DOJ Brings Enforcement Actions Against Hospitals For Kickbacks Related to Physician Recruiting

The US Department of Justice (“DOJ”) recently charged Wheeling Hospital, Inc., located in Wheeling, West Virginia, with violations of the Stark Law, and the Anti-Kickback statute for alleged “improper financial arrangements and remunerations” in conjunction with Wheeling Hospital’s recruitment of physicians with high patient volumes in an effort to increase patient referrals to other Wheeling Hospital providers and services. This is just the latest of several similar cases, as the DOJ is ramping-up enforcement in this area to combat Medicare and Medicaid fraud.

In the complaint, the DOJ alleges that Wheeling Hospital paid excessive compensation to certain physicians. That compensation, which in some cases exceeded $1 million per year, “exceeded fair market value, … [was] not commercially reasonable,” and often resulted in “significant losses” in conjunction with each physician’s respective practice. However, those losses were “justified because of the ‘downstream revenue’ from these lucrative referrals.” The DOJ alleged that this behavior violated the Stark Law, and the Anti-Kickback Statute, and defrauded Medicare and Medicaid. Specifically, the DOJ alleged that Wheeling Hospital determined physician compensation levels “based on the volume or value of the physicians’ referrals.” The case was originally brought as a qui tam case by, Louis Longo, a former Executive Vice President at Wheeling Hospital. Longo reported several specific instances of wrongdoing. In one case, Wheeling Hospital entered into an employment agreement with a specialist for a term of seven years. The specialist was paid between $1 million and $1.27 million per year for that term, more than four times the median salary for that specialty of $282,645. Further, Wheeling Hospital suffered a loss of approximately $400,000 per year for that physician’s practice. However, that physician’s downstream referrals accounted for over $4.6 million per year in payments to the hospital. In view of that data, Wheeling Hospital determined that they should “continue to absorb the practice loss” so as not to “endanger the significant downstream revenue that she produces.”

This case follows on other similar cases. Last August, William Beaumont Hospital, in Royal Oak, Michigan, agreed to pay $84.5 million and entered into a five year Corporate Integrity Agreement to settle DOJ allegations that violated the False Claims Act for paying excessive compensation to physicians and for providing “free or below-market rent and office staff.” A month after the William Beaumont settlement, Kalispell Regional Healthcare System, in Kalispell, Montana, agreed to pay $24 million to settle similar allegations in conjunction with the compensation of over 60 physician specialists.

These cases highlight the challenges facing rural hospitals in providing care to local residents. As reported by Kaiser Health News, a spokesman for Wheeling Hospital responding to the DOJ suit, commented that “[w]e are confident that … there will be no evidence of wrongdoing – only proof that Wheeling Hospital offers the … [local] [c]ommunity access to superior care, world class physicians and services.” However, with the DOJ’s heightened scrutiny of specialists’ compensation packages, hospitals may have to look to strategies other than simply engaging in bidding wars to recruit and retain doctors.