A Roman Catholic hospital used a separate for-profit company to seduce two physicians to join its staff. The corporation promised loan guarantees, clerical help, even "practice enhancement payments."
That's how a court document written last week by U.S. District Judge Robert Miller Jr. describes the intricate scandal embroiling 289-bed St. Joseph's Medical Center in South Bend, Ind., and its sister corporation, Horizon Group Enterprises.
Horizon last month pleaded guilty to giving two physicians financial perks in exchange for patient referrals to St. Joseph's in violation of federal anti-kickback laws (May 4, p. 2). The two physicians are Howard Addis, M.D., and Peter Farr, M.D.
St. Joseph's and its parent companies, St. Joseph's Care Group and South Bend-based Holy Cross Health System, were not charged with any wrongdoing. All will retain their tax exemptions and Medicare and Medicaid privileges.
As part of Horizon's plea agreement, the hospital, St. Joseph's Care Group and Holy Cross must implement an extensive compliance program, which could cost millions of dollars.
Each corporate organization must hire a compliance officer, submit to an annual audit by federal authorities for the next five years, and require its officers and managers to complete 25 hours of continuing education on avoiding fraud and abuse.
In addition, the chairman, chief executive officer and compliance officer of each corporate organization must sign an annual certificate of compliance for HHS. (See chart.)
None of the three will pay fines, sources said. But Horizon must pay a fine of up to $5 million for its criminal actions. That fine will be determined at the corporation's sentencing hearing next month.
The hospital has attempted to distance itself from the scandal, but the government drew a clear line to St. Joseph's Medical Center.
"Addis . . . accepted financial inducements from representatives and affiliates of St. Joseph's Medical Center in exchange for sending patients to St. Joseph's Medical Center," the U.S. attorney's office in South Bend said in a press release.
In his May 6 sentencing memorandum, Miller also pointed out the hospital's involvement in the scandal: "This was jointly undertaken criminal activity in which it was highly foreseeable to (and actually foreseen by) Dr. Addis that St. Joseph's Medical Center would benefit greatly from Dr. Farr's Medicare and Medicaid patients, and that Dr. Addis and Dr. Farr both would benefit from the inducements offered by St. Joseph's Medical Center."
Patrick Coffey, an attorney with Gardner Carton & Douglas in Chicago who is representing Horizon, asserted that Miller's statement really wasn't directed at the hospital. "I don't think you'll see the same statement made when Horizon is sentenced (in June)," he said.
Although the two physicians did make money on the arrangement, the hospital lost money on the patients they referred to St. Joseph's, Coffey said.
"Hospitals don't make a profit on government health programs," he said, without explaining why the hospital would take money-losing referrals.
The case may prompt hospitals across the country to rethink the way they attract physicians. Many hospitals use the same perks Horizon did-loan guarantees and office space-to entice physicians to join their staffs or obtain admitting privileges.
According to a 1996 physician recruitment survey done by St. Louis-based Cejka & Co., more than 36% of providers surveyed said they offered loan guarantees to physicians as a recruitment tool in 1995.
Addis was sentenced last week to three years in prison, three years of probation and a $40,000 fine for his part in the scheme. He pleaded guilty to taking kickbacks in October 1996. Factored into his sentence was the fact that he had lied under oath twice, admitting and then denying his guilt.
Addis had attempted to blow the whistle on the kickback scheme by filing a lawsuit, but he denied the scheme existed when he testified before a grand jury.
"Dr. Addis has squandered his credibility; the court simply believes nothing to which he testified at his sentencing hearing," Miller wrote in his sentencing memo.
The government's investigation began in 1992, when an anonymous caller to HHS' fraud hotline tipped off authorities to the illegal kickback agreement between Horizon, Addis and his partner, Farr.
But the investigation heated up after Addis, unaware of the government's probe, filed a federal civil lawsuit in 1994 accusing the hospital, St. Joseph's Care Group, Holy Cross and three staff physicians of trying to drive him out of practice in violation of federal antitrust and racketeering laws.
Addis filed the lawsuit a few months after his privileges at St. Joseph's were suspended for 30 days by the hospital's executive committee. The suspension was based on his failure to order the proper drugs for a patient, according to court documents.
Addis contended that the suspension was intended to punish him for trying to end the illegal recruitment practices in which he took no part.
However, in a November 1994 sworn statement for his civil suit, Addis admitted his involvement in the kickback scheme: "The only reason I moved to South Bend was Ed Gergesha's promise that if I gave him patients, he would give me money."
Gergesha, a physician and former executive at Horizon, resigned from the company during the government's investigation "to pursue other opportunities," Coffey said.
Addis further testified in his deposition that St. Joseph's Medical Center used incentives to persuade Farr to move his lucrative practice from Mishawaka, Ind., to South Bend to "get all of the patients or as many as possible into their hospital because of the sheer volume of the practice."
Addis sent a copy of that deposition to the U.S. Justice Department in an attempt to implicate Horizon and the medical center.
But the hospital and its two parent organizations already were cooperating with the grand jury investigation, which was in full swing. In January 1996, Addis appeared before the grand jury, denying under oath that Horizon had wooed him with financial incentives.
Against his attorney's advice, Addis reversed himself again at his arraignment nine months later and pleaded guilty to taking kickbacks.
He told the court: "I knowingly participated and accepted inducements from St. Joseph Medical Center, specifically (hospital Chief Executive Officer) Dennis Heck and Edward Gergesha and others . . . to send patients to St. Joseph's Medical Center in return for those inducements."
Heck resigned as CEO during the government's investigation "for personal reasons including health problems," Coffey said.
Addis later tried to withdraw the plea, arguing that his judgment that day was clouded by depression, two sleepless nights preceding his court appearance and a 12-hour drive to the courthouse, according to the sentencing memo. His motion was denied by the court, and his plea stuck.
At his May 6 sentencing hearing, Addis testified that he had lied in his 1994 deposition to get the lawyers' attention. But Judge Miller disagreed, ruling that Addis had lied to the grand jury and again to Miller at the hearing.
In Addis' civil case, U.S. District Judge Allen Sharp found in favor of the hospital and physicians. The ruling came after Addis, through his attorney, failed to respond to a motion for summary judgment.
Attempts to reach Addis, Farr, Heck and Gergesha for comment were unsuccessful.
Farr was sentenced last September to two years in prison for his involvement.
Medical licenses for Addis and Farr were revoked or suspended by the Indiana Health Professions Board.
Heck and Gergesha were not charged with any wrongdoing.
Horizon's future is unclear. It has been banned from participating in Medicare and Medicaid because of its guilty plea-a death sentence for almost any provider. The management of certain physician practices once handled by Horizon will move to St. Joseph's Care Group as part of Horizon's "restructuring," Coffey said.