The Joplin Globe, Joplin, MO

November 5, 2012

Freeman to pay $9.3 million for improperly compensating physicians for referrals

From staff reports

JOPLIN, Mo. — Freeman Health System has agreed to pay $9.3 million to resolve allegations that it violated the Stark Law and the False Claims Act by knowingly providing incentive pay to physicians in a manner that violated federal law, the Justice Department announced today in a statement released from Washington.  

The Stark Law forbids a hospital from billing Medicare for certain services referred by physicians that have a financial relationship with the hospital. A prohibited financial relationship includes an agreement between a hospital and a physician to compensate a physician based on the volume of the physician’s referrals or the revenue realized through those referrals.

In 2009, Freeman disclosed to the U.S. attorney for the western district of Missouri that a number of its physicians were eligible for incentive compensation that took into account the value and volume of their referrals.

In a statement released Monday, Paula Baker, president of Freeman Health System, said the 2009 internal review revealed that Freeman had inadvertently made errors in the way it structured compensation agreements for some office-based physicians and that those agreements did not meet what it described as “very complex’’ federal guidelines.

Freeman engaged outside experts to conduct a comprehensive analysis and to provide recommendations for improvements to the system. The third-party review confirmed that the quality of care provided to patients was not affected. It was also determined that no patient or governmental entity was billed for any service that was not provided.

Baker said Freeman contacted the appropriate regulatory agency to voluntarily disclose that its compensation system did not meet all of the requirements of a federal regulation regarding hospital-physician relationships. Freeman said it immediately changed its compensation formula to ensure full compliance.

“After working with the federal government and offering our full cooperation, we are pleased to have reached a resolution with the Department of Justice and the U.S. Attorney’s Office that includes a $9,316,139 settlement agreement,’’ she said. “Additionally, Freeman Health System is not subject to any ongoing oversight by these entities related to the voluntary disclosure.’’

When Baker took office as President and CEO of Freeman Health System earlier this year, she began working with the federal government to complete the resolution of this issue.

“We are pleased that this resolution has been reached and the error corrected,’’ said Baker. “Freeman physicians, employees, and the board of directors are proud to know that throughout this process the quality of care was never at issue, nor did our focus on providing superior patient care and access to the area’s largest network of physicians ever waver. Our commitment to this community’s health and wellness needs remains steadfast.’’

Based on its investigation of Freeman’s disclosures, federal investigators alleged that Freeman knowingly compensated some of its physicians in a manner that violated the Stark Law by providing incentive pay to 70 physicians employed at clinics operated by the health system based on the revenue generated by the physicians’ referrals for certain diagnostic testing and other services performed at the clinic.

Federal investigators said the financial arrangement created an incentive to refer patients for such procedures.

“Today’s resolution underscores our commitment to ensure that health care decisions are based on the best interests of patients rather than the personal financial interests of referring physicians,” said Stuart F. Delery, acting assistant attorney general for the department’s civil division, in a statement released today.

“The Department of Justice encourages companies to disclose potential violations of law, as was the case here.”