Freeman Health System, Joplin, Mo., has agreed to pay $9.3 million to settle potential liabilities after it self-reported compensation arrangements with 70 doctors going back a full decade that may have created illegal financial incentives to refer patients to the hospital.

According to the signed settlement agreement and a related news announcement from the Justice Department, the two-hospital system disclosed that between 1999 and 2009, it gave doctors incentive pay based on the Medicare revenue generated from their referrals for diagnostic testing and other health services at Freeman clinics.

The conduct was discovered by an internal audit and disclosed by Freeman officials to federal investigators, the system said in a statement. The Stark Law makes it illegal to pay doctors in ways that could induce referrals, unless the activity is covered by one of several specific exceptions.

The settlement agreement said (PDF) the system “did not contest liability” under the Stark Law. However, the settlement is not an admission of liability under the related False Claims Act, which makes it illegal to send erroneous bills to Medicare, and which carries steep financial penalties.

An e-mailed statement from Freeman President and CEO Paula Baker noted that the system will not have to enter corporate integrity agreement as a result of the settlement.

An “internal review discovered that we had inadvertently made errors in the way we structured compensation agreements for some office-based physicians and that those agreements did not meet very complex federal guidelines,” Baker's statement said. An “extensive third-party review confirmed that the quality of care provided to patients was not affected in any way. It was also determined that no patient or governmental entity was billed for any service that was not provided.”

The settlement gives the hospital 10 days to pay the $9.3 million. For the most recent year in which public data are available, the not-for-profit Freeman recorded a $2.5 million profit (PDF) on $409 million in total revenue for the fiscal year ended March 31, 2011.