Bad contracts with two physicians costs hospital $8.5 million

Healthcare reform encourages hospitals and independent physicians to collaborate on care, but contracts that end up creating a financial motive to drive up Medicare and Medicaid costs and utilization can put a hospital on the wrong side of the law, as the non-profit acute-care Memorial Hospital in Fremont, Ohio, found out.

Memorial Hospital last week agreed to pay the government $8.5 million to settle claims that it violated the False Claims Act, the Anti-Kickback Statute and the Stark Statute in contracts it had made with two referring physicians — one a pain-management physician and the other an ophthalmologist.

The settlement was reached after Memorial Hospital voluntarily came forward to disclose the two arrangements that violated the law and to negotiate a fair settlement for its mistake. The settlement involves only allegations of wrong doing and not actual admission of guilt by the hospital. However, according the broad outlines in the Department of Justice press release, one of the problematic arrangements was a joint venture between Memorial and the pain management physician. The other arrangement was a deal under which the ophthalmologist purchased intraocular lenses and then resold them to Memorial at inflated prices, pocketing the difference as a kickback.

Because some of the cases involved Medicaid patient claims, the State of Ohio will receive $600,383 of the settlement amount.

“We are pleased that Memorial stepped forward to disclose these improper financial relationships and is working to avoid future occurrences,” noted Daniel R. Levinson Inspector General of the U.S. Department of Health and Human Services in a statement.

The announcement of the settlement comes on the heels of an even bigger settlement announced two weeks ago in which Halifax Health, a 654-bed not-for-profit hospital in Daytona Beach, Fla., agreed to pay the U.S. Department of Justice $85 million to settle allegations that an arrangement the hospital had entered into with six physicians from the Medical Oncology Practice Management Group violated Stark laws.