South Carolina hospital to pay $17 million over physician pay allegations

South Carolina’s Lexington Medical Center will pay the government $17 million over allegations that it paid 28 physicians unreasonably high amounts in exchange for referrals.

A whistle-blower and the government alleged that Lexington bought access to patients by acquiring physician practices and then paid the doctors “commercially unreasonable compensation” with the expectation that they would make referrals to Lexington.

Lexington, a 416-bed hospital in West Columbia, S.C., has denied any wrongdoing and said in a statement Thursday the settlement (PDF) allows it to avoid “continued costly litigation that could have lasted for several years.”

“While Lexington Medical Center was prepared to vigorously defend the case and to demonstrate why it believes the compensation paid to Lexington Medical Center employed physicians is in accordance with all laws and regulations, the outcome of this inquiry reflects the challenges hospitals face navigating highly complex employment law regulations for physicians,” Lexington said in the statement.

Lexington CEO Tod Augsburger said in a statement that the hospital will “continue to strengthen our efforts to ensure full compliance by evaluating internal and external processes.”

The government alleged that Lexington’s actions violated the Stark law, which prohibits doctors from referring Medicare patients to hospitals, labs and other doctors that the physicians have financial relationships with unless they fall under certain exceptions.

The government alleged that the hospital’s supposed Stark violations, in turn, led to the submission of tainted claims to the government in violation of the False Claims Act.

The lawsuit was originally brought by whistle-blower Dr. David Hammett, who was formerly employed by Lexington. In successful False Claims Act cases, whistle-blowers are entitled to a portion of whatever money the government is able to recover. Hammett will get about $4.5 million.

Hammett, a neurologist, was part of a practice that Lexington bought in 2011, and he became employed by Lexington then. He alleged that Lexington pressured him and others to refer patients for services at Lexington and fired him after he continued to refer patients to other providers for MRIs.

The Lexington settlement is one in a recent string of settlements between the government and providers over similar allegations.

In September 2015, Florida-based North Broward agreed to pay the government $69.5 million for alleged violations of the Stark law and False Claims Act. North Broward did not admit to any wrongdoing.

Also in September of last year, Florida-based Adventist Health System settled a similar case for $118.7 million. Adventist said in a statement at the time it has changed its process for setting physician compensation and regretted oversights.

In October of last year, Tuomey Healthcare System in Sumter, S.C., agreed to settle with the government for $72.4 million, resolving allegations that it paid doctors for referrals.

Many have criticized the Stark law as overly complex and confusing, and a Senate committee held a hearing this month on the issue after releasing a white paper that said the Stark law has created “a minefield for the healthcare industry.”

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