Universal Health Services settles whistle-blower case for $27.5 million

Universal Health Services agreed to pay the federal government $27.5 million to resolve allegations that its three hospitals doing business as South Texas Health System paid kickbacks to physicians in the form of sham medical directorships and leases, the U.S. Justice Department announced.

The King of Prussia, Pa.-based for-profit disclosed the settlement in its earnings report for the quarter ended Sept. 30. In the agreement with the government, the company explicitly denies the allegations and admits no liability.

The government's investigation was triggered by a whistle-blower complaint filed in 2007 by Bruce Moilan, who worked for South Texas Health System from 2001 to 2009 as system director for materials management, according to the agreement. Moilan alleged that the hospitals' arrangements with seven physicians violated the anti-kickback statute and the federal restrictions on physician self-referral, triggering the False Claims Act when the government was billed for the services those physicians referred. Moilan is set to receive $5.5 million from the settlement amount.

Universal Health Services said in its earnings report that a $25 million charge was recorded in 2008 as a reserve for the settlement and added $3 million in the first half of 2009. The company first disclosed the investigation in a 2006 filing with the U.S. Securities and Exchange Commission.

The agreement also requires South Texas Health System to enter a five-year corporate integrity agreement with HHS' inspector general's office.

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