Hospitals Settle False Claims Act Charges 14:20, June 9, 2017

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Hospitals Settle False Claims Act Charges

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Two related healthcare entities, Mercy Hospital Springfield and Mercy Clinic Springfield Communities, paid $34 million to settle False Claims Act charges related to services for patients whose doctors were paid for referrals. As part of the settlement, the healthcare entities signed a corporate integrity agreement with the Office of Inspector General (OIG) of the Department of Health and Human Services. This kind of agreement imposes onerous mandatory compliance requirements on entities that sign them. But even companies that aren’t subject to such agreements might find it useful to examine the compliance elements that the OIG requires.

According to the settlement agreement between the US Department of Justice (DOJ) and the hospitals, the hospitals’ financial relationships with some of their physicians violated the Stark Law and the Anti-Kickback Statute. These laws restrict the financial relationships that hospitals and clinics can have with doctors who refer patients to them. The settlement resolves allegations that doctors’ compensation was based in part on their referrals of patients to the clinic’s chemotherapy infusion center. Compensation arrangements violate the Stark Law if compensation is based, even in part, on the volume and value of referrals. Consequently, the DOJ charged the hospitals with violating the False Claims Act when they submitted Medicare claims for payment related to those services.  

The DOJ learned about the hospitals’ alleged violations of the False Claims Act as a result of a lawsuit by Dr. Viran Roger Holden, who was later terminated. As the whistleblower, Dr. Holden will receive $5.4 million.

In a separate lawsuit against the hospitals for firing him in retaliation for his whistleblowing, Dr. Holden alleged that doctors were authorizing medically unnecessary treatments and were treating patients in a way that was intended to maximize Medicare and Medicaid reimbursement. In the hospitals’ press release on the settlement, the hospitals stated that the services were “medically necessary” and that the compensation system was merely a “technical violation of federal law.”

In the DOJ’s news release about the False Claims Act settlement, Acting Assistant Attorney General Chad A. Readler said that when “physicians are rewarded financially for referring patients to hospitals or other health care providers, it can affect their medical judgment, resulting in overutilization of services that drives up health care costs for everyone.”

In addition, said Special Agent in Charge Steven Hanson, “When physician compensation improperly accounts for referrals, patients are left to wonder whether their doctor’s judgment has been tainted and motivated by financial interests.”

The hospitals settled similar charges in 2015, related to “special funding” bonuses of $39,000 paid to pediatricians for patient referrals. Those payments were brought to light by a doctor who received one of the bonuses herself. At the time, the hospitals were participating in a voluntary program that was designed to save Medicare and Medicaid money. As the Whistleblower Attorneys Blog notes, “These violations by a well-meaning hospital highlight just how easy it is for hospitals to overcharge the government by way of their compensation structures.” The blog also reminds us that such referrals “can create a conflict of interest as the physician has an incentive for the patient to receive additional medical services.”

Corporate Integrity Agreements

According to the hospitals’ press release, the five-year Corporate Integrity Agreement requires the hospitals “to conduct enhanced training and education, perform regular internal reviews and policy and procedure updates, and implement more rigorous governance oversight structure related to physician contracting and compensation practices.”

The OIG discusses corporate integrity agreements on its website. Agreements generally require organizations to hire compliance officers or appoint compliance committees, develop written standards and policies, implement comprehensive employee training, and establish a confidential disclosure system.

The OIG keeps a list of active corporate integrity agreements on its website.

Organizations that breach their corporate integrity agreements are subject to penalties and exclusion from federal healthcare programs. The OIG performs site visits to monitor compliance.

According to the OIG, corporate integrity agreements often attempt to accommodate and recognize many of the elements of an organization’s preexisting voluntary compliance program. This is good news for companies that have adopted internal whistleblower programs because they should already have processes in place for some of the OIG’s requirements, such as training employees and setting up whistleblower hotlines and other mechanisms for confidential reporting. We’ve stated before that whistleblower actions can benefit companies by alerting them to problems at an early stage. They can also serve as a warning to other companies in the same industry, who might learn from such actions to avoid making similar mistakes and avoid being subject to False Claims Act lawsuits. 

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Christine Day
Christine Day is a legal editor at EverFi. She writes about employment law issues and tracks case law and legislative and regulatory updates. Before joining EverFi she worked in legal publishing, researching and writing about tax law, business law, and employment law. She earned her JD from the University of San Diego Law School and her BA from the University of Southern California.

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