In a major legal development for healthcare providers, the U.S. Justice Department has joined a civil whistleblower fraud lawsuit against a Tenet Healthcare Corp.-owned hospital in Florida alleging that the hospital violated federal antikickback laws by overpaying for physician practices.
The case is the first legal test of several of the government's regulations and enforcement decisions. The Justice Department and HHS' inspector general's office have long argued that overpayments for physician practices constitute illegal kickbacks for patient referrals.
The case also will test the government's position that any claims from the illegally purchased practices are false and subject to the federal False Claims Act.
The lawsuit is expected to test one of the regulations implementing the 1989 Physician Self-Referral Act, better known as "Stark I." That law, nicknamed for its author, U.S. Rep. Fortney "Pete" Stark (D-Calif.), bars physicians from referring patients to clinical laboratories in which they have an ownership interest. The regulation, effective in 1992, exempts hospital-employed physicians from such kickback allegations if compensation for their practices or their salaries is commercially reasonable and not tied to patient volume or referrals.
Edward Kornreich, a healthcare lawyer with the New York office of Proskauer Rose, said federal courts have not addressed the legal theory that kickback violations could be false claims.
"There are scores of these Stark (whistleblower) cases pending, but there is no appellate or Supreme Court guidance on this issue," he said. "It's not clear to me how the U.S. Supreme Court would rule. But I think (the government's theory) is quite a legal stretch."
Tenet has denied all of the allegations in the case and says it will vigorously defend itself in court.
The lawsuit alleges that 391-bed North Ridge Medical Center in Fort Lauderdale; American Medical International, the hospital's former owner; and Tenet, which acquired AMI in 1995, engaged in a pattern of acquiring physician practices at more than fair market value and paid "excessive remuneration" to the physicians, who became employees of Tenet. Those purchases, the suit charges, "are tantamount to kickbacks designed by Tenet to fraudulently induce illegal referrals." The alleged scheme took place from 1993 to 1995.
The lawsuit says the scheme violated the kickback provisions of the Medicare and Medicaid fraud-and-abuse statutes, which bar any form of remuneration to induce patient referrals. The suit also says the defendants violated the False Claims Act by submitting claims to Medicare for services performed by the illegally obtained practices.
Sal Barbera, formerly chief executive officer of Tenet Physician Services in South Florida, filed the initial whistleblower lawsuit in U.S. District Court in Miami in May 1997. Tenet fired Barbera in July 1996, according to company spokesman Harry Anderson, after seven months on the job. Anderson refused to discuss details of Barbera's termination and Barbera's attorney did not respond to requests for comment.
Anderson denied the allegations, saying Tenet could show that the contracts were fairly and competitively negotiated. The government's decision to intervene is based on "incomplete and inaccurate information," Anderson said. "We will strenuously defend ourselves against this unwarranted action and expect to prevail. The government must prove that the 15 contracts in question were unreasonable at that time, and we don't think they can."
He said the government is relying on an untested legal theory by bringing the case under the False Claims Act. "The company will vigorously resist this government attempt to expand its enforcement activities in this manner," he said.
Tenet believes it is protected from prosecution because its physician-practice purchases passed legal muster under the fair-compensation exemption under Stark I.
Although the Justice Department intervened in the kickback charges, it declined to join the portion of Barbera's complaint alleging that the employed doctors at North Ridge upcoded claims for reimbursement. The government, however, in an amended complaint will join Barbera's charges that Tenet filed false cost reports, a Justice Department spokesman said.
Tenet disclosed the government investigation in 1998 and 1999 Securities and Exchange Commission filings, and the Justice Department announced its intervention in the case last week. Modern Healthcare first reported details of the investigation in 1998.
Like other hospital markets across the country at the time, South Florida was in a frenzy in the early 1990s, with hospitals scrambling to buy physician practices to compete for managed-care contracts. And like many other hospitals across the country, North Ridge's practices, as well as other Tenet physician practices, lost money, Anderson said.
South Florida sources, who requested anonymity, said neighboring hospitals lost patients to North Ridge during the term of the physician contracts, and patient volume increased when the contracts expired.
No trial date has been set in the case.