Two former C-suite executives at Lancaster (Pa.) Regional Medical Center and Heart of Lancaster Regional Medical Center, affiliates of Naples, Fla.-based Health Management Associates, have filed suit against the hospital chain, claiming the health system paid millions of dollars in estimated kickbacks to more than 100 physicians who participated in joint ventures or allegedly "bogus" co-management agreements.
The whistleblower complaint was filed by former Lancaster Regional CEO George Miller and former CFO Michael Metts in 2010, but was unsealed this week. The complaint contains numerous allegations pertaining to Health Management's relationships with physicians in 2008 and 2009.
Mr. Miller was CEO of Health Management's Heart of Lancaster from June 2008 through May 2009. He also served as CEO of Lancaster Regional from June 2008 until January 2009. Mr. Metts was systems CFO and compliance officer for Lancaster Regional, Heart of Lancaster and 13 related clinics from June 2008 through December 2008. He later served as CFO and compliance officer at Lancaster Regional From December 2008 through September 2009.
In the complaint, the executives claim Health Management arbitrarily discounted the true value of physicians' shares of Health Management joint-ventured facilities, resulting in investment rates that were "far less" than fair market value. The complaint claims the hospital operator discounted its facilities and offered referring physicians the opportunity to invest in the facility "substantially below and without reference to FMV."
According to the complaint, Health Management allegedly used joint venture plans as a guise to draw in physician investors to bring referrals to Health Management facilities. "Although HMA refers to its ownership of hospitals as 'joint ventures,' HMA's ultimate goal was to have potential referring physicians invest in HMA hospitals by purchasing shares in a newly-created LLC which owned the hospital," reads the complaint.
PowerPoint presentations
Health Management Executive Vice President of Development Peter Lawson presented PowerPoint presentations outlining Health Management's joint venture models to groups of physicians. The same PowerPoint was allegedly used for all joint venture presentations, only edited to reflect each hospital's financial details.
The PowerPoints outlined specific financial arrangements, cash management and expected ROI for investors in the joint venture. The PowerPoint presentation allegedly did not include information on how the JV arrangement would improve quality, even though that was allegedly cited one of the main reasons for physicians to invest in the model, according to the complaint.
Along with the alleged below-FMV investment rates, the complaint claims Health Management touted the opportunity for physicians to have a "robust" return on investment. One tactic Health Management allegedly used to attract physicians was its projected volumes data, according to the complaint. Physicians were allegedly presented with information via PowerPoint that a "modest" increase of referrals — such as one or two patients per day — would result in a larger ROI.
In July or August of 2008, Mr. Lawson, Health Management executive VP of development, allegedly gave Mr. Metts and Mr. Miller one such PowerPoint to modify for a presentation to physicians for a joint venture proposal at Heart of Lancaster. Health Management said the wholesale value of Heart of Lancaster was $62,406,000, but they allegedly applied arbitrary discounts to that value to reach an "offering price" of $40,564,000, a 35 percent discount, according to the complaint.
The PowerPoint allegedly did not explain or define the applied discounts. The complaint claims "HMA intentionally undervalued Heart of Lancaster in order to induce referring physicians...to participate in the joint venture by offering them an interest in the facility at a price far less than its market value."
According to the complaint, Health Management had not received outside valuation of Heart of Lancaster when they were presenting their joint venture plans.
In February or March of 2009, Health Management proposed the joint venture plan with Lancaster Regional. The complaint claims Mr. Lawson used the same PowerPoint to present to slightly tailored to reflect Lancaster Regional's statistics and allegedly presented an offering price much lower than the wholesale value.
Co-management agreements
Health Management executives allegedly aimed the Lancaster Regional joint venture toward Physicians Alliance Ltd., a group of family physicians and internists. Health Management allegedly saw PAL as critical to its success because PAL physicians allegedly referred approximately 35 percent of patients to Lancaster Regional and the rest to Lancaster General Hospital, a nearby competitor.
According to the complaint, PAL physicians said they would not participate in the joint venture unless Health Management paid PAL $500,000 a year. Health Management executives named in the complaint allegedly obliged and paid them through "a sham co-management agreement," but "neither Health Management executives nor PAL intended that these alleged co-management services would actually be performed," according to the complaint.
The complaint also includes allegations that Health Management disguised physician compensation that exceeded FMV through sham co-management agreements. According to the complaint, Health Management implemented a plan to acquire an OB/GYN practice in order to increase deliveries and surgical admissions at Heart of Lancaster. The practice included 10 obstetricians and gynecologists, but Health Management allegedly agreed to pay two of the practice's primary physicians excessive salaries to secure their referrals. Michael Cowling, CEO of Heart of Lancaster and Lancaster Regional before relator Mr. Miller, had already approved the acquisition when Mr. Miller assumed his position.
According to the complaint, Mr. Cowling allegedly offered the two primary physicians $450,000 each for five years without reduction, a significant increase from the physicians' alleged salaries of $225,000 each at the time.
The complaint claims Mr. Miller, one of the whistleblowers, was repeatedly told by Health Management CEO Gary Newsome to "get the deal done" with the OB/GYN physicians. The complaint mentions specific events at which this message was conveyed, including "the October 2008 meeting on Heart of Lancaster's budget for 2009," where "CEO Newsome directed Relator Miller to 'get the deal done' and pay the OB/GYNs' salaries over 100 percent of MGMA standards."
The complaint says Health Management policy allows a hospital CEO to approve salaries only within the 50th and 75th percentile of Medical Group Management Association guidelines. Health Management's legal department allegedly would not approve Heart of Lancaster's offer to pay the Lancaster OB/GYN principals $450,000 each. Instead, relator Mr. Miller claims he received approval from Health Management's legal department to approve co-management agreements with the physicians to achieve that $450,000 per annum salary. The co-management agreements, according to the complaint, "were intended to create the appearance of keeping the OB/GYNs' compensation rate within MGMA thresholds."
Health Management allegedly asked Healthcare Appraisers to identify co-management services the OB/GYN physicians could provide. The fair market value range Healthcare Appraisers allegedly reached was between $267,000 and $350,000. Healthcare Appraisers also said co-management services cannot be used alongside employee agreements for salaried physicians, as that does not fall within a safe harbor, but Health Management proceeded with the agreements, according to the complaint.
Defendants named and penalties sought
The PowerPoints used to present the joint venture plan for Heart of Lancaster and Lancaster Regional indicate these kickback schemes were allegedly occurring within at least seven different facilities. The PowerPoint relator Mr. Miller modified was used for Davis Regional Medical Center in Statesville, N.C. It also allegedly included numbers and figures for cash flow, ROI and patient referrals for Health Management joint ventured facilities in Georgia, Alabama and West Virginia. When drafting a joint venture proposal for Heart of Lancaster, Mr. Miller received a document to modify that was from a Health Management joint venture proposal in Lebanon, Tenn.
The complaint also claims Health Management executives "communicated a sense of urgency to complete as many joint ventures as possible because Health Management executives feared that legislation pending before Congress in 2008 [Patient Protection and Affordable Care Act] would prohibit joint ventures between hospitals and physicians entirely."
The complaint names Health Management and its LLCs for Heart of Lancaster and Lancaster Regional, along with those hospitals themselves, as defendants. Physicians Alliance, or PAL, is also named as a defendant. The suit claims the defendants are allegedly in violation of the Anti-Kickback Statute, Stark law and the False Claims Act. Additionally, the suit claims the defendants violated Florida, Georgia and Tennessee's state-level false claim legislation.
A numerical estimate of damages was not included in the complaint. Under Stark law, the complaint seeks imposition of penalties of up to $100,000 for each "arrangement of scheme" in violation of Stark, along with $15,000 for each claim submitted in violation of Stark. Under the federal FCA, damages could amount to three times the amount of damages against the U.S., plus a civil penalty of $11,000 for each violation of the FCA.
This story was updated on 1/10 at roughly 3 p.m. CST.
Health Management spokesperson MaryAnn Hodge provided the following comment via email:
"As a matter of policy we do not comment on pending litigation. The existence of the government’s investigation into the issues raised in the unsealed qui tam cases has been disclosed for some time in HMAs’ public SEC filings. While our legal team addresses these matters and continues to cooperate with the Department of Justice’s ongoing investigation, HMA associates and physicians who practice at our facilities are focused on providing the highest quality patient care in all of our hospitals."
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