Community Health Network has agreed to pay the United States government $345 million to settle allegations that it engaged in a years-long scheme to recruit physicians and pay them huge salaries and bonuses in return for “downstream referrals” on medical procedures.
The U.S. Department of Justice said Tuesday the agreement settles allegations that senior management at Community Health recruited hundreds of local physicians as far back as 2008 and paid them salaries that were significantly higher, sometimes double, than they were receiving in their own private practices.
Community submitted an unspecified number of claims to Medicare for services that resulted from the unlawful referrals, the Justice Department said.
That violated a federal statute known as the Stark Law, which prohibits hospitals from billing for certain services referred by physicians with whom the hospital has a financial relationship unless the physicians’ compensation are consistent with fair market value and not based on the value or volume of their referrals to the hospital.
“The Stark Law was enacted to ensure that the clinical judgment of physicians is not corrupted by improper financial incentives,” Brian Boynton, head of the Justice Department’s civil division, said in written remarks. “Today’s recovery demonstrates the Department’s resolve to protect the integrity of federal health care programs and to safeguard the taxpayer dollars used to support these important programs.”
Under the agreement, Community also will enter into a five year “corporate integrity agreement” with the Office of Inspector General for the Department of Health and Human Services.
Community said the legal dispute involved alleged technical violations regarding the manner in which Community compensated certain employed physicians, dating as far back as 2008. It said the settlement will be paid from reserves held by the health network, which reported operating revenue of $3.1 billion in 2022.
“This is completely unrelated to the quality and appropriateness of the care Community provided to patients,” Community spokesperson Kris Kirschner said in written remarks. “This settlement, like those involving other health systems and hospitals, relates to the complex, highly regulated area of physician compensation. Community has consistently prioritized the highest regulatory and ethical standards in all our business processes.”
The civil settlement resolves the government’s claims with no finding of wrongdoing, Community said.
The Indiana Hospital Association issued a statement saying the Stark Law was enforced wrongly in Community’s case.
“The Stark Law is an important law in the health care regulatory arena, and when adopted, the law had a laudable purpose – to prevent physicians from receiving financial incentives that result in a patient receiving unnecessary care,” Steven Pratt, an attorney with Hall, Render, Killian, Heath, & Lyman in Indianapolis and a Stark Law expert for the hospital association, said in the statement.
He added: “Unfortunately, the law is not being enforced to achieve this purpose. Instead, without showing any unnecessary care or any harm to patients or Medicare, hospitals are frequently required to pay extraordinary damages to settle claims. The Community Health Network settlement is a good example of this. In fact, congressional leaders are currently reviewing potential updates to the Stark Law so that any damages are based upon patients having received unnecessary care, and any settlement amounts do not unnecessarily contribute to health care costs.”
The allegations were brought to light with the help of Thomas Fischer, who served as Community Health’s chief financial officer from 2005 until his sudden exit in 2013. Fischer said he was fired in retaliation for repeatedly asking questions about the large salaries, which the health system continued to pay during a market downturn and cost-cutting initiative.
Fischer filed a whistleblower complaint in 2014, and the Department of Justice later intervened and took over the suit. Under federal law, Fischer stands to collect a portion of the settlement, but his share has not yet been determined, the Justice Department said.
“I am grateful for this recovery,” Fischer said in a statement Tuesday. “These claims are not mere technicalities; they directly affect patients, hospital employees and the high cost of health care. This puts money back into the health care system and is a victory for the Indiana taxpayer.”
The $345 million settlement amount is reportedly triple the amount of the largest prior Stark Law False Claims Act settlement, according to Fischer’s law firm, Joseph Greenwald & Laake P.A.
The settlement agreement could end much of the case against Community, which has dragged on for more than nine years and involved more than 700 filings in the court docket. But Fischer’s lawyers said they plan to continue to seek recovery for some issues that the Justice Department declined in its claims.
Community Health operates eight hospitals and hundreds of clinics, surgery centers and urgent-care centers.
The Justice Department had alleged that the compensation that Community paid to its cardiologists, cardiothoracic surgeons, vascular surgeons, neurosurgeons and breast surgeons was “well above fair market value.” It said Community awarded bonuses to physicians that were tied to the number of their referrals.
The government said Community was well aware of Stark Law requirements on physician compensation and even hired valuation firms to analyze the compensation. One of the firms, Indianapolis-based Katz, Sapper & Miller, concluded that the compensation was “staggering” and “high compared to productivity in all specialties and primary care.”
The other, Chicago-based Sullivan Cotter, found that the salaries were above fair-market value and needed to be below the 75th percentile of national benchmark salary data.
Even so, Community “knowingly provided the firm with false compensation figures so that the firm would render a favorable opinion,” the Justice Department said.
“Community ignored repeated warnings from the valuation firm regarding the legal perils of overcompensating the physicians,” it added.
“Hoosier Medicare patients deserve to know that their care is based on their medical needs, not their doctor’s financial gain,” Zachary Myers, U.S. Attorney for the Southern District of Indiana, said in a statement. “When doctors refer patients for CT scans, mammograms, or any other serve, those patients should know the doctor is putting their medical interests first and not their profit margins.”