The Department of Justice announced  a $3.5 million settlement of a whistleblower case, even though the government’s investigation found no evidence of criminal violations. The whistleblower’s complaint alleged that Cayuga Medical Center in Ithaca, New York entered into improper physician recruitment agreements in violation of the federal False Claims Act (FCA). The settlement is to be divided among the federal government, the State of New York and the individual whistleblower. 

The federal Stark Law prohibits a physician from referring patients to a hospital if the physician has a financial relationship with the hospital, unless a specific exception to the prohibition applies. The Stark Law also prohibits a hospital from billing Medicare for prohibited referrals. Among other things, the Stark Law applies to recruitment agreements between physicians and hospitals. Federal regulations and related guidelines under the Stark Law allow a hospital to pay only certain expenses of the physicians it recruits to the area. In this case, a plastic surgeon alleged that the medical center paid expenses that were prohibited by Stark Law regulations and guidelines and therefore  the medical center violated the FCA by submitting false claims to the federal government when it certified, in its bills to Medicare and Medicaid, that it was “complying with federal laws and regulations.” The whistleblower’s complaint also alleged that these actions violated New York State’s False Claims Act.

The qui tam provisions of the federal FCA permit a whistleblower, like the plastic surgeon in this case, to bring a civil complaint on behalf of the United States. Under federal law, and by a court’s order, the complaint is filed “under seal,” which permits the federal government to conduct an investigation and determine if it will “intervene” and take the lead in prosecuting the case. According to Department of Justice statistics, the government has been taking an average of 13 months to review such cases in making its decision whether or not to intervene.

In this case, when the medical center learned of the issues it cooperated with the government investigations and voluntarily disclosed additional recruitment agreements that it had entered into. Although the government investigations found no evidence of criminal violations, both the United States and the State of New York decided to intervene for the purpose of settling the civil allegations.

Under the terms of the settlement agreement, Cayuga Medical Center agreed to pay a total of $3,576,056.00. Of that amount, New York State would receive $426,305.00 and federal health care programs would recover $3,149,751.00. As permitted by the FCA, the whistleblowing plastic surgeon would receive 18% of the settlement proceeds ($566,955.18) “as a result of his role in reporting his concerns and his cooperation throughout.”

As we discussed in another recent blog post, whistleblower claims against health care employers continue to rise. This case provides a graphic illustration of the risks of these types of cases and the need for careful consideration of all aspects of the heavily-regulated areas of physician recruitment, employment and compensation. In May, 2011 The New England Journal of Medicine noted that more than half of all practicing physicians were employed by hospitals or integrated delivery systems. As we look forward, this trend shows no signs of let-up. Physician recruitment has become a major strategy for many hospitals as they prepare for health care system reforms. In this climate, as hospitals and other health care institutions that employ physicians plan for the challenges ahead, it is increasingly important that they consult with employment counsel well versed in the spider’s web of rules, regulations and guidelines that affect or overlay virtually all aspects of physician recruitment, employment, compensation and management.

Photo credit: MBPHOTO, Inc.