Tenet Healthcare Corp. is preparing to defend itself in court against a 1997 whistleblower lawsuit alleging that one of its Fort Lauderdale, Fla., hospitals illegally overpaid physician practices in exchange for patient referrals.
Nearly five years after the civil suit was filed under the federal False Claims Act, and seven months after the U.S. Justice Department joined the suit, Santa Barbara, Calif.-based Tenet has begun subpoenaing records from other Broward County (Fla.) hospitals to prepare for a possible trial. Settlement talks have snagged, according to Tenet officials.
Sal Barbera, former chief executive officer of Tenet Physician Services in South Florida who was fired in 1996, filed the lawsuit against Tenet and its predecessor company, American Medical International, in U.S. District Court in Miami in 1997. Barbera alleged AMI and 391-bed North Ridge Medical Center in Fort Lauderdale overpaid for physician practices to induce patient referrals and then filed false Medicare cost reports that included kickback-tainted claims. Barbera alleged that beginning in 1993, Tenet also signed physician contracts for amounts exceeding fair market value in exchange for Medicare referrals. The lawsuit alleged the Tenet hospital violated the Physician Self-Referral Act, better known as "Stark I."
Though it hasn't thrown in the towel on negotiating a settlement, Tenet also is preparing for a courtroom trial, which is fraught with risks. If it loses, Tenet could risk exclusion from Medicare and Medicaid and the possibility of paying triple damages. Even as fellow for-profit hospital chain HCA in Nashville is preparing for a civil trial on Medicare cost-reporting fraud allegations, HCA has not ruled out a settlement and last month made the Justice Department an offer to settle physician civil kickback allegations against the company for an undisclosed amount.
The federal Stark law prohibits physicians from referring patients to clinical laboratories in which they have ownership interests but exempts hospital-employed physicians if their compensation is reasonable and not tied to the volume of patient referrals. The government alleged in its complaint that compensation by North Ridge to physicians was not reasonable and was linked to referrals. The government also accused Tenet of paying kickbacks to induce referrals.
Tenet has denied the allegations and has vowed to defend itself.
"The discovery process in this case is just beginning and we still have a long way to go," said Tenet spokesman Harry Anderson. "We intend to use that process to demonstrate that the contracts we signed were fair and commercially reasonable at the time they were negotiated."
No trial date has been scheduled.
Anderson said Tenet sought information on physician contracts from neighboring hospitals to prove its deals were legal. Several Broward County hospitals received the subpoenas recently, including 437-bed Holy Cross Hospital, owned by Catholic Health East, and the North Broward Hospital District, a public agency operating four hospitals. Tenet requested information on physician contracts, transactions with physicians, market valuations of those deals and legal opinions on them, said sources close to the case who requested anonymity.
"We've said all along that this is an outrageous attempt by the government to enforce beyond the limits of the Stark law," Anderson said. "We expect to prove that these contracts fall within the exemptions of the Stark rule, and one way to do that is to demonstrate what the market was like at the time."
Janet Nolan, a healthcare lawyer with the Washington office of Fulbright & Jaworski who is not involved in the case, said the government has to prove that Tenet or North Ridge knowingly submitted false claims in reckless disregard or deliberate ignorance of the law.
"The standard for Stark and the antikickback law is pretty high," said Nolan, a former assistant U.S. attorney in New Jersey. "That's not easy to prove."