Mobile, Alabama hospital, affiliated clinics, and physician group settle whistleblower kickback and Stark case for $24.5 million

by Ben Vernia | July 27th, 2014

On July 21, the Department of Justice announced that a Mobile, Alabama, hospital, two clinics associated with it, and a separate practice of physicians had agreed to settle allegations – originally brought by a qui tam whistleblower – that the hospitals and clinics paid the physicians group for referring patients. According to DOJ’s press release:

Mobile, Alabama-based Infirmary Health System Inc. (IHS), two IHS-affiliated clinics and Diagnostic Physicians Group P.C. (DPG) have agreed to pay the United States $24.5 million to resolve a lawsuit alleging that they violated the False Claims Act by paying or receiving financial inducements in connection with claims to the Medicare program, the Justice Department announced today.

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The government’s suit alleged that two IHS affiliated clinics — IMC-Diagnostic and Medical Clinic, in Mobile, and IMC-Northside Clinic, in Saraland, Alabama — had agreements with DPG to pay the group a percentage of Medicare payments for tests and procedures referred by DPG physicians, in violation of the Physician Self-Referral Law (commonly known as the Stark Law) and the Anti-Kickback Statute. Also named in the lawsuit was Infirmary Medical Clinics P.C. (IMC), an affiliate of IHS that directly owns and operates approximately 30 clinics in the Mobile area, including the two clinics involved in this lawsuit.

The Anti-Kickback Statute and the Stark Law are intended to ensure that a physician’s medical judgment is not compromised by improper financial incentives. The Anti-Kickback Statute prohibits offering, paying, soliciting or receiving remuneration to induce referrals of items or services covered by federal health care programs, including Medicare. The Stark Law forbids a hospital or clinic from billing Medicare for certain services referred by physicians who have a financial relationship with the entity.

According to the government’s complaint, in 1988, IMC purchased IMC-Diagnostic and Medical Clinic from DPG and agreed to pay DPG a share of the revenues the clinics collected, including Medicare revenues from diagnostic imaging and laboratory tests. After IMC acquired the IMC-Northside Clinic in 2008, the physicians practicing there joined DPG and entered into an agreement with the same key terms as the earlier agreement with IMC-Diagnostic and Medical Clinic. The government contended that these payments were illegal kickbacks and constituted a prohibited financial relationship under the Stark Law, and that in June 2010, an attorney for DPG warned employees of both IMC and DPG that the compensation being paid to the physicians likely violated the law. Nevertheless, the agreements allegedly were neither modified nor terminated for another 18 months.

The hospital also agreed to a five-year Corporate Integrity Agreement with the Office of Inspector General of HHS.

DOJ announced that the whistleblower, a doctor formerly employed at the physicians’ group, will receive $4.41 million (an 18% relator’s share).

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