Amended Complaint Filed in Illinois Lease Case: Referring Physicians Still AWOL

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An amended complaint filed by the Illinois Attorney General in the per-click leasing complaint, initially filed by a whistleblower last year, parsed out a few more legal entities that operated the 19 named imaging centers, but failed to name any of the referring physicians in the complaint.

"One thing that is pretty clear is that no individual physician groups were added as defendants," noted W. Kenneth Davis, Jr., JD, partner, Katten Muchin Rosenman LLP, Chicago. "There has been some speculation about whether any of the leasing groups would be added as defendants, and it's pretty apparent from the complaint that they were not added. On the one hand the whistleblower here (and the AG by joining) has chosen to only focus on one set of parties in what are almost by definition two-party transactions. On the other hand, despite allegations that kickbacks have occurred, the whistleblower and the AG have only focused on the alleged payor, if you will, of the kickbacks. They have not focused on the alleged recipient of the kickback, i.e., the leasing physician groups."

Davis made the following observations about the amended complaint:

While the count based on violation of the Illinois Insurance Claims Fraud Act remains generally the same, the count based on the Illinois Consumer Fraud and Deceptive Practices Act was unpacked into two separate counts. "They've unpacked the Consumer Fraud count into one count related to failure to disclose the alleged kickback and/or lease arrangements and another count based on unfairness in the payment of the alleged kickbacks," he explained.

A new, fourth count was added based on the Illinois Whistleblower Protection Act, potentially based on the fact that some of the defendants made claims to the State of Illinois self-funded insurance plan.

Typical confidentiality provisions prohibiting disclosure of the terms of the agreements (which are standard provisions in most service agreements), were characterized in the amended complaint as an effort by the defendants to prevent leasing physician groups from disclosing the arrangements to patients or insurers.

The amended complaint repeatedly refers to the fact that the lease arrangements between the defendants and the leasing physician groups did not grant the physicians exclusive rights to the facilities for any specified period of time.

According to allegations in the complaint, some of the defendants might be continuing to solicit physicians to enter into lease arrangements.

"The bottom line is that it's a more detailed complaint than the initial complaint," said Davis, "In many respects, it is less pejorative than the first complaint. The first complaint read somewhat like a complaint prepared by a competitor in the industry. This complaint reads more like a complaint prepared by an attorney general's office."

The amended complaint's focus on that lack of exclusivity during a specified period of time contains a significant client counseling point, according to Davis. "The new language in the amended complaint would suggest that this was an important consideration for the AG, this notion of a lease for a specified period of time," he noted. "If you set up a written lease arrangement and the lease payment is calculated at fair market value and in a manner that doesn't take into account the volume or amount of referrals or other business generated among the parties, if the aggregate rent over the one year term of the lease is set in advance, and if you have a specified, clearly defined period of time for when the leasing physician group can use the leased items, then there is a high likelihood that such a lease would fit within the anti-kickback safe harbors under Federal law. Query whether the AG is saying: 'Look, if you had set up a relationship that fit within the anti-kickback safe harbors under Federal law, we probably wouldn't be going after you.'"

Another client counseling point, according to Davis, is related to the amended complaint's focus on the fact that the lease agreements contain confidentiality clauses requiring that the terms of the agreements not be disclosed. "They took a typical provision in commercial agreements and turned it around to allege that the defendants barred the leasing physician groups from disclosing this to patients or to insurance companies," Davis noted. "Frankly, the common intent behind this type of provision is that you don't want the terms of the agreement disclosed to your competitors.