On September 18th, the U.S. Attorney’s Office for the Southern District of New York (includes Manhattan and the Bronx) announced a settlement with a cardiologist, Klaus Peter Rentrop (“Rentrop”), and his medical practice Gramercy Cardiac Diagnostic Services P.C. (“Gramercy”), to address allegations that Rentrop and Gramercy paid millions of dollars in kickbacks to physicians and their practices for referrals. In reaching the settlement, the defendants admitted and accepted responsibility for conduct alleged in the complaint (summarized in the Covered Conduct section below). Gramercy provides cardiac diagnostic imaging services, including PET and SPECT scans, and previously operated four offices in New York City. Rentrop founded and owns Gramercy as its president.

U.S. District Judge Jesse M. Furman approved the settlement requiring the defendants to pay over $4.5 million to the United States and over $1.9 million to New York State. The $6.5 million settlement amount is based on the U.S. Attorney’s Office’s assessment of the defendants’ ability to pay as supported by their financial submissions. A Consent Judgement was also executed in the amount of $64,4166,515, which may be enforced if the defendants do not make payments under the settlement agreement. In addition, Rentrop agreed to relinquish ownership and control over Gramercy by the end of 2023 and to pay a portion of the proceeds of any sale of the practice to the United States. Further, Rentrop is indefinitely barred from working for any entity that bills a federal health care program. He also entered into a Voluntary Exclusion Agreement with Health and Human Services Office of Inspector General which prohibits him from participating in Medicare, Medicaid or other federal health care programs for five years.

The matter was initiated through a whistleblower lawsuit filed under seal by the False Claims Act.

Covered Conduct

The federal complaint alleged violations of the Anti-Kickback Statute and the STARK Law, as kickbacks in the form of inflated office “rental payments” and fees were paid to contracted cardiologists. Specifically from 2010 to 2021, the defendants entered into office space rental agreements, often in excess of fair market value, with primary care and other physicians or their practices in order to induce these physicians to refer patients to the Gramercy’s contracted cardiologists, who saw patients at the rented office space. The Gramercy cardiologists regularly ordered diagnostic tests and procedures that were performed at Gramercy locations and were paid a flat fee for each referral.

It is reported that the defendants’ alleged scheme worked as follows:

  1. Defendants entered into office space rental agreements in excess of fair market value (rates were thousands of dollars per month) with primary care and other physicians and their medical practices (“Rental Practices”). The space rented was for use as an exam room once or twice a month, and for the use of basic equipment, with front desk staff to assist in scheduling. Gramercy calculated the number of hours per month that Gramercy leased the office space based on the volume of expected patient referrals.
  2. Defendants entered into independent contractor agreements with cardiologists (“Gramercy-Contracted Cardiologists”) who were directed to see patients at the Rental Practices.
  3. In exchange for the purported “rental payments,” Rental Practices referred patients to the Gramercy-Contracted Cardiologists who referred many of these patients to Gramercy to undergo cardiac diagnostic tests and procedures.
  4. Defendants paid Gramercy-Contracted Cardiologists a flat fee for each test or procedure performed on referred patients at a Gramercy location, with larger fees paid for tests and procedures for which Gramercy received a greater reimbursement. Per-procedure fees were the only compensation paid to some Gramercy-Contracted Cardiologists.
  5. To ensure the kickbacks paid to the Rental Practices were working, Rentrop directed his staff to calculate Gramercy’s return on investment from the “rental payments” paid to each Rental Practice. Rentrop insisted on at least a 300% return on investment from the kickbacks. When the return on investment for the “rental payments” fell below the minimum threshold, Gramercy would often refuse to pay the Rental Practice the amounts due under the Rental Agreement or terminate the Rental Agreement. Additionally, when negotiating or re-negotiating the monthly rental payment to be made under the Rental Agreement, Gramercy took into account the expected or historic return on investment based on the volume of patient referrals generated from the Rental Practice.
  6. Certain versions of the independent contractor agreements stated the Gramercy-Contracted Cardiologist was to be paid for administration and supervision of PET and SPECT scans performed by Gramercy, not on a payment for referral. In many cases the Gramercy-Contracted Cardiologists did not administer and supervise the PET and SPECT scans, but were paid by Gramercy based solely on the number of tests and procedures referred.

Harris Beach’s Health Care Industry Team is following this issue and related matters. If you would like Harris Beach to provide more information on this settlement, or to review rental or business relationships to investigate potential STARK law or Anti-Kickback requirements, please reach out to Daniel Hallak at DHallak@harrisbeach.com to discuss an engagement.

This alert is not a substitute for advice of counsel on specific legal issues.

Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as Washington D.C., New Haven, Connecticut and Newark, New Jersey.