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Failure to Prevent Performance of Medically Unnecessary Services Leads to $22.7 Million Settlement

Earlier this year, the United States intervened in the investigation of a 2020 qui tam complaint filed against Washington-based Providence Health & Services (“Providence”), a nonprofit health system operating more than 50 hospitals across 7 states. Within a few months of the federal intervention, Providence announced it will pay $22.7 million to settle allegations of false claims for medically unnecessary procedures performed by two neurosurgeons at one of its hospitals. Of specific interest is the government’s contention that an uncapped productivity-based compensation structure showed that Providence did not have adequate safeguards and controls in place with regard to the neurosurgeons.

According to the Department of Justice (“DOJ”), the case began in January 2020, when the former Medical Director of neurosurgery (the “Relator”) at Providence St Mary’s Medical Center (“Providence St. Mary’s”) in Walla Walla, Washington, filed a qui tam complaint in the U.S. District Court for the Eastern District of Washington. Pursuant to the settlement agreement, the Relator will receive $4,197,734 of the total settlement amount.

The Settlement Agreement laid out the following circumstances of the case:

Between 2013 and 2018, Providence St. Mary’s employed neurosurgeons identified as Dr. A and Dr. B. During that time, Providence St. Mary’s neurosurgeons were paid based on a productivity metric that provided them a financial incentive to perform more surgical procedures of greater complexity. Between 2014 and 2018, Dr. A was one of the highest producing neurosurgeons in the entire Providence system. Between 2014 and 2017, based on the productivity metric, Providence paid Dr. A between $2.5 million and $2.9 million per year.

According to the settlement agreement:

St. Mary’s Medical Center (SMMC) staff neurosurgeons, including Dr. A, were paid compensation based on a personal productivity metric known as Work Relative Value Units (wRVUs), which were calculated based on a value assigned under the Medicare Physician Fee Schedule to the services personally furnished by the individual neurosurgeon. SMMC neurosurgeons, including Dr. A, were paid compensation for each wRVU that they generated, with no cap on the wRVU-based compensation that could be earned. In this manner, the greater the number of procedures of higher complexity that the neurosurgeon performed, the greater the compensation the neurosurgeon received. Between 2014 and 2018, Dr. A’s personal productivity, as measured by wRVUs, exceeded the 90th percentile of physician market survey data, and he was among the top producing neurosurgeons in the Providence system.

FMV Issues

Productivity-based incentives are a common element in physician compensation arrangements. Productivity metrics can be helpful retention tools for organizations seeking to establish competitive compensation for medical staffs with varied proficiencies, schedules, and assignments.

It is good practice to monitor the performance of physicians regardless of the compensation structure. However, it is especially worthwhile to stay alert whenever production-based payment structures could possibly render compensation that approaches or surpasses 90th percentile benchmarks. To help in this effort, health systems often incorporate a maximum compensation level, or cap, in their physician employment agreements. If the cap is reached, an internal review process is triggered, including such checks as chart and coding audits, interviews, and other types of analyses. Typically, any above-cap compensation earned by the physician is detained by the system until the review process is satisfactorily completed.

The settlement agreement mentioned that there was no cap in place for the Providence physicians, but it does not mention an internal review process or expound the details of the wRVU-based compensation.

At various times during the relevant time period, Providence received both positive and negative information about Dr. A and Dr. B. However, Providence personnel also had and articulated concerns regarding the quality of care provided by Dr. A and Dr. B, as well as the medical necessity of surgical procedures performed by Dr. A.

These included concerns that Dr. A: (1) completed medical documentation with falsified, exaggerated, and/or inaccurate diagnoses that did not accurately reflect the patient’s true medical condition in order to obtain reimbursement for surgical procedures performed by Dr. A; (2) performed certain surgical procedures that did not meet the medical necessity guidelines and requirements for reimbursement set forth by Medicare and other government health insurance programs; (3) “over-operated”, i.e., performed a surgery of greater complexity and scope than was indicated and medically appropriate; and (4) jeopardized patient safety by attempting to perform an excessive number of overly complex surgeries.

These concerns also alleged that Dr. A and Dr. B: (1) endangered the safety of SMMC patients; (2) created an excessive level of complications, negative outcomes, and necessary additional operations as a result of their surgeries; (3) performed surgical procedures on certain candidates who were not appropriate candidates for surgery given their medical histories, conditions, and contraindications; and (4) failed to adequately and accurately document certain procedures, diagnoses, and complications.

The settlement resolves allegations that Providence falsely billed Medicare, Washington State Medicaid, and other federal health care programs for deficient and medically unnecessary neurosurgery procedures performed by Dr. A and Dr. B. As part of the settlement, Providence entered into a Corporate Integrity Agreement (CIA) with the U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG). The CIA requires, among other things, that Providence implement and maintain a number of quality-of-care and patient safety obligations. Additionally, the CIA requires that Providence retain outside experts to perform audits of annual claims and clinical quality systems reviews.

This case illustrates how the government views safeguards and controls when it comes to productivity-based incentive plans for physicians. Specifically, the government seems to imply that not capping physician compensation helped lead to the neurosurgeons’ performance of medically unnecessary procedures. So, while productivity is an established component of many physician compensation arrangements, implementing a cap may be worth the effort.

BFMV works with healthcare organizations to ensure physician compensation is compliant. We can help your organization implement safeguards and controls on physician compensation that allows your organization to remain competitive and attractive to physicians. To discuss productivity-based payments and other aspects of FMV physician compensation, contact us.


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