As the U.S. attorney in San Diego winds down a kickback case against officials at Tenet Healthcare Corp.'s Alvarado Hospital Medical Center in San Diego, hospital executives and their attorneys around the country are following the case to compare their physician- recruiting practices with those on trial.
Last year the government criminally charged Tenet, Alvarado, its longtime Chief Executive Officer Barry Weinbaum, and Alvarado's former director of physician relations, Mina Nazaryan, with paying kickbacks to induce physician referrals as part of the hospital's physician-recruiting program. The government alleges that over a 12-year period, the hospital paid more than $10 million in kickbacks to recruit about 100 physicians to Alvarado. Prosecutors said the hospital's physician relocation agreements are at the heart of the conspiracy.
Relocation agreements are used to attract doctors to medically underserved areas. Prosecutors said defendants funneled payments to existing physician group practices, disguising kickbacks as relocation expenses for hiring new doctors to illegally reward those groups for their patient referrals. In addition, Nazaryan allegedly demanded kickbacks from some of the physicians she recruited and later allegedly attempted to persuade those doctors to change their testimony.
Tenet and 193-bed Alvarado have denied the charges, which are being heard in a trial expected to last three months in U.S. District Court in San Diego. Tenet stands to lose Alvarado, which could be excluded from the Medicare and Medicaid programs and would likely be sold, as Tenet was forced to sell its Redding (Calif.) Medical Center after HHS' inspector general's office announced it would otherwise exclude the hospital from the federal programs.
But Alvarado isn't the only hospital in the country allegedly abusing physician-recruiting regulations. Government officials and healthcare lawyers say it's only the tip of the iceberg. Tenet has acknowledged receiving subpoenas about physician-recruiting practices at hospitals in Los Angeles, New Orleans, San Francisco and St. Louis.
And government prosecutors around the country say that they are investigating multiple allegations of illegal physician- recruiting practices by other, non-Tenet hospitals. Those prosecutors, who asked to remain anonymous citing the pending cases, said that physician-recruiting cases have jury appeal. "Some of the housing allowances and other incentives are shocking," said one prosecutor who uncovered huge interest-free loans to physicians that don't require repayment and offers of jobs and other incentives for their spouses. "I think some of these practices are fairly widespread. Prosecutors will pick out a few egregious examples and prosecute them, and that will get everyone's attention."
While federal prosecutors said there is no national initiative driving the investigations, they are sharing notes.
"It's something we're looking at," another prosecutor said. "There are multiple investigations. It's common knowledge that a number of hospitals have recruited physicians this way for some time."
American Hospital Association spokes-man Richard Wade said hospitals understand that they're under a microscope from state and federal enforcement agencies. "As a trade association, our role is limited to giving our members a strong sense of what the rules are," he said.
Hospitals face pressure from competitors and physicians, while in many parts of the country physicians are closing up shop because of liability concerns. Hospitals need the right doctors to survive, Wade said. "So our members are watching this (Alvarado case) unfold and going back to their legal counsel to ensure that their recruiting practices are in full compliance."
The U.S. attorney in San Diego alleges that Alvarado and its officials illegally recruited physicians, many of whom already were practicing in the area or were related to Alvarado staff physicians, with incentives only legally allowable to rural or inner-city hospitals in medically underserved areas.
Lewis Morris, chief counsel to HHS' inspector general, said there are legitimate reasons for physician-recruiting incentives, as evidenced by the inspector general's safe harbor protecting limited use of those incentives under certain circumstances, but they must be carefully scrutinized.
Morris declined to discuss the Alvarado case and said he did not know how widespread the alleged improper practices are in the hospital industry. But he confirmed that other federal investigations are under way.
"Hospitals should be sensitive to providing remuneration in connection with physician recruitment," he said. "Giving free office space and income guarantees could be viewed as improper recruiting incentives."
Morris said the government often learns of these arrangements from whistle-blowers, disgruntled physicians who weren't offered similar deals or conscientious hospital employees.
"Hospitals and health systems have known for decades that you can't pay physicians money for patient referrals, so these arrangements tend to be more sophisticated in getting money into the doctors' hands. And uncovering those arrangements takes a degree of sophistication which fortunately both the Justice Department and the inspector general have."
Morris said the inspector general may invoke its civil monetary penalty authority, which allows fines of up to $50,000 per alleged kickback, to press civil charges against doctors that aren't criminally prosecuted. "We think the CMP authority is an appropriate tool for addressing those who participate in kickback schemes," said Morris, who vowed to use it in abusive physician recruiting arrangements when appropriate.
David Leonard, general counsel for Grand Rapids, Mich.-based Spectrum Health, said the combination of the Stark II regulations and a local U.S. attorney experienced in health law have helped keep his system and compliance teams alert.
"Our awareness and caution on these issues has been heightened because of that," he said. "The new Stark regs have put more restrictions on what hospitals and physicians can do to recruit new specialists to the community, but it's also given us some much needed guidance."
Leonard said Spectrum stays away from aggressive recruitment arrangements.
"The cardinal rule for us continues to be community need. Before we bring someone in based on anecdotal information, we perform statistically objective studies to determine whether there is a truly documentable need for a physician in that specialty or subspecialty," he said. "If there isn't, then we don't go forward with recruitment assistance."
Leonard said if a hospital is paying physicians for services, such as a medical directorship, those services actually need to be performed, be necessary and be documented. "The government has been very clear about documenting the performance and necessity of services for hospitals to accomplish their tax-exempt mission," he said.
Gabriel Imperato, a healthcare defense lawyer with the Fort Lauderdale, Fla., office of Broad & Cassell, said there is some latitude under the antikickback statute for relocation as long as it doesn't become too abusive.
"In the Alvarado case, the fact that the hospital was allegedly paying existing practices to bring in new physicians, as opposed to paying the physicians themselves, has been viewed by the government as crossing the line," he said. "They can't really stand by to watch what appears to be a blatant kickback arrangement. But is this the worst I've seen? Not hardly."
Imperato predicted that U.S. attorneys with active cases are waiting to see how the Alvarado case plays out.
"If the government wins, I think we'll see many more of these cases brought," he said. "If Tenet prevails, I think we could still see more cases, but prosecutors will be much more selective."
Chicago lawyer Ed Bryant, who heads the healthcare practice at Gardner, Carton & Douglas, said some of the abusive recruiting arrangements are rooted in cuts in physician reimbursement and their desire to replace lost fee income.
"Rightly or wrongly, some doctors who've been taking financial hits for years have discovered their only assets left are their patients, and they know hospitals want those patients," Bryant said. "Once they see their colleagues succeeding, they ask themselves what they're doing wrong. This problem is endemic across healthcare professions. Hospitals need to show more guts."
Bryant suggested one solution is for hospitals to hire physicians as employees.
"The more that doctors think about it, the more sense it makes," he said. "Their medical malpractice insurance liability goes away. And hospitals can offer doctors much of what they're looking for when they become employees."
Bryant estimated that nationally more than 75% of hospital physician-recruiting arrangements would withstand government scrutiny. "But the remaining 20% to 25% are the problem," he said. "Some of these transactions are just horrendous."
Physician-recruiting consultant Shannon Smith, who has worked with surgical companies and is a former Tenet auditor who audited Alvarado a decade ago, said she was shocked when the U.S. attorney filed charges. "Tenet had a very comprehensive compliance program," she recalled. "We spent weeks poring over every single contract with physicians."
Smith said there is tremendous pressure on managers of hospitals owned by publicly traded companies. "I think what happens is those executives must meet budget and lose sight in that pressure-cooker atmosphere. They push the boundaries because they don't make enough money off of government programs to appease Wall Street. This is a wake-up call for financially aggressive companies," she said. "Compliance programs exist because some people are stretching and breaking the rules to make margin."
