Government Targeting Hospitals Calculating Referral Return-on-Investment of Overpaid Employed Physicians

Recently, the Justice Department filed its complaint-in-intervention in a False Claims Act case against Halifax Hospital Medical Center, alleging that the hospital paid salaries to employed physicians that were well above the fair market value, and that employed physicians received illegal bonuses that were improperly based on the number of patients referred to the hospital for medical procedures. According to the complaint, these alleged payments were in violation of the Stark Statute, thus allegedly tainting thousands of claims submitted by the hospital from 2000 through 2010 and allegedly costing government health care programs millions of dollars in false claims.

This case has garnered a lot of media coverage, focused mainly on the various players involved in this action. However, as a practical matter, the most important lesson of this case may be buried in the government’s complaint-in-intervention. Specifically, the government alleges: “Given that each was [hospital-employed] neurosurgeon was paid total compensation that exceeded the collections received for neurosurgical physician services, Defendants could not reasonably have concluded that the compensation arrangements in those contracts were fair market value for the neurosurgeons’ services or were commercially reasonable.”

In the eyes of the government, Halifax’s CFO allegedly ordered his staff to “quantify referral volume by physician.” According to the government’s complaint, this internal assessment allegedly showed that the neurosurgeons receiving the supposedly above FMV compensation were “some of the most profitable physicians in the hospital based on income generated from referrals by these physicians.” Such alleged return-on-investment analysis certainly raises red flags in these types of cases.

If the Government succeeds in recovering government health care dollars from Halifax Hospital, the former compliance officer who brought the qui tam will likely be entitled to receive a whistleblower reward worth millions of dollars.

More information for whistleblowers is located at the Nolan Auerbach & White website.