IOWA HOSPITAL COUGHS UP $4.5M TO FEDS TO SETTLE STARK CLAIM THAT IT OVER COMPENSATED EMPLOYED DOCS.

In 2005 a group of physicians from Cedar Valley Medical Specialists in Cedar Valley, Iowa raised concerns with Sen. Charles Grassley, then Chairman of the Senate Finance Committee and with the IRS that Covenant Medical Center in Waterloo, Iowa was over compensating some of its employed physicians. According to 990s filed by Covenant with the IRS orthopedic surgeons Dr. Gary Knudson and Dr. Richard Naylor were paid $2.4 Million and $1.00 Million respectively for their services in 2002.  Dr. Victor Lawrinenko received $2.1 Million.

Covenant Medical Center indicated that the physicians were extremely productive and there was a shortage in their specialties in 2002, and recent income figures were not as high. There is no apparent Corporate Integrity Agreement or admission of wrongdoing. Covenant said that it decided to settle as a business decision.

The government investigation was undertaken by the Office of Inspector General, the Justice Department Civil Division and the U.S. Attorney in Iowa. It claimed that the compensation arrangement violated the Stark Law provisions because it did not reflect “fair market value” and was “commercial unreasonable.”  U.S. Attorney Matt Dummeruth is quoted as saying,

It is the combination of the referrals without being fair market value and commercially reasonable. That’s what has potential to compromise the medical judgment, when there is improper financial incentives potentially at play here.

This case raises a host of questions that concern health lawyers. The first is whether “fair market value” and “commercial reasonableness” can be measured by comparison to national statistics alone without consideration of work ethic and individual productivity. It appears that the government may have been more interested in getting a skin to hang on the wall to appease Sen. Grassley than to actively pursue a wrong doer.  The penalty though large, pales in comparison to the leverage of financial penalties that the government could exert against the hospital for Stark violations.  If this really was a Stark violation, the extracted fine was a cheap penalty for Covenant. If not, it was just extortion. Settlement in these circumstances may embolden enforcement in circumstances where power, not fairness rules.

Comments

[Robert Federhofer]

Is this hospital subject to automatic yearly compliance audits of physician pay and billing due to this settlement ?