Hospital Agrees to Pay $50 Million to Settle Allegations Concerning Improper Compensation to Referring Physicians

On September 9, 2020, the Justice Department (DOJ) announced an acute care hospital located in West Virginia (Hospital) agreed to pay the United States a total of Five-Hundred Million Dollars to resolve claims that it violated the Federal False Claims Act.  The Hospital admitted to knowingly submitting claims to Medicare that resulted from violations of the Physician Self-Referral Law and the Anti-Kickback Statute.

The Physician Self-Referral Law, commonly known as the Stark Law, prohibits hospitals from billing Medicare for designated health services (DHS) referred by physicians with whom the hospital has a financial relationship, unless that relationship satisfies one of Stark’s statutory or regulatory exceptions. DHS includes a variety of services including laboratory, radiology, and outpatient drugs. The Anti-Kickback Statute (AKS) prohibits offering or paying remuneration to induce the referral of items or services covered by Medicare, Medicaid, and other federally funded programs. The public policy intent of both Stark and the AKS is to ensure that medical decisions are made in the best interest of the patient and based on the independent clinical judgment of practitioners that is not tainted by improper financial incentives.

In the present case the DOJ alleged that the Hospital systematically violated the Stark Law and Anti-Kickback Statute by knowingly and willfully paying improper compensation to referring physicians that was based on the volume or value of the physicians’ referrals or was above fair market value.

A similar case announced by the DOJ in early July of this year involved a seventy-two million dollar settlement by a hospital and a group of orthopedic surgeons for violations of AKS. In that case, DOJ alleged that a hospital provided improper remuneration to a surgical group practice and certain of its physicians in exchange for patient referrals in the form of, (i) free or below-fair market value office space, employees, and supplies; (ii) compensation in excess of fair market value for the services provided by the group and certain of its physicians; (iii) equity buyback provisions and payments for certain physicians that exceeded fair market value; and (iv) preferential investment opportunities in connection with the provision of anesthesia services at hospital. 

These cases, along with a variety of other similar cases announce by DOJ, demonstrates the veracity with which the DOJ and other government agencies are pursuing healthcare fraud. Arrangements between hospital and physicians must be carefully crafted by competent healthcare counsel. Hospitals and physicians that have financial arrangements in place are wise to have these arrangements reviewed by independent healthcare counsel to assure compliance with AKS, Stark and other applicable federal and state laws. Moreover, in the event that an arrangement is found to be problematic it should be restructured immediately, and consideration should be given to submitting a self-disclosure to the applicable agency.

How Frier Levitt Can Help

Frier Levitt’s team of seasoned healthcare attorneys routinely evaluate complex healthcare arrangements and craft compliant agreements. In many cases where arrangements were found to expose the parties to risk of enforcement we have been able to successfully navigate clients through the self-disclosure process, thereby saving tens-of-millions of dollars while concomitantly preserving the providers ability to continue participation in healthcare programs. Contact us today for more information. 

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