Lexington Medical Center (“LMC”), a 428-bed hospital in South Carolina, has agreed to pay $17 million to resolve allegations that it violated the federal False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq., and Physician Self-Referral Law (“Stark Law”), 42 U.S.C. § 1395nn, by allegedly providing improper financial incentives to 28 physicians for referrals.

The case was brought by Dr. David Hammett, a neurologist formerly employed by LMC who claims he was terminated for failing to participate in LMC’s “scheme” to generate impermissible physician referrals. Dr. Hammett will receive $4.5 million under the qui tam provisions of the FCA allowing private citizens to sue on behalf of the government.

The Stark Law generally prohibits (1) physicians from referring designated health services payable by Medicare and Medicaid to entities with which they have a “financial relationship” and (2) entities from billing for those referrals, unless an exception is met.

The government alleged that LMC violated the Stark Law and False Claims Act by maintaining improper financial relationships with the 28 physicians and billing for referrals it received from those physicians. The specific conduct at issue included the following:

  • Physician Compensation: LMC allegedly paid physicians commercially unreasonable salaries at above fair-market-value rates when compared to industry standards. For example, an internal medicine physician was paid in excess of $500,000, though the median salary for her specialty was only $229,000 and the 90th percentile was only $378,000.
  • Volume and Value of Referrals: The physicians’ compensation structure allegedly took into account their volume and value of referrals to LMC. Specifically, LMC used “excessively large” RVU multipliers that incentivized self-interested referrals to LMC, as opposed to referrals based solely on their independent medical judgment and the patient’s best interests.
  • Acquisition of Physician Practices: After acquiring at least one physician practice, LMC allegedly made extra bonus payments that were not bargained for as part of the original $1.5 million sale. This, in addition, allegedly violated the federal Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b.

In addition to the $17 million fine, LMC agreed to enter a 5-year Corporate Integrity Agreement that requires it to implement measures to avoid or promptly detect future similar conduct.

LMC has publicly stated that its arrangements were structured “in accordance with all laws and regulations” and that the settlement “reflects the challenges hospitals face navigating highly complex employment law regulations for physicians.”

This announcement comes only days after the federal government published its Annual Report to Congress on Medicare and Medicaid Integrity Programs, touting a $42 billion return on investigating healthcare fraud and abuse—a 12-to-1 return on investment for every dollar spent. Additional analysis of this report was covered in a recent Health Law Pulse post.

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