On July 28, 2016, the Department of Justice announced a $17 million settlement in the matter of United States ex rel. Hammett v. Lexington County Health Services District, Case No. 3:14-cv-03653 (D. S.C.).1 The lawsuit resolved allegations that Lexington County Health Services District, Inc. d/b/a Lexington Medical Center (“LMC”) in West Columbia, SC violated the Stark Law and False Claims Act by acquiring physician practices or employing twenty-eight (28) physicians on terms that were in excess of fair market value and on terms that were not commercially reasonable.

The case was filed on September 15, 2014, and DOJ declined to intervene on September 16, 2015. Relator then continued with the case, resulting in the recently announced settlement. As part of the settlement, LMC also entered into a Corporate Integrity Agreement with the Department of Health and Human Services-Office of the Inspector General.

Relator, a physician previously employed by LMC, alleges that LMC acquired his former practice, Columbia Medical Group (“CMG”) and its associated imaging equipment, for the purpose of obtaining the imaging referrals from the newly employed physicians. To ensure that the CMG physicians would agree to the acquisition, LMC allegedly offered above FMV and paid the physicians significantly more than they were previously earning to make up for the loss of ancillary income.

Additional allegations include:

  • 7-year terms in the employment contracts to lock in the compensation as a consideration for the value of the ancillary services being sold
  • Tiered compensation formula paying higher amounts for higher work relative value unit (wRVU) thresholds
  • Tracking of imaging referrals to the hospital and sharing of the referral tracking reports with physicians to question referral patterns

As we have previously reported, physician employment arrangements with hospitals remain a significant area of regulatory scrutiny. Hospitals face significant liability if arrangements are later deemed to be inappropriate. Therefore, hospitals should ensure that the arrangements are structured appropriately at the outset and should continue to monitor compliance throughout the arrangement. Additionally, hospitals should ensure that their management teams are not taking actions that may be seen as pressuring employed physicians to make referrals to the affiliated hospitals.