South Carolina Hospital Pays $17 Million to Resolve Stark, False Claims Act Claims Filed By Whistleblower

By: Zachary D. Trotter with Waller

On Thursday, July 28, 2016, the United States Department of Justice announced that it had reached a settlement in which the Lexington County Health Services District d/b/a Lexington Medical Center, a 428-bed hospital that serves the South Carolina Midlands area, agreed to pay $17 million to resolve allegations that it violated the Stark Law and the False Claims Act. According to the government press release ( https://www.justice.gov/opa/pr/south-carolina-hospital-pay-17-million-resolve-false-claims-act-and-stark-law-allegations ), the United States alleged that Lexington Medical Center violated the Stark Law and the False Claims Act by inflating asset purchase agreements for the acquisition of physician practices or employment agreements with 28 physicians that were not commercially reasonable or provided compensation in excess of fair market value.

"This case demonstrates the United States' commitment to ensuring that doctors who refer Medicare beneficiaries to hospitals for procedures, tests and other health services do so only because they believe the service is in the patient's best interest, and not because the physician stands to gain financially from the referral," said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department's Civil Division.

This case continues the long line of cases in which a former employee turns whistleblower. Here, Dr. David Hammett, a former physician employed by the medical center, filed the lawsuit in federal court in Columbia, S.C. under the qui tam, or whistleblower, provisions of the False Claims Act before the Justice Department chose to join the suit. As part of the settlement, and in accordance with the whistleblower provisions, Dr. Hammett will receive approximately $4.5 million dollars of the recovered funds.

Lexington Medical Center did not admit fault as part of its settlement. Instead, in a quote to The State newspaper ( http://www.thestate.com/news/local/article91389192.html ), the medical center stated that the settlement “allowed the medical center to avoid continued costly litigation that could have lasted for several years.” Former U.S. Attorney Bill Nettles, knowledgeable of this particular case, stated that the medical center’s potential liability was far greater than the $17 million settlement value. “That $17 million is nothing compared to what it could have been if it had gone to trial.”

In addition to the monetary settlement, Lexington Medical Center agreed to enter into a Corporate Integrity Agreement (“CIA”) with the Department of Health and Human Services - Office of the Inspector General (“HHS-OIG”) to ensure implementation of measures designed to avoid or promptly detect potential violations of the sort raised by Dr. Hammett. This CIA oversight, which often includes onerous and costly reporting requirements, will last for five years. The CIA may be found here ( https://oig.hhs.gov/fraud/cia/agreements/Lexington_Medical_Center_07202016.pdf ).

This settlement is yet another of numerous cases illustrating the Justice Department’s and HHS-OIG’s crack down on alleged violations of the Stark Law and the False Claims Act. The government’s Health Care Fraud Prevention and Enforcement Action Team (“HEAT”) initiative, originally introduced in May 2009 by the Attorney General and the Secretary of Health and Human Services, has used the Stark Law and, particularly, the False Claims Act as a powerful weapon against health care providers. Since January 2009, the Justice Department has recovered more than $30 billion through False Claims Act cases, with more than $18.3 billion of that amount recovered in cases alleging fraud against federal health care programs.

Fraud enforcement may be the only government initiative with truly bipartisan support in Washington, DC., and with the Justice Department’s current winning streak and record-breaking settlements, there’s no reason for health care providers to think that enforcement actions won’t remain a high priority for the government in the future.