established payments that were set in advance without regard to referrals. Nevertheless, the relator argued that the safe harbors are inapplicable because the descriptions of the space, equipment, and services contained in the agreements are not specific enough. For example, the provided-for space is described within the agreement as “sufficient Space for the rendering of medical services and administration of [the leasing physician’s practice] located at [address],” with Space defined as “exclusive use of private office space sufficient for physician and office manager; exclusive use of an examination area to perform preoperative clearances on Surgery Center patients; exclusive use of an area for the storage of medical records [of the leasing physician’s practice]; and non-exclusive use of common areas including, but not limited to, hallways, waiting areas, rest rooms and kitchen facilities.”

The court found the relator’s contention that the space rental safe harbor requires greater specificity than this unavailing. The same proved true for similarly general descriptions in the equipment and services agreements. In the first instance, the court cited the relator’s own understanding of the financial arrangements and the provided for space, equipment, and services as evidence that they were sufficient. Further, while the court admitted that lesser language might arguably be inadequate, it held, “[n]othing in the regulation requires any more than what is contained” in the agreements. In the absence of any authority to support the relator’s call for more detail, the court concluded that the safe harbors are intended to ensure arrangements that offer “transparency and verifiability,” and the agreements in this case fulfill that purpose. A contrary ruling would have been cause for concern, given that the kind of general language challenged in Gills is not uncommon in these types of contracts.

The court’s order denying summary judgment can be found here.