Cleveland Clinic Health System Obligated Group - FMSbonds.com

Stark-type statutes have fewer exceptions than the Federal Stark Law. Accordingly, an arrangement might complywith the Federal Stark Law, but could fail to comply with the applicable state’s Stark-type statute, or vise versa.Although management of the Cleveland Clinic believes that the arrangements of the Obligated Issuers withphysicians are in material compliance with the federal and applicable state Stark Laws, as currently interpreted,there can be no assurance that regulatory authorities will not take a contrary position or that the Obligated Issuerswill not be found to have violated those laws. Sanctions under the federal and applicable state Stark Laws, includingexclusion from the Medicare and Medicaid programs, could have a material adverse effect on the future operationsand financial condition and results of operations of the Obligated Issuers.Investment in the Series 2008A Bonds by physicians (and their family members) raises at least the questionof whether such physician-investors, by such investment, will have a “financial relationship” with the ObligatedGroup. If such a financial relationship is created, under the Stark Law, such physician-investors would beprohibited from referring patients to the Obligated Group’s facilities. A Stark Law exception allows physicians torefer patients to hospitals in which they (or their family members) invest if: (i) the referring physician is authorizedto perform services at the hospital; and (ii) the ownership or investment interest is in the hospital itself, and notmerely a subdivision of the hospital.False Claims LawsThere are principally three federal statutes addressing the issue of “false claims.” First, the Civil FalseClaims Act imposes civil liability (including substantial monetary penalties and damages) on any person orcorporation that (1) knowingly presents or causes to be presented a false or fraudulent claim for payment to theUnited States government; (2) knowingly makes, uses, or causes to be made or used a false record or statement toobtain payment; or (3) engages in a conspiracy to defraud the federal government by getting a false or fraudulentclaim allowed or paid. Specific intent to defraud the federal government is not required to act with knowledge. Thisstatute authorizes private persons to file qui tam actions on behalf of the United States.In addition to the Civil False Claims Act, the Civil Monetary Penalties Law authorizes the imposition ofsubstantial civil money penalties against an entity that engages in activities including, but not limited to, (1)knowingly presenting or causing to be presented, a claim for services not provided as claimed or which is otherwisefalse or fraudulent in any way; (2) knowingly giving or causing to be given false or misleading informationreasonably expected to influence the decision to discharge a patient; (3) offering or giving remuneration to anybeneficiary of a federal health care program likely to influence the receipt of reimbursable items or services; (4)arranging for reimbursable services with an entity which is excluded from participation from a federal health careprogram; (5) knowingly or willfully soliciting or receiving remuneration for a referral of a federal health careprogram beneficiary; or (6) using a payment intended for a federal health care program beneficiary for another use.A hospital that participates in arrangements know as “gainsharing,” through which the hospital pays physicians tolimit or reduce services to Medicare fee-for-service beneficiaries also may be subject to substantial civil monetarypenalties. The Secretary of DHHS, acting through the OIG, also has both mandatory and permissive authority toexclude individuals and entities from participation in federal health care programs pursuant to this statute.Finally, it is a criminal federal health care fraud offense to: (1) knowingly and willfully execute or attemptto execute any scheme to defraud any healthcare benefit program; or (2) to obtain, by means of false or fraudulentpretenses, representations or promises, any money or property owned or controlled by any healthcare benefitprogram. Penalties for a violation of this federal law include fines and/or imprisonment, and a forfeiture of anyproperty derived from proceeds traceable to the offense.It is also significant to note that a number of states have passed similar statutes expanding the prohibitionagainst the submission of false claims to nonfederal third party payors. Florida has enacted its own False ClaimsAct statute but only with respect to false claims paid by the Florida state government. Ohio has no False Claims Actstatute.On September 12, 2007, Senator Charles Grassley introduced Senate Bill 2041, “The False ClaimsCorrection Act of 2007.” Hearings on the Bill were held before the Senate Judiciary Committee on February 27,2008 and the Bill was reported out of the Committee with bipartisan support on April 3, 2008. The legislation seeks33