Recently, the Justice Department announced that Adventist Health System has agreed to pay the United States $115 million to settle allegations that it violated the False Claims Act by maintaining improper compensation arrangements with referring physicians and by miscoding claims. Adventist is a non-profit healthcare organization that operates hospitals and other health care facilities in 10 states.

Officials from the Justice Department pointed to the underlying basis for the settlement, namely that unlawful financial arrangements between heath care providers and their referral sources raise concerns about physician independence and objectivity. They further underscored their position by stating   patients are entitled to be sure that the care they receive is based on their actual medical needs rather than the financial interests of their physician.

The settlement announced a couple of days ago resolves allegations that Adventist submitted false claims to the Medicare and Medicaid programs for services rendered to patients referred by employed physicians who received bonuses based on a formula that improperly took into account the value of the physicians’ referrals to Adventist hospitals. Federal law restricts the financial relationships that hospitals and clinics may have with doctors who refer patients to them.

Adventist-owned hospitals, such as Park Ridge, allegedly paid doctors’ bonuses based on the number of test and procedures they ordered.  The Justice Department took exception to this type of financial incentive as not only prohibited by law, but as also undermining patients’ medical care. They cautioned that would-be violators should take notice that the Justice Department will use the False Claims Act to prevent and pursue health care providers that threaten the integrity of the healthcare system and waste taxpayer dollars.

“Companies that financially reward physicians in exchange for patient referrals – as the government contended in this case – undermine the physicians’ impartial medical judgment at the expense of patients and taxpayers,” said Special Agent in Charge Derrick L. Jackson of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) in Atlanta.  “We will continue to investigate such wasteful business arrangements.”

The settlement also resolves allegations that Adventist submitted bills to Medicare for its employed physicians’ professional services containing certain improper coding modifiers, and thereby obtained greater reimbursement for these services than entitled.

The allegations settled arose from two lawsuits filed respectively by whistleblowers Michael Payne, Melissa Church and Gloria Pryor, who worked at Adventist’s hospital in Hendersonville, North Carolina, and Sherry Dorsey, who worked at Adventist’s corporate office, under the qui tam provisions of the False Claims Act.  The act permits private parties to file suit on behalf of the United States for false claims, and to share in any recovery. The whistleblowers’ share of the settlement has not yet been determined.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in this effort is the False Claims Act. Since January 2009, the Justice Department has recovered a total of more than $25 billion through False Claims Act cases, with more than $16 billion of that amount being recovered in cases involving fraud against federal health care programs.

Hospitals and private practices alike should make note of this recent settlement and carefully evaluate physician compensation arrangements so as not to run afoul of this complex area of laws and regulations. At the Verden Group, we recommend working with an experienced healthcare attorney to help you navigate through this issue as the penalties for violating the law are significant and could irreparably harm your practice if you are deemed non-compliant.