A physician recruitment company operated by a Roman Catholic hospital has pleaded guilty to offering and paying illegal kickbacks to two physicians for patient referrals, it was disclosed last week.
While the federal government came down hard on the recruitment company, Horizon Group Enterprises, it was soft on the hospital, 289-bed St. Joseph's Medical Center in South Bend, Ind. The hospital's tax-exempt status and its Medicare and Medicaid privileges will stay intact.
In a prepared statement, Horizon said it pleaded guilty because it should have known that the financial arrangements it had with the physicians were illegal.
"Because of Horizon's collective information and responsibility -- not any individual awareness of wrongdoing -- Horizon accepted full responsibility for its corporate conduct," the statement said.
An Internal Revenue Service spokeswoman did not return a telephone call by deadline.
Horizon entered its guilty plea in April 1997 in U.S. District Court in South Bend. The plea agreement was unsealed last week.
It was kept under seal to give Horizon and St. Joseph's time to persuade the IRS to allow the tax exemptions of both the hospital and Holy Cross to remain intact.
Under a 1997 ruling by the IRS, a hospital that violates the federal anti-kickback statute could lose its tax-exempt status.
Horizon, which provided St. Joseph's with physician services and medical practice operations, must pay a criminal fine of up to $500,000 plus a mandatory special assessment, neither of which has been determined. A sentencing hearing will be held in June.
Horizon, which is owned by South Bend-based Holy Cross Health System Corp., also agreed to a number of other conditions as part of the plea agreement, including at least a five-year termination of its relationship with Jones Obenchain Ford Pankow & Lewis, the law firm that advised the recruitment company (See box). Spokesmen for the law firm were unavailable for comment at deadline.
Horizon also is barred from participating in the Medicare and Medicaid programs.
Federal law bars any form of remuneration to induce the referral of Medicare or Medicaid patients.
Holy Cross also owns St. Joseph's, which was not charged with wrongdoing and cooperated with authorities. But the hospital will be fined up to $5 million and already has established a compliance plan.
Horizon admitted that from about 1991 through 1993, it knowingly and willfully provided financial benefits to physicians Peter D. Farr and Howard M. Addis in exchange for patient referrals in violation of federal law.
Benefits included a $350,000 loan guarantee, an inflated lease payment to the physicians for office space and monthly "practice enhancement payments."
Both physicians had admitting privileges at St. Joseph's.
Farr was sentenced last September to two years in prison for his involvement. Addis pleaded guilty to taking kickbacks in October 1996 and will be sentenced May 5.
Federal and state authorities were tipped off to the illegal behavior about five years ago by a "confidential informant" who worked with authorities but did not file a whistleblower lawsuit under the False Claims Act, said Donald Schmid, assistant U.S. attorney for the Northern District of Indiana.
The investigation was a joint effort of the Justice Department, the FBI, HHS, the Indiana attorney general and the U.S. Department of Defense.