The federal government intervened in a whistleblower lawsuit alleging that Methodist Le Bonheur Healthcare paid independent physicians more than $400 million for referrals.
Memphis-based Methodist purchased substantially all the outpatient locations of the largest oncology practice in the area, West Clinic.
The lawsuit alleges the "joint partnership" was formed to allow West's patients to be treated at Methodist locations by West-employed physicians, untapping a new market for Methodist and funneling Medicare reimbursement to the health system for cancer care. Methodist also allegedly siphoned inpatient referrals away from its competitors, including Baptist Memorial Hospital.
The complaint claims Methodist and West never created any legal partnership because it would have likely violated the anti-kickback statutes or the Stark Law. The Justice Department seeks to recoup hundreds of millions of dollars for the alleged False Claims Act and anti-kickback statutes violations that occurred from 2012 through 2018.
"Methodist was able to bill Medicare not only for the facility and professional components of outpatient treatment but also for the chemotherapy and other drugs provided, for which Methodist could recoup a staggering discount in costs through the 340B Drug Pricing Program resulting in $50 million in profit to Methodist in one year alone," the complaint filed Monday in a Tennessee federal court said.
Methodist said in a statement that it will refute the allegations.
"The government's complaint recycles a familiar set of allegations that mischaracterize the relationship between MLH and West Clinic. As we have said many times since this lawsuit was made public more than two years ago: The affiliation's compensation structure was designed by respected outside experts who determined it reflected fair market value for such services," the company said.
As part of the transaction, Methodist made a $7 million investment in ACORN research, which helped West Clinic coordinate clinical trials. West Clinic and its medical director, Dr. Lee Schwartzberg, had a personal financial interest in ACORN, according to the lawsuit. Methodist allegedly disguised kickbacks from West referrals as payments related to that $7 million investment and overpaid West for its management services.
The transaction was also a vehicle to take advantage of the 340B drug discount program, which West Clinic did not previously qualify for, according to the lawsuit.
The 340B-eligible Methodist would allegedly acquire chemotherapy infusion drugs and oral cancer drugs at discounts. West Clinic physicians would then order the drugs and chemotherapy services, but the retail drug prices charged to the patients and their insurance carriers would be far higher than the acquisition costs, resulting in large profits to Methodist, according to legal filings.
Methodist expected the venture to boost revenues from $1.25 billion to $1.45 billion, internal documents cited in the complaint show. Medicare paid Methodist more than $300 million for outpatient services through West Clinic providers and more than $53 million for inpatient claims from West Clinic's referrals over seven years, according to the complaint.
Meanwhile, Baptist's inpatient reimbursement from West referrals were cut in half over the seven-year arrangement, according to the lawsuit. In 2011, Medicare paid Baptist nearly $6 million in 2011 for inpatient claims related to West Clinic referrals; those annual revenues allegedly fell to less than $3 million a year. Methodist's inpatient Medicare reimbursement related to West Clinic referral allegedly jumped from $4 million a year in 2011 to around $6 million in 2012.
"I certainly had no idea how serious it was for us to immediately send biopsies to Duckworth and meet with Methodist Radiology," a West Clinic provider said in November 2012.
A former Methodist board member and the former CEO of Methodist University Hospital filed the initial lawsuit in 2017 and it was unsealed in 2020. The scheme allegedly netted more than $1.5 billion in inflated revenues, about half of which was funded by Medicare and Medicaid.
The government intervenes in fewer than 25% of whistleblower lawsuits, according to the DOJ. Government authorities typically intervene when large settlements loom and there's a higher likelihood of success, legal experts said.