Hospital Faces Liability Over Medicare Payments

SAVANNAH, Ga. (CN) - A hospital that allegedly billed Medicare for services to illegally referred patients may be liable for keeping the reimbursements in violation of anti-kickback laws, a federal judge ruled.

From June 2009 until January 2011, Phillip Schaengold was president and chief executive officer of Savannah, Ga.-based Memorial Health, one of the city's two major health care systems. Memorial Health operates a hospital and various outpatient facilities, physician practices and residency teaching clinics in Savannah and surrounding areas.

After the board fired Schaengold in January 2011, the former executive brought a false claims action against Memorial Health and several affiliates, accusing them of compensating hired physicians well above market value in exchange for patient referrals to the hospital and associated practices.

The hospital's board members, who included doctors whose practices benefitted from the alleged overcompensation, refused to adjust salaries and bonuses according to fair market guidelines, despite knowing that federal anti-kickback laws prohibit paying physicians for patient referrals, according to the lawsuit.

The hospital, which competed for referrals from local physicians with Savannah's other major hospital system, relied on referrals to increase its patient volume and address financial problems, the complaint alleged.

Schaengold claimed the board fired him for his attempt to comply with anti-kickback laws by bringing physicians' salaries closer to a fair market level and for trying to enlist outside counsel to address compliance issues.

The former executive filed his original complaint under seal in March 2011. After the federal court unsealed it in June of this year, the United States intervened and Schaengold filed an amended complaint for the remaining claims.

In its complaint in intervention, the government alleged that Memorial Health violated the False Claims Act by submitting claims for Medicare reimbursement based on prohibited referrals from overpaid physicians.

Medicare paid more than $6.7 million in reimbursements to Memorial Health for claims that its hospital submitted as a result of referrals that violated anti-kickback laws, according to the government.

Memorial Health and its affiliates asked the court to dismiss the United States' "reverse false claims" allegations concerning their alleged obligation to refund overpayments to the government.

But the court found that the government sufficiently alleged that Memorial Hospital billed Medicare for services it provided to referral patients and certified compliance with federal laws despite knowing that its compensation agreements with referring doctors violated the anti-kickback statute.

Since federal law requires health care providers to refund Medicare reimbursements collected in violation of anti-kickback laws, the United States may pursue claims related to overpayments against Memorial Hospital, U.S. District Judge B. Avant Edenfield ruled last week.

The government's complaint, which is based on the former executive's knowledge of and access to hospital reports that allegedly contained false certifications is sufficiently reliable and need not provide specific names, dates and numbers, the court found.

Nevertheless, the other Memorial Health entities, which were not enrolled in Medicare as participating providers, cannot be held liable, according to the Dec. 8 ruling.

The government failed to show that Memorial Health and its subsidiaries, including the hospital, operated as one entity or that the parent company and the non-hospital entities were directly involved in submitting false claims to the government, the ruling states.

Although the government alleged that all Memorial Health entities were involved in the illegal-referral process, "mere participation in a scheme that results in an eventual submission of a false claim is not sufficient for FCA liability," Edenfield said.

The United States, however, may amend its claims against Memorial Health and its other subsidiaries within 20 days, the order states.

Attorneys for Memorial Health did not immediately respond to a request for comment.

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