Health Law Daily Wrap Up, FALSE CLAIMS ACT—E.D. Pa.: No Stark Act violation in the absence of physicians’ referrals for DHS, (Apr 4, 2025)

By Jeffrey H. Brochin, J.D.

The complaint failed to allege that any physician had a financial relationship with any entity for a designated health service or to an entity in which he had a financial relationship.

A federal district court in Pennsylvania has granted the motion to dismiss filed by Penn State Health St. Joseph Regional Health Network and its related entities (collectively, PSH) and by technology provider Cerner Corporation in a False Claims Act (FCA) lawsuit brought by a relator who claimed that Cerner’s electronic health care record (EHR) technology was used by PSH to submit false claims to government healthcare programs. However, the relator failed to sufficiently plead either the falsity or materiality elements as required for asserting a Stark Act violation, and, the conduct he alleged as to the Medicare Benefit Policy Manual were found by the court not to be violations (U.S. ex rel. Shannon v. Penn State Health St. Joseph Regional Health Network, No. 21-2351 (E.D. Pa. Mar. 31, 2025)).

Alleged abuse of EHR function. The relator, a former orthopedic surgeon at PSH, filed suit against PSH and Cerner alleging that PSH used Cerner technology to submit false or fraudulent claims for reimbursements to government-funded healthcare programs. He began working for PSH in August 2018 and his last day was January 31, 2020, after having been “constructively discharged,” according to him, in November 2019 after informing PSH of alleged compliance violations for which he did not receive a satisfactory response.

EHR technology. Cerner developed and sold to hospitals nationwide, a certified EHR technology known as Cerner Millennium which permitted providers to sign, decline and/or alter orders (a key element of computerized physician order entry (CPOE)). According to the complaint, PSH abused that function, resulting in the technology allowing ancillary departments to generate physician orders in an uncertified manner. Specifically, the relator claimed that departmental ordering conversations allowed creation of backdated orders in violation of federal and state regulations. Furthermore, Cerner Millennium allowed the transmission of physician orders in modules that co-mingled physician orders with those created via certified CPOE, there being no way to distinguish between orders created via certified CPOE versus an uncertified manner.

“Information and belief” pleadings. The relator also stated, “upon information and belief” such claims as a patient’s insurance being charged for two x-rays where one was ordered, that the relator was falsely identified as the “ordering provider” on surgical specimen orders, and that PSH had a financial ownership interest in certain companies that provided durable medical equipment which he speculated gave rise to a “potential Stark Act Violation.”

The court characterized the relator’s FCA pleadings as falling under the “implied false certification theory” based on the relator’s allegations that PSH made legally false claims in connection with submitting claims to the government for payment that violated the Stark Act. That Act provides, among other things, that: “if a physician… has a financial relationship with an entity…then the physician may not make a referral to the entity for the furnishing of designated health services [DHS] for which payment otherwise may be made…” (Court’s emphasis). In short, a prima facie Stark Act violation has three elements: (1) a referral for designated health services, (2) a compensation arrangement (or an ownership or investment interest), and (3) a Medicare claim for the referred services. Notably, a Medicare claim that violates the Stark Act is a false claim under the FCA.

No pleading as to physicians. Here, the court observed that despite the numerous allegations in the complaint detailing alleged improper activity by PSH, nowhere in the complaint did the relator allege that any physician had a financial relationship with any entity for a DHS. Nor did the complaint allege that any physician had referred any patients to any entity in which the physician had a financial relationship. Finally, the complaint did not allege any claims were billed improperly to a federal health care program for a DHS.

Accordingly, the court found that the relator failed entirely to plead any facts from which one could infer a falsity based upon a Stark Law violation that a physician engaged in.

No Cerner employee cited. The court next examined the allegations as to Cerner and found that the complaint failed to name a single Cerner employee or identify a single action or statement by an employee connected to any allegedly fraudulent activity. Therefore, the complaint completely failed to explain how Cerner itself took any improper actions, rather, merely describing how “PSH allegedly used or misused Cerner products.” In the absence of any allegations about actions, statements, or knowledge by anyone associated with Cerner, the counts against Cerner were likewise dismissed.

Retaliation claims. Lastly, the court cited the requisite elements for an FCA retaliation claim as follows: that the employee engaged in protected conduct, and (2) that he was discriminated against because of his protected conduct. PSH did not challenge whether the relator engaged in protected conduct, rather, they claimed that he failed to satisfy the second element by alleging that any retaliatory conduct on the part of the PSH rose to the level of adverse action as required by the FCA. Under the FCA, constructive discharge occurs when “the employer permitted conditions so unpleasant or difficult that a reasonable person would have felt compelled to resign.” Here, no such conditions existed, and the relator’s retaliation claim was accordingly dismissed.

The case is No. 21-2351.

Judge: Schmehl, J.

Attorneys: Brian J. McCormick, Jr. (Ross Feller Casey, LLP) for Brian D. Shannon. Andrew J. Rudowitz (Duane Morris LLP) for Penn State Health St. Joseph Regional Health Network Group.

Companies: Penn State Health St. Joseph Regional Health Network Group

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