Chicago-based healthcare firm Oak Street Health has agreed to pay $60 million to resolve allegations from the U.S. Department of Justice that it paid kickbacks to third-party insurance agents in exchange for recruiting seniors to Oak Street’s primary care clinics.
The DOJ alleged in a statement today that Oak Street’s Client Awareness Program, designed to grow patient membership, had third-party insurance agents contacting seniors eligible for or enrolled in Medicare Advantage plans, seeking to recruit them to Oak Street locations.
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In exchange, CVS Health-owned Oak Street allegedly paid agents about $200 per beneficiary that was referred or recommended. The government claims the program was incentivizing agents to base referrals and recommendations on Oak Street’s financial motivations instead of what was in the best interest of seniors.
As a result, Oak Street was knowingly submitting false claims to Medicare arising from kickbacks to agents, the DOJ claims.
Doing so allegedly violated the False Claims Act and the Anti-Kickback Statute, which prohibits the offering or paying for referrals of patients or recommendations of items of services covered by federally funded insurance programs, like Medicare, Medicare Advantage and Medicaid.
Claims of wrongdoing by Oak Street were surfaced by whistleblower Joseph Stinson, according to the DOJ’s statement. As part of the settlement, Stinson will receive $9.9 million.
“Kickbacks, in any form, have no place in our federal healthcare system,” Morris Pasqual, acting U.S. attorney for the Northern District of Illinois, said in a statement. “My office is alert for kickbacks that can subvert patient choice and defraud federal healthcare programs. This investigation and settlement help to ensure that patient choice is prioritized above a provider’s bottom line.”
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While the allegations date back to before CVS acquired Oak Street, CVS Health spokesman Mike DeAngelis told Crain’s in a statement the companies deny any wrongdoing. He added that the recruitment program at the center of the allegations was discontinued more than two years ago. DeAngelis also said the companies worked cooperatively with the DOJ and that they agreed to pay the settlement to avoid protracted litigation.
“We are pleased to put this matter behind us so we can continue to focus on improving the quality of care for at risk older adults,” DeAngelis said.
Oak Street, founded in Chicago in 2012 by Mike Pykosz, focuses on serving seniors in privately managed Medicare plans. It currently operates more than 200 locations, dozens of which are in Illinois.
Woonsocket, R.I.-based CVS purchased Oak Street last year for $10.6 billion, a move that’s helped the retail pharmacy giant transform itself into a vertically integrated healthcare business.
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Delivering primary care, however, has proved difficult, complicated and expensive for pharmacy chains, like CVS, as well as Deerfield-based Walgreens Boots Alliance. And Bloomberg reported in May that CVS was seeking a private-equity partner to fund growth at Oak Street Health, signaling it may need more financing to reach the asset's potential.
At an Executives' Club of Chicago event last year, CVS CEO Karen Lynch said she was “sold immediately” on the promise of Oak Street Health’s business proposition.
“Mike and his team have done an incredible job of reimagining the healthcare experience,” she said at the event.
This story first appeared in Crain's Chicago Business.
