The U.S. Justice Department and Adventist Health System have agreed to settle a whistleblower (qui tam) lawsuit filed in December 2012 by three former employees for $118.7 million to be shared by the federal government and four states, including Florida.
The former employees were the first to expose that Adventist was running afoul of the Stark Law, which was initially created to curb perceived unnecessary referrals and over-utilization of services by physicians within groups or at facilities to referral recipients with which they have ownership or financial interests.
The plaintiffs, represented by whistleblower law firm Phillips & Cohen LLP, exposed an alleged scheme by Adventist to pay physicians excessive compensation to lock in their patient referrals to Adventist-owned hospitals, clinics and other outpatient services in Florida, North Carolina, Tennessee and Texas. Those hospitals include Florida Hospital Altamonte, Florida Hospital Apopka, Florida Hospital Celebration Health, Florida Hospital Kissimmee, Florida Hospital Orlando, Florida Hospital Waterman (Tavares, Fla.), Florida Hospital for Children (Orlando, Fla.) and Winter Park Memorial Hospital.
"The settlement with Adventist was the largest ever made in a case involving physician referrals to hospitals," said Peter Chatfield, a partner at Phillips & Cohen LLP who represented the whistleblowers in the Adventist case. "Congress enacted the Stark Law to try to ensure that doctors consider only the patients' needs when making treatment decisions and that referrals aren't influenced by financial relationships with healthcare facilities that provide treatment."
In a prepared statement, Adventist Health System said, "Adventist Health System regrets these oversights, and while some of its hospitals had no violations, the organization has improved monitoring and business practices system-wide as a result of lessons learned from this experience so that it can continue to uphold the highest standards of compliance with regulations."
The Stark Law provisions apply when a practice has an ownership or other financial arrangement with a referral recipient that provides certain "designated health services" (DHS) to a Medicare patient. DHS is defined by statute and include:
- Clinical laboratory services
- Physical therapy services
- Occupational therapy services
- Outpatient speech-language pathology services
- Radiology and certain other imaging services
- Radiation therapy services and supplies
- Durable medical equipment and supplies
- Parenteral and enteral nutrients, equipment, and supplies
- Prosthetics, orthotics, and prosthetic devices and supplies
- Home health services
- Outpatient prescription drugs
- Inpatient and outpatient hospital services
The settlement agreement also covers a separate qui tam lawsuit filed in 2013 that made the same allegations as some of those made earlier in Phillips & Cohen's qui tam lawsuit. The False Claims Act allows private citizens to file qui tam lawsuits against any entity defrauding the government to recover funds for the government.
"I expect to see more Stark cases against hospitals, since the Justice Department takes these violations very seriously," said Chatfield. "Hospital employees often will object to their managers about improper financial relationships with doctors, but nothing changes. That is when they turn to us and the False Claims Act."
One misunderstanding of Stark Law is that if the patients are not Medicare or Medicaid recipients, then Stark does not apply. This is only half true. While Stark may not apply, many states have mini-Stark laws that pick up the slack and apply to cash and insurance patients.
For example, Florida has the Patient Self-Referral Act that prohibits referrals for non-Medicare and Medicaid patients. Many times these laws incorporate the exceptions found in federal law and apply them to the referrals not covered by Stark. Some states, like California, apply their mini-Stark laws to all patients, regardless of payor source so that patient referrals are still impacted even if the Stark Law does not apply. In addition, Stark does not apply to referrals for other types of federal health care program patients, such as Veterans Administration, Railroad Retirement Board, Public Health Services and other federally-funded health programs.
Brian Mahany, a False Claims Act attorney from Tampa, FL, calls the Adventist settlement a major win for patients.
"Healthcare decisions should be made on what's best for the patient, not how much a doctor or hospital can squeeze out of Medicare," said Mahany, principal at Mahany Law.
Further, by their nature, he said, these kickback schemes also involve more in-hospital treatment than patients actually need. "Anything that stops fraud against federal healthcare programs like Medicare, helps every U.S. taxpayer and this big settlement sends a message to other healthcare providers that they should stay on the straight and narrow or face severe consequences."
Mahany added that there have been a tremendous number of False Claims Act cases in the last 12 months regarding physician referrals and kickbacks. "They're a priority for the Department of Justice. As hospitals have tried to get creative in how they disguise kickbacks, from small hospitals to the Adventist settlement, the Department of Justice has drawn a line in the sand."
John Maa, MD, a general surgeon in practice at Marin General Hospital in Greenbrae, CA, said inappropriate incentives to physicians for referral to the facilities that employed them likely will be an increasing problem in the future.
"It does work across sectors, and has increasingly been invoked in the healthcare industry over the past decade," said Maa, a member of the Board of Directors of the San Francisco Medical Society and Past President of the Northern California Chapter of the American College of Surgeons. "After the Affordable Care Act passage and the emphasis on accountable care organizations--there is the possibility that this type of relationship will become a greater concern, as hospitals and healthcare practitioners are encouraged to align incentives."
While settlements like this usually cause a ripple in the healthcare community, Maa said most hospitals recover.
"Patients still need treatment and seek care at the most convenient facilities," he said. "There have been a number of institutions that have paid massive settlements, and with time I think the process makes them stronger and better, and the settlements largely forgotten. The key to the institution is to implement processes to prevent the situation from recurring, and to reassure the public that those who are responsible for the wrongdoing have been held accountable."