Physician Compensation Targeted by the Department of Justice

healthcare business change in ownershipBy: Jeff Cohen

The DOJ reported on August 5th a settlement with a South Carolina hospital concerning physician compensation.  Though certainly not the first or the biggest case of its kind (e.g. note the Halifax Hospital and North Broward Hospital District cases, which generated settlements of over $100M and $60M respectively), it’s attention grabbing nonetheless.

The SC case was brought by a whistleblower, a neurologist formerly employed by the hospital.  The doctor alleged that the seven year employment agreements violated Stark and the Anti Kickback Statute because the compensation was more than what was legally permissible and was also based in part on ancillary services ordered by the employed doctors.  Seasoned readers will understand that the concept of “fair market value” (FMV) is at the heart of regulatory compliance and also that compensation surveys of organizations like the Medical Group Management Association (MGMA) are important guides in term of what is/is not FMV.  In the SC hospital case, compensation met or exceeded the top 10% of similarly qualified physicians in the area, which is very interestingly noted by the DOJ (because some of the comp levels were still within the MGMA surveys).  In other words, the trend here is for the Feds to push back against comp levels on the high end of the FMV spectrum.

Some other interesting parts of the case include referral tracking by the hospital employer, though hospital employed doctor referrals are commonly tracked.  In fact, federal law recognizes the practice and “green lights” it when certain requirements are met.

The case settled for $17M, a paltry sum in light of recent hospital DOJ cases.  And, typical of such settlement agreements, liability was not admitted.  Are we seeing encroachment by the Feds into fact patterns typically viewed as “lower tier” targets or are we seeing a trend with targeted hospitals who, in the face of settlements like Halifax and North Broward, see a $17M settlement as a good deal?

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