Eleventh Circuit Upholds Florida’s “Patient Self-Referral Act of 1992” as Constitutional

Jan 15, 2013   

On January 10, 2013, the United States Court of Appeals, Eleventh Circuit, issued a ruling upholding Floridas “Patient Self-Referral Act of 1992” (Fla. Stat. §456.05) as constitutional. The full text of the Courts ruling in Fresenius Medical Care Holdings, Inc., et. al. v. Florida Department of Health, et. al., 11-14192 (11th Cir. 2013) may be found here.

The “Patient Self-Referral Act of 1992” (the “Florida Act”) was enacted in 1992 after the Florida legislature recognized a potential conflict of interest stemming from the referral of patients by one health care provider to another health care provider in which the referring provider maintained an investment interest. Fla. Stat. §456.05(2). The Legislature noted that “these referral practices may limit or eliminate competitive alternatives in the health care services market, may result in overutilization of health care services, may increase costs to the health care system, and may adversely affect the quality of health care.” Id. The Florida Act was, therefore, implemented to regulate physician self-referrals.

Congress had already passed similar legislation. Known as Stark I (passed in 1989) and Stark II (passed in 1993) (collectively “Stark laws”), Congress sought to contain health care costs and reduce conflicts of interest inherent in the referral of Medicare and Medicaid patients to business entities in which the referring physician (or their immediate family members) had a financial interest. See 42 U.S.C. §1395nn.

Both the Florida Act and Stark laws had several exemptions to the physician self-referral bans. One such carve-out found in both the Florida Act and Stark law exempted physicians in the renal dialysis industry from the self-referral prohibition. In 2002, however, the Florida legislature repealed the renal dialysis physician exemption, while the Stark laws retained the exemption.

Following Floridas repeal of the above-noted exemption, the Florida Act was challenged by three kidney care/dialysis providers (“Appellants”) who argued before the United Stated District Court, Northern District of Florida that the Florida Act was unconstitutional because it was “(1) preempted by Federal law, (2) violative of the dormant Commerce Clause and (3) violative of substantive due process.” Appellants reason for filing the action stemmed from their desire “to use a vertically integrated business model in Florida, referring all their [End-Stage Renal Disease] patients blood work to associated laboratories after providing the patients with dialysis treatment at their clinics.”

Appellants first argued for federal preemption. Federal preemption is the principle enumerated by the U.S. Constitution (and its progeny) which states (generally) that Federal law shall trump or “preempt” state law in the event of a conflict. See U.S. Const., Art. VI., cl. 2. While the Appellants argued that the Stark laws preempted the Florida Act, the Eleventh Circuit (along with the district court) rejected the argument concluding that, inter alia, that Federal conflict preemption did not apply to Floridas more restrictive Florida Act.

Appellants next argued that the repeal served to violate the dormant Commerce Clause. The dormant Commerce Clause “empowers Congress to regulate interstate commerce.” Relevant to Appellants argument in the case sub judice, the dormant Commerce Clause serves to, inter alia, prohibit states from implementing laws or measures “designed to benefit in-state interest by burdening out-of-state competitors.” Appellants argued that the Florida Act had the practical effect of discriminating against out-of-state commerce. The Eleventh Circuit, however, found that the “law operates to burden in-state and out-of-state [End Stage Renal Disease] health care providers alike” such that the Florida Act did not violate the dormant Commerce Clause.

Appellants final argument focused on a violation of substantive due process. The Eleventh Circuit noted that, “[u]nder the rational basis standard, the law requires only that the Florida Acts prohibition on physician self-referrals be rationally related to the Florida Legislatures goal of reducing conflicts of interest, lowering health care costs, and improving the quality of health care series.” Here, the Eleventh Circuit agreed with the district court stating, “the Florida Act passes rational basis-scrutiny because, no matter how ineffective the law might actually be, it was not irrational for the Florida Legislature to conclude that the amendments to the law would accomplish the legislative objections identified in Fla. Stat. §456.053(2).”

Based on the Eleventh Circuits reasoning above, the Court affirmed the district courts entry of summary judgment in favor of the State of Florida and against the three (3) kidney care/dialysis providers deeming the Florida Patient Self-Referral Act of 1992 constitutional.

Fuerst Ittleman David & Joseph, PL will continue to monitor developments in both the Stark laws and Florida Patient Self-Referral Act of 1992. For more information, please feel free to contact us via email at contact@fidjlaw.com or via telephone at 305.350.5690.