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The recent settlement by the Department of Justice (DOJ) with Wheeling Hospital in West Virginia for $50 million is a recent example of a continuation of the practice of hospitals overpaying physicians who are able to refer patients to their hospitals.

There have been numerous other settlements over the years with Beaumont Hospital in Michigan being fined $85 million, Kalispell Regional Healthcare in Montana being fined $24 million, Broward Health in Florida being fined $70 million, and Adventist Health in Florida being fined $119 million just to name a few.

At Wheeling Hospital, two radiation oncologists and one ob/gyn were paid $1.2 million yearly, a cardiologist received $780,000 but only worked three-quarters of the year, and especially egregious, a pain doctor was paid $1.5 million yearly. Arrangements with reimbursement above and beyond the 99th percentile were the norm.

On November 15, 2019, the Department of Justice announced it had reached a settlement with Sutter Health and Sacramento Cardiovascular Surgeons Medical Group Inc. to resolve alleged violations of the Physician Self-Referral Law (PSR Law), commonly known as the Stark Law.

Sutter is a California-based health services provider; Sac Cardio is a Sacramento-based practice group of three cardiovascular surgeons. The total settlement in excess of $46 million includes $30.5 million from Sutter to resolve allegations of an improper financial relationship specific to compensation arrangements with Sac Cardio. Sac Cardio has agreed to pay $506,000 to resolve allegations of duplicative billing associated with one of these compensation arrangements.

Separately, the settlement includes another $15,117,516 from Sutter to resolve self-disclosed conduct principally concerning the PSR Law.

Hospitals know that a surgeon or proceduralist will often bring them more than $3 million in downstream revenue. A family physician will bring the hospital $2 million. Nearly half of all physicians in the country are now employed by hospitals. This is largely fed by downstream revenue. Employed physicians cost the healthcare system significantly more than non-employed physicians. About 70% of the increase in healthcare costs in the last 10 years comes from hospitals.

So why do the hospitals keep making these deals and getting into trouble? Of course when in doubt just follow the money. Hospitals continue to profit by these employed arrangements. But according to an op-ed published in MedPage Today, so do physicians.

“A hospital decides they are not making enough money so they hire physicians paying well above the 90th percentile. All the physicians have to do is refer all their patients “in-house” and are financially incentivized to hit certain benchmarks.”

The five most important Federal fraud and abuse laws that apply to physicians are the False Claims Act (FCA), the Anti-Kickback Statute (AKS), the Physician Self-Referral Law (Stark law), the Exclusion Authorities, and the Civil Monetary Penalties Law (CMPL).

Physicians are constantly being reminded not to violate the “Stark Law” and related statutes. When Pete Stark designed these laws, he was directly pointing at independent physicians who were making increased profits by self-referral to their own facilities. Being hired by a hospital that shares their profits with an employed physician is skirting that law in the most unscrupulous manner.