On August 2, 2018, DOJ announced that Detroit-based Beaumont Health would pay $84 million to settle claims that between August 31, 2004, and January 31, 2012, its arrangements with eight physicians violated the Anti-Kickback Statute (AKS) and the Stark Law by providing improper remuneration in the form of free or below-market value office space and employees and providing them with compensation in excess of fair market value. The settlement agreement also settles claims that from 2006 to 2012, Beaumont misrepresented that one of its CT radiology centers qualified as an outpatient department of the hospital. As part of the settlement, Beaumont is entering into a five-year Corporate Integrity Agreement, during which time its referral arrangements will be reviewed by an independent review organization.
The Department of Justice’s recent decision to intervene in a False Claims Act case against not only a compounding pharmacy but also the private equity firm that owns a controlling stake in it, underscores the potential risks private equity firms face when operating in the highly regulated healthcare space. On February 16, 2018, the United States filed a complaint in intervention in Medrano v. Diabetic Care Rx, LLC, Case No. 15-62617-CIV-BLOOM, alleging the compounding pharmacy, Patient Care America (“PCA”), paid illegal kickbacks to marketing firms who targeted military members and their families for prescriptions for compounded drugs the pharmacy then created not to meet individual patient needs, but rather to maximize reimbursement from Tricare, the federal military health care program. In a somewhat unique move, the government also named as a defendant the private equity company Riordan, Lewis & Haden Inc. (“RLH”), which manages and controls PCA through a general partner.
In the recent past, the government has racked up a number of FCA settlements based on alleged violations of the Anti-Kickback Statute (AKS). This focus undoubtedly will remain a high enforcement priority.
In U.S. ex rel. Williams v. Health Management Associates Inc. and U.S. v. Atlanta Medical Center, Inc., Tenet Healthcare Corporation and two of its Atlanta-area hospitals, Atlanta Medical Center and North Fulton Hospital, agreed to pay more than $513 million to resolve civil and criminal allegations of AKS and FCA violations. Between 2000 and 2013, Atlanta Medical and North Fulton allegedly paid prenatal clinics for referring patients, many of whom were undocumented and indigent, to its labor and delivery, postnatal and infant services. Using sham contracts, the hospitals allegedly paid the clinics for unnecessary, duplicative or substandard translation services, which in certain cases were not actually provided. Tenet allegedly concealed the underlying purpose of the contracts from its legal counsel and violated the terms of its previously-entered CIA with HHS-OIG, which related to a 2006 settlement for $900 million to resolve allegations of fraudulent billing and AKS violations.
The government’s FCA enforcement efforts have continued to focus on key areas concerning the pharmaceutical and medical device industries. In fact, drug and device manufacturers accounted for nearly half of the enforcement recoveries from the healthcare industry last year. Manufacturers also saw enforcement agencies focus on product promotion and speaker program practices, as well as alleged violations of Current Good Manufacturing Practices (cGMP).
Physician employment arrangements with hospitals have remained a significant area of regulatory scrutiny in recent months with the announcement of several high profile settlements and decisions in key FCA cases involving Stark and AKS-related issues.
In July 2016, DOJ announced a $17 million settlement in U.S. ex rel. Hammett v. Lexington County Health Services District. The lawsuit resolved allegations that Lexington County Health Services District, Inc. d/b/a Lexington Medical Center (LMC) in West Columbia, South Carolina violated the Stark Law and FCA by acquiring physician practices and employing physicians on terms that were in excess of fair market value and on terms that were not commercially reasonable.
Texas-based hospital chain Tenet Healthcare Corporation and two of its Atlanta-area hospitals, Atlanta Medical Center and North Fulton Hospital, have agreed to pay more than $513 million to resolve civil and criminal claims related to violations of the federal False Claims Act (FCA) and Anti-Kickback Statute (AKS). Settlement of the underlying cases, which are styled U.S. ex rel. Williams v. Health Management Associates Inc., No. 3:09-cv-00130 (M.D. Ga.) and U.S. v. Atlanta Medical Center, Inc. No. 16-cr-00350 (N.D. Ga), are one of the largest FCA and AKS settlements this year.
On October 3, 2016, the United States filed a bill of information charging Atlanta Medical and North Fulton with one count of conspiracy to defraud the United States and pay and receive kickbacks and bribes. The government alleged that, from 2000 to 2013, Atlanta Medical and North Fulton paid prenatal clinics providing medical services to women (many of whom were undocumented, uninsured and indigent) for referrals for labor and delivery, postnatal, and infant services. According to the government, business documents show that these referrals resulted in “extremely generous” Medicaid reimbursements and a profitable relationship between the hospitals and the clinics. Continue Reading Tenet Healthcare Settles FCA and AKS Allegations for $513 Million
The U.S. Court of Appeals for the Sixth Circuit recently upheld a district court’s grant of summary judgment in favor of Abbott Laboratories in an action alleging that Abbott terminated a sales representative in retaliation for reporting a potential FCA violation. The appeals court held that the case should not proceed because the sales representative failed to show she reasonably believed an FCA violation had occurred. The holding potentially is helpful to FCA defendants facing retaliation allegations, but its precedential value may be limited because the court issued the unpublished opinion per curiam and with one judge dissenting.
What do the recent multimillion dollar FCA settlements tell healthcare providers about physician compensation arrangements? Standing alone, these settlements are cautionary examples of arrangements that may subject hospitals and physicians to increased scrutiny. These settlements, however, come on the heels of the recent OIG fraud alert – “Physician Compensation Arrangements May Result in Significant Liability,” and highlight the need for healthcare providers to proactively review physician arrangements for compliance with Stark and the Anti-Kickback Statute. For further discussion of the issues raised by these settlements and suggested tips for healthcare providers evaluating physician arrangements, please see this recent article, “Under the Knife: Enforcement Actions Increase Scrutiny on Physician Compensation Arrangements.”