With certain exceptions, “financial relationship” is defined as (1) an ownership or investment interest in the entity, or (2) a compensation arrangement with the entity. 42 U.S.C. § 1395nn(a)(2). See generally United States ex rel. Thompson, 125 F.3d 899, 901-02 (5th Cir. 1997); United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 239 (3d Cir. Pa. 2004). An ownership or investment interest may be through equity, debt, or other means and includes an interest in an entity that holds an ownership or investment interest in any entity providing the designated health service. 42 USCS § 1395nn (a) 2(B).
42 CFR 411.354 provides an elaborate definition of financial relationship. According to the regulation, financial relationship means a direct or indirect ownership or investment interest in any entity that furnishes DHS; or a direct or indirect compensation arrangement with an entity that furnishes DHS. Id. A direct financial relationship exists if remuneration passes between the referring physician (or a member of his or her immediate family) and the entity furnishing DHS without any intervening persons or entities between the entity furnishing DHS and the referring physician (or a member of his or her immediate family). Id.
An indirect ownership or investment interest exists if there exists an unbroken chain of any number (but no less than one) of persons or entities having ownership or investment interests between the referring physician (or immediate family member) and the entity furnishing DHS. 42 CFR 411.354 (b)(5). Moreover, the entity furnishing DHS should have actual knowledge or acts in reckless disregard or deliberate ignorance of, the fact that the referring physician has some ownership or investment interest in the entity furnishing the DHS. Id. See also 42 CFR 411.354 (c)(2). However, common ownership or investment in an entity does not, in and of itself, establish an indirect ownership or investment interest by one common owner or investor in another common owner or investor. Id.
Moreover, a “financial relationship” exists between a physician and a health care entity if the two have a “compensation arrangement.” See 42 USCS § 1395nn (a)(2)(B). A compensation arrangement is “any arrangement involving any remuneration between a physician . . . and an entity . . . [either] directly or indirectly, overtly or covertly, in cash or in kind.” Id. 42 USCS § 1395nn (h)(1)(A)-(B). Remuneration includes cash as well as in-kind transfers such as office space, equipment, computer systems, and other benefits passing between an entity and a physician for a cost other than fair market value. See, e.g., United States ex rel. Roberts v. Aging Care Home Health Inc., 474 F. Supp. 2d 810, 817 (W.D. La. 2007) (absent a statutory or regulatory exception, existence of remuneration creates a financial relationship subject to Stark Act); United States v. Capital Group Health Servs. of Florida, Inc., 2005 U.S. Dist. LEXIS 45814 (N.D. Fla. 2005) (observing that remuneration may include in-kind benefits such as “above market consulting fees or rental payments that are above-market or unsupported by a written lease” in addition to direct monetary payments).
The entity furnishing DHS violates the Stark Law only if the entity possess the requisite knowledge of a fraudulent payment scheme between referring physicians and the company, as required by 42 C.F.R. § 411.354(c)(2)(iii). United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., 565 F. Supp. 2d 153 (D.D.C. 2008). In Pogue, the court set forth three criteria that muse be shown in order to support an actionable claim under the Stark Law:
(i) between the referring physician and the entity furnishing [designated health services] there exists an unbroken chain of any number (but not fewer than one) of persons or entities that have financial relationships between them (that is, each link in the chain has . . . a compensation arrangement with the preceding chain;
(ii) the referring physician receives aggregate compensation from the person or entity in the chain with which the physician has a direct financial relationship that varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing the [designated health services]; and
(iii) the entity furnishing [DHS] has actual knowledge of, or acts in reckless disregard or deliberate ignorance of, the fact that the referring physician receives aggregate compensation that varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing the [designated health services].