Tenet settlement should chill risk managers on physician referrals

Feds sought 'pound of flesh,' will not go easy on violations

The recent settlement of a case involving referrals and kickback allegations has some observers reeling from the tough stance taken by federal prosecutors. The case should a loud-and-clear alarm bell to risk managers, they say.

Tenet Healthcare Corp., based in Dallas, announced recently that it had reached a civil settlement with the U.S. Attorney in San Diego to resolve the long-running criminal case United States of America v. Barry Weinbaum, Tenet HealthSystem Hospitals Inc. and Alvarado Hospital Medical Center Inc. Most in the industry know it as the Alvarado case.

Two federal juries deadlocked and were unable to reach a verdict on criminal charges first brought by a grand jury in mid-2003 regarding certain physician relocation agreements at Alvarado Hospital, a 311-bed Tenet hospital in eastern San Diego County. "To avert a third criminal trial as well as potential civil liabilities that could still result, the company agreed to a civil settlement that includes a payment of $21 million to resolve potential civil claims by the government," according to a statement released by Tenet. "Tenet has been informed that the U.S. attorney in San Diego will now move to dismiss all criminal charges against all three defendants and will not file any civil litigation in the case."

To conclude the settlement, Tenet acceded to the demand of the Office of Inspector General in the U.S. Department of Health and Human Services that the company sell or close the hospital within a specified period of time or have the hospital face exclusion from health care programs such as Medicare. The OIG had announced the potential exclusion of the hospital on May 8. Tenet announced that as part of the settlement, it will divest itself from the hospital.

Peter Urbanowicz, JD, Tenet's general counsel, says the federal prosecutors drove a hard bargain.

"It has always been our strong desire to keep this hospital and continue providing needed health care to the residents of East San Diego County, as we have at Alvarado for more than 30 years," he says. "Unfortunately, we were given no choice by the government except to sell or close the hospital if we wanted to settle this matter."

As part of the civil settlement, Alvarado and the Tenet subsidiary that owns the hospital denied the government's allegations in the indictments. In both trials, they strongly maintained that physician relocation agreements are a common practice in the hospital industry as a means to bring needed health care resources to communities.

The feds weren't buying it. The terms of the settlement show the feds weren't willing to back down, says Mark H. Gallant, JD, former deputy chief counsel for the Centers for Medicare & Medicaid Services (CMS) and now chair of the health law practice group with the Philadelphia law firm of Cozen O'Connor.

"This appears to be a case where the government insisted on its pound of flesh," he says. "Unable to garner a criminal conviction in two tries, it responded with the rarely used nuclear option of termination, even absent ongoing quality issues. This signals the fierce concerns the government has about what they perceive as 'sweetheart' deals with referring physicians."

Risk managers should scrutinize every financial arrangement the organization has with lucrative admitters, Gallant says.

Intent can be hard to prove

The crux of the allegations against Tenet was that in the process of recruiting physicians, the organization compensated the doctors for referring patients. Alvardo hinged on what the government says you can and cannot do in recruiting physicians, notes Richard B. Spohn, JD, an attorney with the law firm of Nossaman Guthner in San Francisco. While the rules can be difficult to understand, Spohn says there is plenty of precedent on which to rely and that a good health care attorney should be able to walk you through the many requirements and prohibitions. The risk manager's role, he says, is to watch over recruitment efforts with an eye toward the overly aggressive player.

"Recruitment people can be like sales people and when there is an incentive, they will work hard to close the deal," he explains. "But you have to make sure they close the deal precisely in the way that is allowed by law."

Spohn notes that Tenet-style troubles can arise not just out of technical violations of the law, but also from the culture of the organization. Does the culture of the organization encourage employees to push hard for the growth and meeting goals, with just a wink toward the complicated rules that may be bent or broken?

"The risk manager may be the one who has to step in and make sure there is discipline," he says. "Check the type of culture you have. Is there too much enthusiasm for getting the right candidate? The competition for these doctors can be intense, and there has to be a check somewhere along the line, someone who can step up and say, 'Slow down, we're about to cross the line here.'"

Spohn says the feds intended to send a signal to the industry through the Alvarado settlement.

"That was a steep settlement, a very tough settlement," he says. "It was astonishing in its severity. If their [intent] was to send a message, I'd say the health care industry is saying, 'Message received.'"


For more information, contact:

  • Mark H. Gallant, JD, Cozen O'Connor, 1900 Market St., Philadelphia, PA 19103. Telephone: (215) 665-2000. E-mail: MGallant@cozen.com.
  • Richard B. Spohn, JD, Nossaman Guthner Knox & Elliott, 50 California St., 34th Floor, San Francisco, CA 94111-4707. Telephone: (415) 398-3600. E-mail: rspohn@nossaman.com.