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$30 Million Settlement Resolves Allegations of AKS Violations
A nearly $30 million joint settlement was announced on May 31, 2023, by the Department of Justice (DOJ). Detroit Medical Center (DMC), Vanguard Health Systems (Vanguard), and Tenet Healthcare Corporation (Tenet) settled the government's allegations of Anti-Kickback Statute (AKS) violations and fraud under the False Claims Act (FCA). DMC operated as a nonprofit hospital system until late 2010 when it transferred its facilities to Vanguard Health Systems Inc. In 2013, Tenet Healthcare Corp. acquired Vanguard's hospitals, including DMC.
The AKS prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of items or services covered by Medicare and other federally funded programs. AKS is intended to ensure that medical providers' judgments are grounded only in the best interests of their patients and are not swayed by improper financial inducements. Healthcare provider claims filed in violation of AKS qualify as fraud under the FCA, which carries the liability of three times (3x) the government's damages plus a penalty linked to inflation[1]. The FCA grants private citizens a path to file suits on behalf of the government ("qui tam" suits) against individuals or organizations that defraud the government. The investigations of interest here were initiated under the qui tam provisions of the FCA by whistleblower Dr. Jay Meythaler, MD, a former employee of Wayne State University Medical School.[2] Dr. Meythaler will receive $5.2 million of the full settlement amount.
Dr. Meythaler and federal prosecutors alleged that DMC offered selected affiliated physicians kickbacks, from Jan. 1, 2014, through Dec. 31, 2017, based on their history of Medicare patient referrals to DMC. Specifically, Sinai Grace Hospital and Harper University Hospital allegedly provided the services of DMC-employed nurse practitioners and physician assistants to 13 affiliated physicians at no cost or below fair market value under sham lease arrangements for which payments were not collected.
In a statement to The Detroit News, DMC spokesperson Brian Taylor said that Tenet did not execute new leases upon acquiring DMC and that DMC, Tenet, and Vanguard admitted no liability. "Once we became aware of the allegations, Tenet and DMC fully cooperated with the government throughout its investigation. The matter was resolved fully to avoid the expense and operational distraction."
Valuation Takeaway
It is important that private practice physicians pay fair market value for staffing and other resources provided to them by the hospitals where they refer patients. The challenge is in properly allocating expenses to the physicians without over- or under-charging them. Interestingly, the DMC settlement is the second time we've seen this issue come up in 2023. An Advisory Opinion (AO 22-20) issued in January discussed a specific scenario involving nurse practitioner services being provided to referring physicians. The AO provides some additional insight as to the government's view on these types of arrangements and what types of arrangements might meet government standards.
BFMV is experienced in reviewing and designing fair market value and commercially reasonable service arrangements between health systems, mid-level practitioners, and physicians that meet the volume or value standard. Contact us for assistance in structuring fair market value compensation for nurse practitioner services provided to physicians in the inpatient setting.
