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Hospital Pays a Hefty Fine in Excessive Compensation for Referrals Case

The Office of Inspector General issued a fraud alert memo recently that says physician compensation arrangements can result in significant liability. This includes hospitals that enter into contract with physicians for medical directorships that do not reflect fair market value.

This could violate the anti-kickback law if the reason is to compensate physicians for past or future referrals. The government is taking very seriously Stark cases under the False Claims Act (FCA) that cover triple damages. Whistleblowers are now more aware of settlements.

A federal judge has ordered Tuomey Healthcare System to pay approximately $237 million in fines after finding a violation of the FCA. Several groups told the hospital they were planning on performing surgical procedures in their offices instead of the hospital. The hospital was concerned about the reduction in surgical case volumes, so it employed 19 specialists as part-time employees. Physicians were required to perform the procedures in the hospital and their base salaries were based on the hospital’s net collection for outpatient procedures. One physician who did not receive a contract filed a qui tam lawsuit, alleging that the hospital paid the physicians above market value. Judge Albert Diaz, who upheld the verdict against the hospital, said:

“It seems as if, even for well-intentioned healthcare providers, the Stark law has become a booby trap rigged with strict liability and potentially ruinous exposure — especially when coupled with the False Claims Act.”

In a surprising move, Tuomey agreed to settle with the government for $72.4 million, which is less than one-third of the $237 million that a federal appeals court said it would have to pay for illegal compensation arrangements with doctors. The hospital has already lost three times in federal court. Tuomey agreed to be sold to Palmetto Health as part of the settlement.

Settlements in September doubled the settlement record in consecutive weeks. On Sept. 15, North Broward Hospital District agreed to pay $69.5 million to settle allegations that it paid doctors far more than fair market value based, in part, on its referral. Then on Sept. 21, Adventist Health System paid the government $115 million to settle allegations it offered doctors excessive compensation for referrals. These cases should be a wakeup call for compliance officers and hospitals. Boards should also be briefed on these cases. All hospitals should review their physician contracts for legal compliance. Contracts with employed physicians should be consistent with fair market value and should not take into consideration the value or volume of referrals the employed physician can bring to the table. The hospital should not base any of the employed physician’s compensation of the expected value of business the physician will refer to the hospital.

The time is also ripe to review the compliance program as a whole. Hospitals should ensure that compliance officers are qualified and competent.

To see a copy of the June OIG’s Fraud Alert “Physician Compensation Arrangements May Result in Significant Liability” go to

To see a copy of the 46-page corporate integrity agreement between the OIG and North Broward Hospital District go here.

Here is information on Tuomey and the Department of Justice website. The case is captioned United States ex rel. Drakeford v. Tuomey Healthcare System, Inc., Case No. 3:05-cv-02858 (MBS) (D.S.C.).

To read information on Adventist settlement, go here.

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Past Editions of Compliance Mentor Available Online now contains past editions of Compliance Mentor, which debuted in April. The publication includes new regulations and revisions to the CMS hospital conditions of participation, accreditation organization changes, and other issues involving regulations and compliance. Past editions can be found here.

Readers are encouraged to forward this edition to friends and colleagues who may be interested. Compliance Mentor is read by more than 62,000 subscribers.

There are three additional complimentary publications. ED Push discusses issues in emergency medicine and has been published since October 2014. It is published twice a month. Hospital Consult has been published since November 2014 and is of interest to administration, nursing, and clinical staff. The September 2015 edition includes articles on the effect of noise in hospitals, nursing, bullying, and violence. It discusses the American Nurses Association position statement on violence. OSHA recently announced that it will be focusing on work place violence in hospitals under the general duty clause. This edition discussed how failure to follow guidelines on placement of arterial catheters can increase arterial catheter infections. CMS requires hospitals to follow standards of practice. An example would be the CDC Guidelines for the Prevention of Intravascular Catheters.

The final complimentary publication is The Vitals. It has been published monthly since November 2014. This publication covers clinical issues of interest to healthcare facilities. Past editions have discussed issues such as medical legal actions and male physicians, medical board certification, chronic pain patients, and electronic reminders to increase Tdap boosters. On a side note, the CMS infection control worksheet for hospitals, section 1.D.14, requires the hospital to provide Tdap to all personnel who have not previously received it. After receipt of Tdap, healthcare personnel would receive Td (tetanus diphtheria) for future booster vaccinations.