Physician Referral Violation Settled With DOJ

The U.S. Department of Justice (DOJ) has agreed to let a Missouri hospital system settle a False Claims Act and Stark Law violation for $9.3 million.

Joplin-based Freeman Health System had knowingly been providing incentive pay to at least 70 physicians over a ten year period.

In 2009, the hospital underwent an internal review of its physician-compensation agreement and determined that the agreements did not meet federal guidelines. Hospital administrators then contacted the U.S. Attorney for the Western District of Missouri and disclosed that a number of its physicians were eligible for incentive compensations that took into account the value and volume of their referrals.

Specifically, the government alleged that Freeman provided incentive pay to 70 physicians employed at clinics operated by the health system based on the revenue generated by the physicians’ referrals for certain diagnostic testing and other services performed at the clinic, and that this financial arrangement created an incentive to refer patients for such procedures.

The Stark Law forbids a hospital from billing Medicare for certain services referred by physicians that have a financial relationship with the hospital. A prohibited financial relationship includes an agreement between a hospital and a physician to compensate a physician based on the volume of the physician’s referrals or the revenue realized through those referrals.

Paula Baker, president of Freeman since early 2012, told the Associated Press that the internal review also found that no patient or governmental entity was billed for any service that was not provided.

Baker said Freeman contacted the appropriate regulatory agency to voluntarily disclose that it was in noncompliance with the law. The hospital immediately changed its compensation formula to ensure full compliance.

U.S. News & World Report ranked Freeman as the #1 hospital in Southwest Missouri and #4 in the state of Missouri for 2012-2013.

“Today’s resolution underscores our commitment to ensure that health care decisions are based on the best interests of patients rather than the personal financial interests of referring physicians, ” said Stuart F. Delery, Acting Assistant Attorney General for the Department’s Civil Division in a November 12 statement. “The Department of Justice encourages companies to disclose potential violations of law, as was the case here .”

The Justice Department has used the False Claims Act to recover $10.1 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $13.8 billion.