HMA execs claim kickbacks to physicians
The whistleblower lawsuits against Naples, FL-based Health Management Associates (HMA) include claims from two former C-suite executives that the company paid millions in kickbacks to physicians who participated in joint ventures and co-management agreements.
Court documents indicate that the complaint was filed in 2010 by executives at Lancaster (PA) Regional Medical Center and Heart of Lancaster Regional Medical Center, affiliates of HMA. The complaint was unsealed recently and contains numerous allegations pertaining to HMA’s relationships with physicians in 2008 and 2009. The whistleblower complaint was filed by former Lancaster Regional CEO George Miller and former CFO Michael Metts in 2010.
Miller was CEO of Health Management’s Heart of Lancaster from June 2008 through May 2009 but also served as CEO of Lancaster Regional from June 2008 until January 2009. Metts was systems CFO and compliance officer for Lancaster Regional, Heart of Lancaster, and 13 related clinics from June 2008 through December 2008. He later served as CFO and compliance officer at Lancaster Regional from December 2008 through September 2009.
The two executives claim HMA arbitrarily discounted the true value of physicians’ shares of HMA joint-ventured facilities, which resulted in investment rates that were substantially less than fair market value (FMV). HMA offered referring physicians the opportunity to invest in the facility "substantially below and without reference to FMV," the complaint says. The favorable joint venture plans were used as a way to get physician investors to refer more patients to HMA facilities, the lawsuit alleges.
"Although HMA refers to its ownership of hospitals as joint ventures,’ HMA’s ultimate goal was to have potential referring physicians invest in HMA hospitals by purchasing shares in a newly-created LLC which owned the hospital," the complaint says.
The whistleblowers also allege that HMA offered physicians a "robust" return on investment and explained that increasing referrals by only one or two patients per day would improve their return.
Several examples of specific transactions are cited in the lawsuit. In one, Metts says HMA presented a joint venture proposal to physicians at Heart of Lancaster. HMA said the wholesale value of Heart of Lancaster was $62.4 million, but the lawsuit claims the company applied arbitrary discounts totaling 35% to reach an offering price of $40.5 million.
The lawsuit claims that HMA intentionally undervalued Heart of Lancaster to induce referring physicians "to participate in the joint venture by offering them an interest in the facility at a price far less than its market value."
Health Management executives devised the Lancaster Regional joint venture to lure in a particular physician group of family physicians and internists, the lawsuit claims, because the group referred 35% of its patients to Lancaster Regional and the rest to a competitor. To seal the deal with the practice, the lawsuit alleges that HMA executives paid the doctors $500,000 per year in a "sham co-management agreement." HMA executives and the physicians were aware that the physician group would not actually provide co-management services, the lawsuit alleges.