Physician-hospital joint ventures continue to draw regulatory fire, reflecting the legal risks in structuring mutually beneficial arrangements in a climate of heightened scrutiny from HHS’ inspector general’s office and other government agencies.The $5.7 million settlement inked late last year between the U.S. attorney in Atlanta and 487-bed Northside Hospital proves that peril. According to U.S. Attorney David Nahmias, Northside provided free employees to two physician-owned companies with which it contracted and took other steps to benefit those companies and their owners between 1997 and 2004. The two companies: the Blood and Marrow Transplants Group of Georgia, which operates a blood-cancer treatment program and is owned by three physicians, and Atlanta Blood Services, which provides blood products to the program and is owned by two doctors, agreed to pay a total of $650,000. The hospitals and companies settled the civil False Claims Act lawsuits without admitting wrongdoing. The settlement stemmed from a whistle-blower lawsuit filed in 2004 in U.S. District Court in Atlanta by the stem-cell transplant group’s former chief executive officer, Cheryl Burns, and Janine Slaughter, its former billing and office manager. The lawsuit alleged that Northside paid the physician-owners for medical directorships at rates far exceeding fair market value, purchased platelets and other blood products at inflated prices and that referrals of patients to Northside by the transplant physicians tainted the Medicaid claims the parties submitted. Prosecutors charged that the arrangements violated the physician self-referral act, known as the Stark law. Burns and Slaughter will split $1.2 million from the recovery, said their Atlanta attorney, Marlan Wilbanks, a partner at the law firm Harmon, Smith, Bridges & Wilbanks. The defendants will also pay more than $400,000 in attorneys’ fees.
Northside officials said the hospital cooperated in the federal investigation, but "vigorously disputed the allegations in the complaint and believes it acted in compliance with all legal requirements. The settlement agreement with the government makes it clear that Northside makes no admission of misconduct or liability," said Northside spokesman Russ Davis. "In resolving these allegations, we are able to avoid the inconvenience and drain on resources from lengthy litigation with the government. Northside has a strong, effective compliance program and a 36-year track record of compliance with the law."In a news release, Nahmias said the Justice Department is committed to "preventing and punishing improper financial relationships that could adversely affect the exercise of a physician’s independent judgment," but pointed out that the investigation found no known harm to patients. The Atlanta physician joint ventures aren’t alone in attracting government scrutiny. State and federal prosecutors are investigating arrangements in Florida and Louisiana; and in January, Illinois Attorney General Lisa Madigan joined a whistle-blower lawsuit against the owners of more than 20 diagnostic imaging centers, alleging they paid kickbacks for patient referrals. The 23-page lawsuit, which was filed in Cook County Circuit Court in Chicago by whistle-blower and magnetic resonance imaging center owner John Donaldson, alleges the 20 MRI centers and their owners bilked patients and their insurers by overcharging them for imaging services to allow the payment of illegal kickbacks to referring physicians. No physicians have been named to date in the lawsuit, but the attorney general alleges the doctors receiving the kickbacks did not perform any services or anything else to receive the allegedly illegal payments.
In 2004, HHS’ inspector general’s office issued an advisory opinion warning about the so-called "underarrangement" joint ventures. In those, the imaging centers let doctors who referred the patients bill them and insurance companies for services actually provided by the imaging centers and then split the payments between the referring doctors and the centers.Prosecutors charged in the Illinois lawsuit that the imaging centers disguised the alleged kickback schemes through phony lease agreements. The lawsuit was filed by Donaldson under the Illinois Consumer Fraud and Deceptive Business Practices Act, and allows the recovery of triple damages and up to $10,000 per false claim. Donaldson, who competes with the imaging centers, claims his MRI company lost business and was damaged by the defendants’ alleged unfair competition schemes because he didn’t pay kickbacks. One of the companies named, Open Advanced MRI, operates nine centers in the Chicago area and through its 12-year-old parent company, McLean, Va.-based Medical Imaging and Diagnostics, owns 15 others in four states. MIDI co-founder and President Rich Fried declined to comment. Chicago healthcare attorney Patricia Hofstra of the law firm Duane Morris said Madigan’s intervention opens the door for private payers, such as Blues plans and UnitedHealthcare, to bring their own claims of insurance fraud. Hofstra—who doesn’t represent any of the defendants in this case but does represent organizations reviewing their agreements in light of the lawsuit—said hospitals, physician groups and their attorneys are concerned about investigations such as Madigan’s and the Northside case because of the potential for costly litigation. "Madigan’s investigation is not about Medicare and Medicaid fraud, but it’s alleging insurance claims fraud and consumer fraud," Hofstra said. "Even if you have an arrangement that on its face meets all the requirements, there are state attorneys general and inspector general attorneys and U.S. attorneys who will look beyond that to see if the agreements are truly legitimate and not a subterfuge. Agreements that appear in compliance on paper can in reality be circumventing the law."