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Hospital and Cardiology Group Settle Allegations of Improper Medical Director Payments

On March 7, 2018, the Department of Justice announced that a hospital and a physician group will pay $20.75 million to settle allegations of kickbacks and Stark Law violations. The case started with a qui tam lawsuit filed by Dr. Tullio Emanuele, a cardiologist once employed by the group.[1] In an amended complaint filed November 30, 2012, Dr. Emanuele alleged that his former employer, Medicor, a private practice of cardiologists and internal medicine physicians, entered into sham medical directorship agreements with Hamot Medical Center.[2]

At the time of Dr. Emanuele’s employment, Medicor was the exclusive provider of cardiology services at Hamot, a tertiary care facility, regional referral hub, and Level II Trauma Center located in Erie, Pennsylvania. In the late 1990’s/early 2000’s, Medicor considered merging with other cardiology groups in the community and aligning with Hamot’s cross town rival. Hamot responded by offering an expanded relationship to Medicor and forming the Hamot Heart and Vascular Institute. Instead of having an ownership interest in the institute, the group was given the opportunity to co-lead the institute through various medical directorship arrangements.

In 2005, there were six medical directorship agreements between Medicor and Hamot. Compensation for these agreements was about $33,750 monthly or $405,000 annually. The agreements included Medical Supervision and Direction of:

  • Clinical Cardiovascular Services ($6,250 monthly)

  • Rehab/Restorative Cardiovascular Services ($4,166 monthly)

  • Regional Affiliate Hospital Cardiovascular Services ($5,000 monthly)

  • Non-Invasive Cardiovascular Lab Services ($6,666.66 monthly)

  • Cardiac Catheterization Lab Services – ($6,666.66 monthly)

  • Direction of Electrophysiology Services ($5,000 monthly)

During his employment with the group from 2001 to 2005, Dr. Emanuele was assigned one of the medical directorships. He complained that the medical directorships were improper because:

  1. The contracts did not specify particular services to be performed; they only referenced a vague description of duties that were “more in the nature of guidelines or aspirational goals”.

  2. The group, nor the hospital, maintained time cards or other billing records to document the services that were provided. A group administrator did fill out pre-prepared time study forms during the year – but the information was not accurate.

  3. Dr. Emanuele’s agreement required him to provide at least 400 hours of service per year in return for $75,000 in compensation. However, he actually only provided about 10 hours of service per month. Therefore, the group was paid more than fair market value.

  4. Given the size of the hospital and the scope of services being provided (number of beds, catheterization labs covered, services provided, etc.), there was no need for the six different medical directorships. Therefore, the arrangements were not commercially reasonable.

  5. No consideration was given as to whether or not Dr. Emanuele had the qualifications to provide the medical directorship services at the facility. He was never interviewed or evaluated for the position by the hospital. Moreover, the medical directorship positions were not advertised nationally or even regionally to determine who was to fill the positions.

  6. No one ever audited the contracts or the effort provided by the medical directors. The medical director stipends were paid whether the services were performed or not.

In a March 15, 2017, the U.S. District Court for the Western District of Pennsylvania found that two medical directorships between Medicor and Hamot violated the Stark Law. (Interestingly, these two arrangements were not part of the six identified by Dr. Emanuele.) The basis of the decision was that there were never any formalized, signed documents related to these two arrangements for the Chairman of Cardiovascular Medicine and Surgery and the Director of the Women’s Heart Health Program. Therefore, the court found that these two arrangements did not meet the in-writing requirements of the fair market value or personal services exceptions. The court also found that the six agreements included in Dr. Emanuele’s complaint did indeed meet the in-writing requirements. Even though the six contracts lapsed at times, there was enough documentation to meet the requirements.

The parties entered into settlement discussions sometime after the court’s rulings were unsuccessfully challenged in the later part of 2017. The DOJ’s March 7, 2018 press release indicates that the settlement resolves allegations that from 1999 to 2010 Hamot paid $2 million per year under 12 physician and administrative services arrangements which were created to secure Medicor patient referrals. According to the release, Hamot allegedly had no legitimate need for the services for which they were contracted, and in some instances the services either were duplicative or were not performed. The press release also indicated that, while Dr. Emanuele was awarded $6,017,500 as part of the settlement, the False Claims Acts claims resolved by the settlement are allegations only, and there has been no determination of liability.

The settlement shows the importance of formalizing medical director agreements with physicians and ensuring that compensation is commercially reasonable and fair market value. Moreover, it is not enough to set hourly rates at fair market level.(Based on our review, it does not appear that the implied hourly rate of $187.50 in Dr. Emanuele’s agreement was an issue.) It is also important to monitor and examine arrangements to ensure physicians are paid only for services actually provided – and that physician services are only purchased when a legitimate business purpose, not related to referrals, exists for buying them.

[1] United States ex rel. Emanuele v. Medicor Associates, Inc. et al., Civil Action No. 10-cv-00245-JFC (W.D. Pa.).

[2] Hamot is now affiliated with the University of Pittsburgh Medical Center (UPMC)

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