Tenet Healthcare Corp.’s Medicare outlier payments are investigated

7/21/2003
Modern Healthcare
Galloro, Vince

Much attention has been paid to the investigations of Tenet Healthcare Corp.’s Medicare outlier payments and the allegations that two physicians at its Redding (Calif.) Medical Center performed medically unnecessary procedures and then falsely billed the government for them. But last week provided a reminder that the Santa Barbara, Calif., company also has other federal investigations to worry about-ones that involve laws with penalties that can be just as severe as those the company may eventually face in the Redding situation, lawyers said.

Tenet said last week that the U.S. attorney’s office in Los Angeles served its corporate office and Tenet subsidiaries that own seven Southern California hospitals with subpoenas seeking documents related to physician relocation agreements since 1995. The administrative subpoenas also demanded summary information about physician relocation agreements related to all of its hospitals.

Also last week, a federal grand jury issued a 17-count indictment against subsidiary Tenet HealthSystem Hospitals and its 311-bed Alvarado Hospital Medical Center, San Diego, alleging the two paid more than $10 million in physician relocation agreements from 1992 to 2002. Each count carries a maximum penalty of five years imprisonment and a $25,000 fine. Alvarado’s chief executive officer, Barry Weinbaum, has been indicted on criminal charges that he authorized the kickback payments to physicians who relocated to the area. Weinbaum denies the charges, Tenet said.

The company already is the subject of a host of other investigations regarding its Medicare outlier payments from 1999 to 2002. On Jan. 1, 2003, Tenet adopted a new outlier policy that severely restricted its payments. Tenet also faces another investigation into its agreements with physicians and a trial in a whistleblower lawsuit alleging violations related to its purchases of physician practices in the mid-1990s.

In general, Tenet said it believes its corporate policy on physician relocation agreements “is entirely appropriate under the law.” The policy was adopted in 1996, Tenet said. Of the 42,000 physicians who have admitting privileges at Tenet’s 114 hospitals, the company said, less than 2.5% are still covered by relocation agreements and about 1% of the total have current income guarantees.

The Alvarado case falls under the federal antikickback law, a felony criminal statute, said Debbi Johnstone, a partner in the healthcare section at the Houston office of the law firm Vinson & Elkins. Besides automatic exclusion from federal health programs, Johnstone said, criminal convictions under the law carry prison terms of up to five years and criminal fines of up to $25,000. Convictions also can bring civil monetary penalties of up to $50,000 per violation plus three times the amount of the kickbacks, she said.

The so-called Stark law, a civil statute covering some of the same ground as the antikickback law but focusing on physician ownership of facilities to which they refer, authorizes civil monetary penalties of $15,000 for each improper claim plus three times the amount of kickbacks, Johnstone said. Exclusion is not automatic, but it can be a result of losing a case under the Stark law.

By comparison, federal False Claims Act cases carry civil penalties of $5,500 to $11,000 per claim plus three times the amount of the false claims. If a False Claims Act case is pursued in the Redding investigation, Tenet could face liability, even though the company has noted repeatedly that the two physicians were not employed by the hospital. As a general legal theory, said Joseph Savage, a defense attorney representing healthcare providers with Testa, Hurwitz & Thibeault in Boston, if a worker commits a civil violation or a crime in the course of his employment, the company can be held liable. The False Claims Act is no exception.

Johnstone said she could only speculate, but she guessed the investigations updated last week focus on recruiting physicians to existing practices, especially if prosecutors can establish that the recruited physicians already had patients in their new markets. Such “in-town recruiting,” she added, “can be viewed as really nothing more than paying for (patient) referrals.”

Physician recruitment has not historically been of much interest to either HHS’ inspector general’s office or U.S. attorneys, Johnstone said. “It’s been one of the last areas to focus on, because it’s been my experience that hospital folks have handled recruiting properly,” she said.

So far, the stepped-up scrutiny of Tenet’s physician agreements does not seem to be registering with physicians, said Mark Smith, executive vice president of Merritt, Hawkins & Associates, a physician-recruitment firm in Irving, Texas. “As this continues to escalate, I think it’s inevitable that it will draw more attention,” Smith said.

Tenet’s reputation with doctors is solid, Smith added. The company is known for offering competitive financial agreements, “without being excessive, as far as we’ve seen,” Smith said. As is common in the healthcare industry, Tenet negotiates directly with the physician once Merritt, Hawkins has found an interested candidate, Smith said, so the firm never sees the actual agreements. “From what I understand, the (agreements) are similar to other clients,” he said. Tenet makes use of standard provisions such as income guarantees at the outset of the contract and forgiveness of loans or other relocation subsidies provided to the physician, he said.

Tenet also faces an investigation of some of its physician agreements by the inspector general’s office. The inspector general issued a civil subpoena in April seeking records related to agreements between five Tenet hospitals and Women’s Cancer Center, a specialty physician practice based in Los Gatos, Calif., and 10 of its doctors, Tenet said. Three of the hospitals cited in the subpoena are located in Northern California. One is in Southern California, the shuttered St. Luke Medical Center in Pasadena. The fifth hospital is Lake Mead Hospital Medical Center, North Las Vegas, Nev., which is on Tenet’s list of 14 hospitals slated for sale or closure.

In another case, Tenet faces an Oct. 14 trial on a whistleblower lawsuit that alleges the prices Tenet paid for some South Florida physician practices amounted to illegal kickbacks for patient referrals under both the Stark and federal antikickback laws. The U.S. Justice Department intervened in the Stark law allegations and also contends that Tenet’s 391-bed North Ridge Medical Center, Fort Lauderdale, Fla., filed false cost reports between 1993 and 1997, Tenet said in a recent securities filing.

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