Modern Healthcare recently reported that Mercy Hospital Springfield and its affiliate clinic settled a case with the Department of Justice for allegedly submitting false claims to Medicare (Mercy pays $34 million to settle fraud, physician compensation claims). The case involved allegations of inflated physician compensation at an infusion center.
Modern Healthcare quoted the DOJ: “When physicians are rewarded financially for referring patients to hospitals or other healthcare providers, it can affect their medical judgment, resulting in a overutilization of services that drives up healthcare costs for everyone,” said acting assistant attorney general Chad Readler.
The hospital system acquired the infusion center from a group of oncologists. It was then able to charge hospital based fees and take advantage of 340(b) pricing for its medications. This is a common tactic used by hospitals to access favorable payments from CMS for hospital based services.
Inflated Physician Compensation
The DOJ alleged that the hospital paid the oncologists inflated amounts for management services following the transfer of ownership. This led to allegations of Stark Law and False Claims Act violations, ostensibly for exceeding fair market value and potentially encouraging referrals.
According to a National Law Review article regarding this case, the complaint alleged that “the compensation amount for the physician supervision work at the infusion center was approximately 500 percent of the wRVU for in-clinic work where the physician was actively involved in patient care… was not fair market value, nor was it commercially reasonable.”
Mercy agreed to pay $34 million to settle the lawsuit.
I addressed a similar issue in a popular post in 2016 (Physician Salaries and OIG Risk). I am re-publishing the content here for new readers. The previous article addresses inflated salaries. But the tactic of paying inflated management fees in order to maintain referral patterns has the same effect.
Pitfalls Involving Salary Surveys and OIG Allegations
I have been following news reports about recent OIG (Office of Inspector General) investigations related to physician compensation. These investigations have resulted in fines for alleged Stark Law and FCA (False Claims Act) violations. There seems to be more activity recently, including investigations in response to whistle-blower lawsuits.
Here is my take: Hospitals and health systems that use survey data (such as MGMA and AMGA) to set compensation levels for newly employed physicians are under intense scrutiny. This scrutiny results because:
- it appears that collections generated by the employed physicians do not support the salaries being provided, or
- salaries of newly employed physicians significantly exceed compensation previously generated in their independent practices.