Mercy pays $34 million to settle Medicare fraud, physician compensation claims

Two Mercy hospitals have agreed to pay $34 million to settle claims they fraudulently billed Medicare due to improper physician compensation practices.

Chesterfield, Mo.-based Mercy Hospital Springfield and its affiliate Mercy Clinic Springfield communities allegedly submitted false claims to Medicare for chemotherapy services between 2009 and 2014, according to a whistleblower lawsuit filed by a former Mercy physician. The suit alleges Mercy violated Stark Law by taking into account patient referrals to its infusion center when it paid its oncologists.

"When physicians are rewarded financially for referring patients to hospitals or other healthcare providers, it can affect their medical judgment, resulting in a overutilization of services that drives up healthcare costs for everyone," said acting assistant attorney general Chad Readler of the Justice Department's Civil Division.

Mercy said in a statement that the error occurred in 2009 when Mercy transferred its infusion center from its clinic to its hospital in order to participate in a federal drug pricing program. Under a management agreement with Mercy Hospital Springfield, Mercy Clinic continued to operate the infusion center and was paid by the hospital for its services. In turn, the clinic would pay its oncologists for services based on their work at the infusion center.

The DOJ determined this compensation practice violated Stark law, which restricts the financial relationships hospitals and clinics can have with doctors who refer patients.

Mercy said it didn't intentionally violate the law and that it changed its physician compensation practices in 2014.

"We take this situation very seriously. We made a regulatory mistake and we are working hard to make it right," said Jon Swope, regional president of Mercy Central Communities, in a statement.

Mercy is just one of several systems the DOJ has targeted in recent years for violation of the Stark law under the False Claims Act. Experts say more of these cases have surfaced because physicians are increasingly employed by hospitals and a recent tweak to federal law applies the False Claims Act to organizations that avoid their obligation to repay the government, such as for money received because of Stark violations.

Along with the settlement, Mercy has also signed a five-year corporate integrity agreement with the HHS' Office of Inspector General. Under the agreement, Mercy is required to conduct enhanced training and education, implement a rigorous governance oversight structure related to physician compensation and perform regular internal reviews and procedure updates.

Dr. Viran Roger Holden, the whistleblower plaintiff, will receive $5.4 million from the settlement. Holden also sued Mercy in 2015 for wrongful termination. He claims he was fired because of his billing fraud allegations against Mercy.

This isn't the first time Mercy has been sued for its financial relationships with physicians. The system agreed to pay $5.5 million in August 2015 to settle claims it gave its doctors bonuses for referrals to its clinics.