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West Virginia Hospital Enters into a $50 Million Settlement to Resolve Allegations over Excessive Compensation Paid to Referring Physicians

On September 9, 2020, the Department of Justice (DOJ) announced a $50 million settlement with Wheeling Hospital, Inc. of West Virginia to resolve False Claims Act allegations that Wheeling Hospital violated the Anti-Kickback Statute (AKS) and Stark Law.  Broadly speaking, the AKS and Stark Law require that physicians’ compensation be based on fair market value and not determined in a manner that takes into account the volume or value of their referrals.

The settlement resolved False Claims Act allegations that were triggered by a qui tam lawsuit brought by a former vice president of Wheeling Hospital who oversaw hospital operations and physician engagements.  According to the relator's complaint, Wheeling Hospital, under its former management, paid several physicians annual compensation in excess of a million dollars based on the volume or value of their referrals.  Wheeling Hospital allegedly paid salaries to obstetricians and gynecologists, radiation oncologists, cardiologists, and pain management physicians that were twice the median salary and substantially more than the 90th percentile according to MGMA surveys. 

The complaint repeatedly references an internal memo that reported that Wheeling Hospital’s physician practices were operating at a loss due to physicians’ excessive salaries, but that the hospital should keep the physicians’ salaries in place so as not to endanger downstream revenue (i.e., referrals) generated by the physicians.  

Interestedly, in March 2019, Wheeling filed a countersuit against the relator, alleging breach of fiduciary duty and process.  According the hospital's complaint, the relator served as a fiduciary of the hospital, but never raised any concerns about potential Stark Law and AKS violations until after his position was terminated.  Wheeling Hospital dropped its countersuit in June 2019.

The DOJ did not require Wheeling Hospital, which is now under new management, to enter into a Corporate Integrity Agreement.  The relator will receive $10 million as his statutory share of the settlement proceeds.

This case illustrates DOJ’s continued vigorous enforcement under the False Claims Act of alleged violations of the AKS and Stark Law against acute care hospitals.  It is also a reminder of the risk created by even a small number of allegedly improper compensation relationships with physicians, especially when DOJ proceeds under the strict liability Stark Law.

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Authors

Laurence J. Freedman is a Mintz attorney who represents health care and life sciences clients. Larry has successfully represented hospitals and health care systems, laboratories, pharmaceutical and device manufacturers, and health care executives against fraud and abuse allegations.

Rachel E. Yount

Associate

Rachel Yount is a Mintz attorney who focuses her practice on health care industry transactions. Her clients include hospitals, health systems and plans, physician organizations, and pharmacy benefit managers.