California Hospital Agrees to Settle With Department of Justice for Millions

The Department of Justice recently announced that Tri-City Medical Center, a hospital located in Southern California, has agreed to pay over $3.2 million to resolve allegations that it violated the Stark Law and the False Claims Act because of its financial arrangements with community-based physicians and physician groups that violated the Medicare program’s prohibition on financial relationships between hospitals and referring physicians.  The Stark Law (with the exception of certain enumerated safe harbors) forbids a hospital from billing Medicare for certain services referred by physicians who have a financial relationship with the hospital unless that relationship comes within an enumerated exception.  In this case it was alleged that Tri-City Medical Center had in excess of 90 non-Stark compliant financial arrangements with physicians and physician groups, which were not commercially reasonable or were not fair market value.

“The settlement of this matter reflects not only our commitment to protect the integrity of the healthcare system through enforcement of the Stark Law, but also our willingness to work with providers who disclose their own misconduct,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “Patient referrals should be based on a physician’s medical judgment and a patient’s medical needs, not on a physician’s financial interests or a hospital’s business goals,” said U. S. Attorney Laura E. Duffy of the Southern District of California.  “This settlement reinforces that hospitals will face consequences when they enter into financial arrangements with physicians that do not comply with the law. We will continue to hold health care providers accountable when they shirk their legal responsibilities to the detriment of tax payer-funded health care programs.”

Congress found that certain financial relationships can lead to the compromise of the physician’s professional judgment as to whether a medical test or service is medically necessary, safe, effective, and of good quality. Congress relied on various academic studies consistently showing that physicians who had financial relationships with medical service providers used more of those providers’ services than similarly situated physicians who did not have such relationships. The statute was designated specifically to reduce the loss suffered by the Medicare Program due to Medicare fraud arising out of improper financial relationships. Violations of the Stark Statue may be the basis of a False Claims Act lawsuit brought by a whistleblower.