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Mercy Hospital to Pay $5.5 Million to Settle Alleged False Claims Act Violations

A pair ofStethoscope1 Missouri health care providers have agreed to pay the United States $5.5 million to settle a False Claims Act (FCA) suit. The Department of Justice (DOJ) had alleged that Mercy Health Springfield Communities and Mercy Clinic Springfield Communities violated the FCA by offering bonuses to doctors who had referred patients to the Mercy health care facilities. Such referrals are improper as they often result in the overuse of medical services, creating higher health care costs, which is ultimately paid for by the federal government through Medicare and Medicaid.

The fraud scheme was one common to the field of health care. The lawsuit alleged that the two health care providers violated the Stark Law, which prohibits health care providers from making payments to physicians for patient referrals. The suit alleged that Mercy paid its pediatricians what it called “specialty funding”. This specialty funding paid to each pediatrician amounted to $39,000, which was so high that it constituted unreasonable compensation as the specialty funding did not meet the fair market and commercial reasonableness requirements under the Stark Law provisions. It is alleged that the excess compensations were paid in order to induce the pediatricians to refer patients to Mercy.

In commenting on the settlement, Mercy stated that the excess payments were not intentional and not made with the hope of inducing referrals. Mercy blamed the violations on the “very technical and constantly changing area of federal billing regulations.” Mercy stated that moving forward, billing procedures will be updated continuously in order to ensure compliance with the requirements of the Stark Law. It is interesting to note that during the Stark violations, Mercy had been part of the Medicare Physician Group Practice Demonstration Project. This program is completely voluntary and through its participation Mercy helped to save Medicare and Medicaid more than $33 million during a single fiscal year. While going above and beyond to save the government money, Mercy still inadvertently overbilled the government through its Stark Law violations. These violations by a well-meaning hospital highlight just how easy it is for hospitals to overcharge the government by way of their compensation structures.

The alleged fraud was brought to light by whistleblower Dr. Jean Moore. She had worked inside the Mercy Health Springfield Hospital as a pediatrician. She became aware of the excessive payments upon receiving one of the “specialty funding” bonuses herself.  In a meeting that she attended with the clinic administration, the administrators discussed how the compensation structure created a potential problem under the Stark Law. After this meeting she contacted legal counsel who initially pursued the suit on behalf of the federal government. Dr. Moore will receive $825,000 for her work in ending the alleged fraud. Under the FCA, any individual with knowledge of fraud can initiate a suite for the government, for their work they receive a share in the recovery, as much as 30% of the total damages.

The Stark Law places an important limitation on physician referrals, and is applied whenever a Medicare or Medicaid patient is treated. Physician self-referrals often occur when a physician recommends to a patient that they receive treatment at a medical facility in which that referring physician has a financial interest. Financial interests can take the form of direct ownership, investment interests, or compensation arrangements between the facility and the provider. Such referrals can create a conflict of interest as the physician has an incentive for the patient to receive additional medical services. The FCA is related to Stark Law because these additional medical services are costly, and when the patient is covered under Medicare or Medicaid, the federal government is paying for the wasteful services. Recently, most Stark Law enforcement efforts have been competed by private whistleblowers initiating FCA suits. The FCA continues to serve the federal government as an important tool in not only eliminating fraud but enforcement of federal regulation.