Frier Levitt Achieves Unprecedented “Self-Disclosure” Settlement on Behalf of Hospital-Physician Joint Venture LLC Providing Management Services to Hospital

A Frier Levitt team comprised of Co-Chair of Healthcare John E. Morrone, Esq., and Senior Counsel Theresa M. DiGuglielmo, Esq., recently achieved an unprecedented “Self-Disclosure” settlement with the Department of Health and Human Services’ Office of Inspector General (“OIG”) on behalf of a hospital-physician joint venture LLC that provided management services to the Hospital (the “MSO”). The FL team represents the MSO, of which the Hospital and Physician Investors are members. The MSO provided management services to the Hospital that essentially provided a turn-key ancillary service for the Hospital. The MSO entered into an arrangement that involved a management fee paid by the Hospital to the MSO that was based on the volume and value of cases performed in the ancillary services facility. The arrangement had been structured over a decade ago, and unfortunately exposed the Hospital and Physician-investors to significant regulatory risk, because the Physician-investors referred patients to the Hospital and received profit distributions that were based, in part, on the fees paid to the MSO. Because the arrangement potentially violated the Federal Anti-Kickback Statute and Stark Law, Frier Levitt recommended a voluntary Self-Disclosure to the OIG, which could allow the Hospital and the Physicians to avoid draconian financial penalties and disciplinary actions. Due in great measure to the duration of the suspect arrangement and the significant volume of cases referred by the Physicians, the potential financial liability exceeded several million dollars. An example of this occurred in 2015 when Adventist Health System paid the Government $115 million to settle allegations that it violated the False Claims Act by maintaining improper compensation arrangements with referring physicians.
In collaboration with the Hospital’s counsel, Frier Levitt proposed the Self-Disclosure approach to minimize the potential damages. The team crafted an argument that had an appropriate reimbursement methodology been employed, the arrangement would have fit within a Safe Harbor. Following almost two-years of negotiations with the OIG, a settlement was reached with total damages of approximately 3 million dollars. The settlement with the OIG also released the Hospital and the MSO from other remedies available to the Government, including exclusion for Federal healthcare Programs.
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