Federal prosecutors recently announced a $12.6 million False Claims Act (FCA) settlement with a major New Jersey health system to resolve allegations that the system paid outside physicians in order to increase referrals.

The settlement results from a whistleblower lawsuit filed in the U.S. District Court for the District of New Jersey under the qui tam provisions of the federal and New Jersey state false claims acts. The federal FCA grants a cause of action to the United States and qui tam relators against any entity that makes a fraudulent claim for payment to the federal government, and provides for treble damages, civil penalties, expenses, costs, and attorney fees. The New Jersey statute, which was enacted in 2008, models the federal law.

The whistleblower, a cardiologist outside of the health system, claimed that between October 1, 2004, and December 31, 2010, the health system paid physicians $18,500 per year to serve on one of its advisory boards, but actually used board meetings to induce referrals to the health system. The lawsuit specifically alleged that the health system violated anti-kickback laws and both New Jersey and federal self-referral laws. This allegedly resulted in false claims for Medicare and Medicaid payments being submitted to the State of New Jersey and the U.S. government.

Under the agreement, the health system admitted no wrongdoing and has since enacted reforms to enhance accountability and training. Specifically, the health system must pay $10,269,000 to the United States and $2,331,000 to the State of New Jersey. From those funds, the whistleblower will receive $2,394,000. The health system also must pay $430,000 in fees and costs to the whistleblower’s counsel.

In addition, under the agreement, the Office of Inspector General of the Department of Health and Human Services expressly reserved its rights to bring an administrative action seeking exclusion of the health system and/or its officers, trustees, and employees from federal health care programs, including Medicare and Medicaid. The agreement did not release the health system from potential criminal liability or liability arising under state or federal revenue codes.

This settlement demonstrates the complex regulatory environment in which health care clients operate, as well as the substantial financial consequences that may arise from alleged FCA violations.