A $40 million civil settlement between Erlanger Health System and the U.S. attorney in Chattanooga, Tenn., continues the federal government's long-standing interest in identifying kickback arrangements between physicians and hospitals.
The settlement, believed to be one of the biggest ever by a public hospital, was completed without the help of a whistle-blower. The settlement payout, meanwhile, will potentially place the Chattanooga system in a one-time, technical default of its bond covenants, according to a hospital official.
The Oct. 25 Erlanger settlement announcement came a day before another antikickback case was beginning to finish up. Closing arguments started last week in U.S. District Court in San Diego in the second trial on criminal antikickback charges against a hospital owned by Tenet Healthcare Corp., a spokesman for the defense attorneys said. The first trial against Alvarado Hospital Medical Center, San Diego; its former chief executive officer, Barry Weinbaum; and a Tenet subsidiary ended in a mistrial earlier this year when the jury deadlocked. The defendants were accused of using physician-relocation agreements to funnel money to existing physician practices near Alvarado to ensure referrals from the practices.
As part of the Tennessee settlement, the Chattanooga-Hamilton County Hospital Authority Board of Trustees--the public organization that owns two-hospital Erlanger Health System--approved the settlement payments to Medicare and Medicaid. U.S. Attorney Harry Mattice Jr. alleged that Erlanger, a 528-bed system, paid physicians for patient referrals in violation of the federal antikickback and Stark laws and also violated the federal False Claims Act.
The government alleged that from 1995 to 2003 the hospital's "faculty practice plan" made direct and indirect payments to physicians for medical directorships, recruiting agreements, leases and joint ventures that violated various healthcare laws. Erlanger is an academic medical center affiliated with the University of Tennessee College of Medicine.
Mattice said at a news conference that a criminal investigation is continuing. Erlanger settled without admitting wrongdoing and signed a five-year, 49-page corporate integrity agreement with HHS' inspector general's office. Erlanger President and CEO James Brexler said that under the False Claims Act, the system faced maximum penalties of "several hundred million dollars" plus exclusion from federal health programs. "This is a `put it behind us' issue now and while we're not happy to make that kind of a payout, we found ourselves with no other choice."
Brexler said the settlement resolves all issues by Erlanger and said he was told by federal prosecutors no current system employees or executives were under investigation. "About any former employees, executives or board members, I direct you to the U.S. attorney's office," he said. Brexler was appointed in 2004 to replace former President and CEO Dennis Pettigrew--two years after the U.S. attorney sent subpoenas to the hospital, four physicians and four large group practices. Brexler said no whistle-blowers were involved in the case, which predated current management.
Former Erlanger President and CEO Sylvester "Skip" Reeder III, who later founded Chattanooga-based World Healthcare Systems, left Erlanger under pressure after the system suffered huge financial losses in 1998. World Healthcare settled a breach of contract and discrimination suit against Detroit-based Henry Ford Health System earlier this year; terms were confidential and undisclosed. Neither Reeder, World Healthcare Systems chairman and CEO, nor his successor at Erlanger--Pettigrew--could be reached for comment. Brexler said Erlanger cooperated in the government investigation and has changed the way it does business. [[[[
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The $40 million settlement payment will be taken from $125 million in cash reserves, which could place Erlanger in a one-time, technical default with bondholder covenants. Brexler said there were no whistle-blowers involved in the case.
That's unusual, said Robert Salcido, a healthcare defense attorney with the Washington office of Akin, Gump, Strauss, Hauer & Feld, who observed that whistle-blowers are the most common means for state or federal enforcers to uncover kickback arrangements. "Unlike billing fraud, which is usually discovered through audits by government agencies or their contractors, kickbacks are more difficult to uncover and very difficult to prove. That's why there are usually insiders involved."