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Community Health Network, Inc., based in Indianapolis, Indiana, has paid $345 million to settle alleged violations of the False Claims Act (FCA). The lawsuit was initiated through a whistleblower complaint that was filed in 2014 by the network’s former Chief Financial Officer. The suit alleged that, between 2008 and 2009, the network recruited hundreds of physicians for employment by paying them salaries that were significantly above fair market value in an effort to capture the physicians’ downstream referrals. In addition to the excessive base salary, the physicians were rewarded through incentive compensation that included targets for making a certain number of referrals within the network.

This type of recruitment and compensation practice violates the Stark Law, which prohibits physicians from making referrals for certain designated health services to an entity with which the physician has a financial relationship, and prohibits the entity from billing federal health care programs for such referrals, unless the financial relationship satisfies all of the elements of an applicable exception. Under the Stark exception for employment relationships, an employed physician’s compensation must be consistent with fair market value and not determined in a manner that takes into account the volume or value of the physician’s referrals. When analyzing a physician’s proposed compensation model and ensuring compliance with the legal parameters of the Stark Law, it is generally advisable to engage an independent third-party valuation firm to opine on the fair market value of the proposed compensation.

In this case, although the health network hired a valuation firm, they allegedly provided inaccurate information to the firm in order to receive a more favorable opinion, and ultimately ignored the firm’s warnings about overcompensating the physicians. As a result, the network provided impermissible financial incentives to the physicians which compromised the integrity of the health care system.

This settlement demonstrates the U.S. government’s commitment to combat health care fraud and abuse, and is an importance reminder to all health care employers to ensure that their physician compensation models are compliant with all applicable fraud and abuse laws.

In addition to the monetary fine, the health network will enter into a five-year Corporate Integrity Agreement with the U.S. Department of Health and Human Services’ Office of Inspector General.

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