Healthcare Industry Organizations Required to Pay Millions in Legal Settlements for Violations
Over the past year there have been multiple legal settlements with healthcare organizations stemming from involvement with lawsuits that alleged violations of the False Claims Act, Stark Law or the Anti-Kickback Statue. Settlements entered into, by the healthcare providers and top executives, in certain cases, have created millions of dollars in settlements paid to the government. Most recently, the United States Department of Justice (“DOJ”) has entered into settlements which have healthcare executives agreeing to large settlements. U.S. Deputy Attorney General Sally Quillian Yates has warned top healthcare executives they would be held personally accountable for false Medicare and Medicaid claims and illegal physician relationships.
Recent Healthcare Related Legal Settlements
Toumey Healthcare System
Toumey Healthcare System located in South Carolina was sued by a whistleblower under the False Claims Act during 2005. The suit alleged that physician compensation contracts and payments violated Stark Law. In 2013, a Federal jury found Toumey guilty of violating the False Claims Act, concluding that Toumey submitted more than 21,000 illegal claims to Medicare. The jury found that Tuomey compensated physicians in such a way as to reward them financially for referring patients to the hospital in violation of Stark Law. The government and Toumey Healthcare System agreed to a settlement of $72.4 million on October 16, 2015.
Due to his involvement in the Toumey Healthcare System Stark Law settlement, Toumey’s former Chief Executive Officer Ralph J. Cox, III agreed to a $1 million settlement on September 27, 2016. The suit alleged that Mr. Cox was concerned that Toumey Healthcare System would lose lucrative outpatient procedure referrals to a new ambulatory surgery center and had instructed Toumey Healthcare System to enter into compensation contracts with 19 physician specialists. The suit found Mr. Cox liable claiming he ignored warnings from Toumey Healthcare System’s attorney regarding the contracts.
Lexington Medical Center
Lexington Medical Center is a 416-bed hospital located in West Columbia, South Carolina. The lawsuit was initiated by a whistleblower, Dr. David Hammett, who was formerly employed by Lexington Medical Center. The lawsuit stated that Lexington Medical Center violated Stark Law and the False Claims Act by maintaining improper financial arrangements with 28 physicians. According to the DOJ, “Lexington Medical Center entered into asset purchase agreements for the acquisition of physician practices or employment agreements with 28 physicians that violated the Stark Law because they took into account the volume or value of physician referrals, were not commercially reasonable or provided compensation in excess of fair market value”. In the suit it was alleged that the hospital pressured Dr. Hammett and other employed physicians to refer patients for services at Lexington Medical Center. The government stated that Lexington Medical Center paid 28 physicians unreasonably high amounts of compensation in exchange for referrals.
In settlement of the case Lexington Medical Center agreed to pay $17 million. In addition to the financial arrangement, Lexington Medical Center executed a five year Corporate Integrity Agreement (CIA) with the Department of Health and Human Services-Office of the Inspector General (“OIG”). This agreement requires Lexington Medical Center to implement measures designed to avoid or promptly detect future conduct similar to that which gave rise to this settlement.
Mercy Health Springfield Communities and Mercy Clinic Springfield Communities
Mercy Health Springfield Communities and Mercy Clinic Springfield Communities, two healthcare providers located in Southwest Missouri, violated the False Claims Act by rewarding physicians for referring patients to hospitals or other healthcare providers in exchange for services performed. In order to settle their violation of the False Claims Act, the two healthcare providers agreed to pay $5.5 million. The allegations of the two healthcare provider’s violation of the False Claims Act arose from a whistleblower, who was employed by Mercy at the time the lawsuit was initiated.
Tri-City Medical Center
Tri-City Medical Center located in Oceanside, California self-reported a potential violation of Stark Law. The settlement stated that nearly 100 of its physician payment arrangements were in violation. In order to settle the allegations, Tri-City Medical Center agreed to pay $3.28 million.
In the settlement it was noted that the hospital had five compensation arrangements with its former chief of staff that were not financially reasonable or fair market value. Additionally, Tri-City Medical Center had 92 compensation arrangements with community-based physicians and practice groups which allegedly included technical violations such as expired contracts, missing signatures or missing contracts.
Stark Law
Stark Law was created to govern physician self-referral for Medicare and Medicaid patients. Physician self-referral occurs when a physician refers a patient to a medical facility in which the physician has a financial interest or with which that physician has a structured compensation arrangement. The intention of Stark Law is to ensure that physician referrals are made based on the medical needs of the patients and are not tainted by certain financial arrangements.
The OIG indicates that Stark Law prohibits a physician from referring Medicare patients for designated health services to an entity with which the physician, or immediate family member, has a financial relationship. Additionally Stark Law prohibits the designated health services entity from submitting claims to Medicare for those services resulting from a prohibited referral. Stark Law suggests that when physicians are compensated based on these referrals it may encourage over-utilization of services and end up driving up healthcare costs for everyone.
Section 1877 of the Social Security Act (42 U.S.C. 1395nn), also known as the physician self-referral law and commonly referred to as “Stark Law”:
- Prohibits a physician from making referrals for certain designated health services payable by Medicare to an entity with which he or she (or an immediate family member) has a financial relationship (ownership, investment, or compensation), unless an exception applies;
- Prohibits the entity from presenting or causing to be presented claims to Medicare (or billing another individual, entity, or third party payer) for those referred services; and
- Establishes a number of specific exceptions and grants the Secretary the authority to create regulatory exceptions for financial relationships that do not pose a risk of program or patient abuse.
False Claims Act
According to Centers for Medicare and Medicaid Services, The False Claims Act establishes civil liability for offenses related to certain acts, including knowingly presenting a false or fraudulent claim to the government for payment, and making a false record or statement that is material to the false or fraudulent claim. The term “knowingly” encompasses not only the actual knowledge of the event, but also the deliberate ignorance or reckless disregard for the truth of the information. Although dependent upon the facts and circumstances, examples of potential False Claims Act violations include billing for unnecessary services and items that were not rendered.
Under the terms of the False Claims Act, those individuals and entities which purport to make false claims are subject to civil penalties of up to $11,000 for each false claim, plus three times the amount of damages the government sustains by reason of each claim.
Private persons, such as competitors and employees of a provider, as well as the government, are able to initiate civil proceedings for penalties and damages under the False Claims Act. If the civil lawsuit is successful, a private person is entitled to a percentage of any recovery. An important part of the False Claims Act is that it prohibits retaliation for all persons reporting false claims or commencing legal actions to recover any money paid on false claims.
Anti-Kickback Statue
The Anti-Kickback Statute (“Statute”) is a Federal, criminal statute prohibiting the exchange, or offers to exchange, anything of value in an attempt to encourage a referral of any Federal healthcare program business. This OIG Statute “prohibits offering, paying, soliciting or receiving anything of value to induce or reward referrals or generate Federal healthcare program business”. Included in the Statute are penalties for any individual convicted of any prohibited transaction. The result of being convicted of a single violation under the Statute may include a fine of up to $25,000 and imprisonment for up to five years. Additionally, any individual or entity found guilty of violating the Statute will be barred from participation in Federal healthcare programs.
Conclusion
The False Claims Act, Stark Law and the Anti-Kickback Statute were implemented to prevent healthcare organizations from engaging in improper financial relationships with referring physicians. These compensation agreements based on physician referrals can be harmful to the cost and quality of healthcare. These laws are implemented to help patients and taxpayers ensure they are receiving quality healthcare for which the cost is not driven up due to improper compensation agreements.
Ask Our Experts
Please contact a member of Withum’s Healthcare Services Group at [email protected] for further questions or assistance.
The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.
