Healthcare Business News

Motive questioned

N.J. hospital pays $12.6 million settlement

By Joe Carlson
Posted: February 2, 2013 - 12:01 am ET

Cardiac care is a fast-growing and lucrative service for hospitals, but a recent $12.6 million settlement for alleged kickbacks at a New Jersey hospital is reminding health systems to ensure they're not illegally buying referrals for heart care.

A whistle-blower, cardiologist Dr. Nicholas DePace, said two-campus Cooper Health System in Camden paid doctors $18,000 a year to attend four annual meetings of the Cooper Heart Institute Advisory Board between 2004 and 2010 that were actually shams designed to compensate doctors for referring patients to Cooper.

The state and federal governments joined DePace's lawsuit as plaintiffs. Although kickback allegations against hospitals aren't unheard of, the alleged advisory board scheme is more common to cases against pharmaceutical companies and devicemakers, lawyers say.

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The hospital settled the civil case without admitting wrongdoing by agreeing to reform its training and compliance programs and paying $10.2 million to the U.S. Justice Department and $2.3 million to the state.

The settlement was more than double Cooper's entire operating profit for 2011.

“One of the things I found most interesting about it is it resulted in a relatively large kickback settlement even though the amounts paid to the physician were relatively modest,” said S. Craig Holden, president of law firm Ober Kaler in Baltimore and a former trial attorney with HHS' inspector general's office.

Holden said that in cases like Cooper's, which involved alleged violations of the anti-kickback statute and the False Claims Act, any referral from a physician receiving an inappropriate payment is considered tainted, and therefore Medicare payments must be returned on top of potential triple-damages and other penalties.

“You're looking at all of your Medicare payments for services ordered by these physicians being at risk. And when you are talking about cardiac physicians, that can add up to a lot of money,” he said.

In a written statement, Cooper University Hospital President and CEO John Sheridan Jr. defended the organization's motives in paying to settle the case.

“After more than three years of extended discussions with government lawyers, we decided in the best interests of Cooper, to settle our dispute without the admission of wrongdoing to avoid the burdens and uncertainties of a protracted litigation,” according to his statement. “This allows us to focus our full energies on serving our communities.”

Exactly how many other hospitals have physician advisory boards like Cooper's and how many pay their advisers isn't clear. Holden said that it used to be a more common practice, and that it's more commonly seen in other sectors of healthcare, such as the pharmaceutical and device industries.

But regardless of the context, such arrangements are not inherently illegal.

Virginia Gibson, a partner with Hogan Lovells in Philadelphia and former prosecutor in the U.S. attorney's office there, said hospitals can glean important information from such arrangements, like whether they're providing state-of-the-art facilities and how medical specialties are evolving.

“There's nothing illegal about an advisory board and nothing illegal about paying consultants. It's in how you structure the program and how you value the services being provided,” she said.

If board members are just listening to lectures and not providing actual services to the hospital, they can't be compensated as advisers. And even when they're providing real feedback, payments have to be at fair market value and not inflated so much that a prosecutor could conclude that they're intended to disguise compensation for other reasons.

Gibson and Holden said the fact that the Cooper whistle-blower was one of the doctors invited to be an adviser was unusual—and especially damaging for Cooper.

DePace, a cardiologist with Franklin Cardiovascular in southeastern Pennsylvania and South Jersey, said he was invited to join Cooper's advisory board in 2007 along with other high-volume physicians. A news release from his attorney said DePace “quickly realized that the (board) was a thinly veiled kickback scheme” that paid doctors “for doing nothing more than sitting and listening to marketing presentations and lectures on irrelevant topics.”

“At least one (board) member admitted to Dr. DePace that, when making referrals, he knew that Cooper, through the (board), 'butters his bread,' ” the news release said.

DePace will receive about $2.4 million as the whistle-blower who filed the original case.

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