Recent False Claims Act Settlements Based on Hospital-Physician Compensation Arrangements

During the fall of 2015, the Department of Justice (DOJ) issued several press releases announcing large False Claims Act settlements based on alleged Stark Law violations related to hospital-physician compensation arrangements.  The following are three recent False Claims Act settlements involving allegations related to excessive and improper compensation arrangements between hospitals and physicians:

Columbus Regional Healthcare System

On September 4, 2015, the DOJ announced that Columbus Regional Healthcare System of Columbus, Georgia, and Dr. Andrew Pippas, who was a medical director of Columbus’s cancer center, agreed to collectively pay $35 million to resolve two separate whistleblower suits filed by a former Columbus executive.  The first suit focused on allegations of upcoding billing for evaluation and management services and radiation therapy billing, and the second suit alleged that compensation paid to Dr. Pippas was in excess of fair market value, took into account the volume or value of his referrals, and was paid pursuant to an employment arrangement that would not have been commercially reasonable but for his referrals.

The DOJ intervened in both cases at the time of settlement.  Although that is common, the second whistleblower suit may have prompted the DOJ to take a closer look at the financial relationship with Dr. Pippas.  The whistleblower in the second suit alleged that because Dr. Pippas’ compensation was more than what Columbus collected from his personally performed professional services, that the compensation took into account the value of his chemotherapy and other referrals to Columbus.  The second complaint also alleged that Dr. Pippas’ compensation was based on productivity that was artificially inflated by the productivity of other practitioners and his own upcoding of patient visits.

Another important aspect was that DOJ required Dr. Pippas to pay $425,000 as part of the settlement, which was consistent with DOJ’s September 9, 2015 “Yates Memorandum” in which the government articulated its position to pursue both entities and individuals that it believes are responsible for the conduct (i.e., particularly physicians on the other side of financial relationships).

North Broward Hospital District

On September 15, 2015, the DOJ announced that the North Broward Hospital District, a special taxing district of the state of Florida that operates hospitals and other healthcare facilities, agreed to pay $69.5 million to resolve allegations that it maintained improper financial relationships with referring physicians.  The whistleblower alleged that the compensation was in excess of fair market value and commercially unreasonable, because it was over the 90th percentile of total cash compensation as published in physician compensation surveys, and generated substantial practice “losses” for Broward.

The DOJ also alleged that because the physicians compensation was not financially self-sustaining from professional income alone, but would be self-sustaining if the value of facility fees were added, that the physician’s compensation took into account the volume or value of referrals to Broward for hospital services.  The complaint also alleged that Broward pressured physicians to limit charity care.

An important aspect for physicians is the following evidence that DOJ cited in support of these allegations:

  • Records that indicated that the employment compensation resulted in substantial losses to Broward Health;
  • Logs tracking hospital contribution margins from the physicians’ referrals;
  • Compensation to collection ratios that in some instances were more than double the 90th percentile;
  • Allegations that Broward Health permitted free or below fair market value leasing of physician office space.

The Broward settlement is another recent example of a case where the DOJ believes that it is commercially unreasonable and indicative of compensation that is not based on fair market value where a hospital employs a physician who may not cover their “costs” from professional fees alone.

Adventist Health System

On September 21, 2015, the DOJ announced that Adventist Health System agreed to pay $115 million to settle two whistleblower suits involving allegations that it violated the Stark Law, Anti-Kickback Statute and the civil False Claims Act by paying compensation to physicians and mid-level practitioners that was above fair market value.  The government’s allegations were based in large part on Adventist’s substantial and consistent losses on their physician practices.

The government’s complaint in the Adventist case also alleged that the defendants paid above fair market value for part-time or non-productive work, excessive bonuses were based upon inflated work related value unit values or wRVUs, and compensation formulas consistent with applicable law were not often followed, and that incentives were based upon hospital revenue from designated health service referrals rather than personally performed services.   The complaint noted that the physicians’ agreements contained provisions to reduce salaries to address practice losses; however, these provisions were never implemented.

The Adventist complaint also contained allegations that physicians received excessive benefits and remuneration that were not properly accounted for, including payment of physician car payments, provision of office staff, equipment and supplies without fair market value charge, and payments to physicians for drugs and ancillary items that were provided by Adventist and not the physicians.

These cases illustrate the significant financial exposure that physicians could have for violations of the Anti-Kickback Statute and Stark Law based on excessive or improper compensation.

Written by: Clay Countryman

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