Saturday, August 1, 2009

California Hospital Pays $2.4 Million To Settle Qui Tam Lawsuit Alleging Unlawful Arrangements Between Hospital And Referring Physicians

On July 27, 2009, the United States Attorney's Office Central District of California, issued Press Release No. 09-087, announcing that Tulare Local Healthcare District, Tulare District Healthcare System and Tulare District Hospital (collectively, “Tulare Healthcare”) have agreed to pay more than $2.4 million to settle allegations that they submitted claims to the Medicare system as part of a scheme to illegally reimburse doctors who referred patients to Tulare Healthcare.

The settlement stemmed from an investigation by the Department of Health and Human Services, Office of Inspector General and the United States Attorney’s Office. Tulare Healthcare agreed to pay the settlement without admitting any wrongdoing. The alleged acts in the lawsuit occurred under prior Tulare Healthcare management, and the current management cooperated fully with the government’s investigation. The settlement, was announced when the United States Attorney’s Office learned that United States District Judge Christina Snyder had unsealed a “whistleblower” lawsuit filed last year by Maria Lucy Reimche, Tulare Healthcare’s former chief financial officer.

Reimche’s lawsuit alleged that Tulare Healthcare made prohibited remuneration to physicians who referred Medicare patients to Tulare Healthcare. The doctors who allegedly received prohibited remuneration from 2001 through 2007:
(1) were given rental arrangements at below-market rates,
(2) were able to purchase commercial real estate lots at below-market value, and
(3) had debts forgiven.

Reimche's lawsuit alleges that when Tulare Healthcare made claims to Medicare for reimbursement for services provided to the patients that had been referred, it violated the federal False Claims Act, as well as the federal Anti-Kickback Statute and an anti-referral law known as “the Stark law.”

The Anti-Kickback Statute prohibits anyone from offering, paying, soliciting or receiving anything of value to generate referrals for items or services payable by any federal health care program. The Stark law provides that, subject to certain exceptions, a physician may not refer patients for specified Medicare-covered health services to a hospital or other entity with which the physician or an immediate family member has a financial relationship. The law also prohibits hospitals from billing for any services provided as a result of a prohibited referral.

Attorney Commentary
Given the budgetary crises in Medicare and Medi-Cal and the emphasis on health care reform, we can expect to see an increase in scrutiny of hospital-physician business relationships. During tough economic times, enforcement actions serve not only to weed out those practitioners who intend to bilk the government, but also as a revenue source.

For physicians, it is important for you not to rely solely on the hospital's administrators (or other health care clinics) to assess the legality of these arrangements. We have had clients who said "well, if the hospital is proposing the idea it must be legal!" Hospitals face financial pressures too to build relationships and fill beds. Certainly, they may seek to comply with the law but in health care what was accepted one year ago or five years ago -- may be reviewed differently now.

Why is this important? If the government (or a whistleblower former employee) can prove that you have violated the Stark or Anti-Kickback statute, every claim you submit related to those referral relationships or arrangements is a "false" claim and must return 100% of the amount paid even if it was medically necessary. Look at the last page of your Medicare application where you specificially have signed that you understand this concept.

As this case illustrates, kickbacks do not always take the form of cash payments. Even something as seemingly innocuous as a discount on rent can be interpreted as a kickback. Given the current climate, it is a good idea for the practitioner wishing to avoid problems with Medicare and Medi-Cal to have their contracts reviewed by an attorney specializing in health care law.

Further, the practitioner would be wise to have an attorney visit the premises and observe the operations, talk to the office manager, observe the patient flow and understand your business relationships. Not only must practitioners ensure that their written contracts pass muster, they must also ensure that actual day-to-day business practices comply with the law. We would much rather prevent problems rather than assist a client defending a whistleblower lawsuit or health care fraud investigation.

For the physicians who entered into these arrangements, they are at significant risk of losing their Medicare provider numbers and having exclusions or negative reporting to the national database based on a qui tam lawsuit. There can be further fall-out from the state as well. These business relationships which do not comply with the law are never worth the risks in the long-term. Having objective legal advise by an attorney who represents you and thinks of your long-term career and practice is important.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings. They have a specialty in representing licensed health care providers. Their website is:


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