Covenant Healthcare System & Physicians Pay Over $69 Million to Settle Allegations Related to Improper Financial Relationships

Covenant Healthcare, a regional hospital system in Michigan, agreed to pay more than $69 million in three related civil settlements to resolve False Claims Act violations involving improper financial relationships with other referring physicians and a physician-owned investment group that resulted in the submission of fraudulent claims to Medicare, Medicaid, TRICARE, and FECA (Federal Employees’ Compensation Act) programs. The settlements arise from a whistleblower lawsuit filed by a physician who was formerly an executive with Covenant.

The Department of Justice focused on violations of Anti-Kickback Statute (AKS) and the Stark Law (also known as the Physician Self-Referral Law) during its investigation of the case. The AKS prohibits offering, paying, soliciting, or receiving anything of value to induce referrals of items or services covered by Federal healthcare programs. The Stark Law prohibits physicians from making referrals for certain health services to entities with which they or their immediate family members have a financial relationship with. Both laws are intended to prevent improper financial incentives in federally funded programs by ensuring that medical decisions are based completely on the best interests of the patients. Violations of the AKS and the Stark Law can also be violations of the False Claims Act.

The complaint alleged the following violations:

• Between 2006 – 2016, Covenant paid six physicians to serve as medical directors in exchange for referrals from these physicians.
• Between 2006 – 2009, Covenant employed a physician in exchange for referrals for designated healthcare services by the physician.
• Between 2009 – 2013, Covenant rented office space to a physician and forgave the rent payments in exchange for referrals from the physician.
• Covenant leased large medical equipment from a group called Covenant Physician Investment Group (CPIG), in order to encourage patient referrals from CPIG. The lease was not negotiated at arms-length.

These acts violated the AKS and/or the Stark Law, and also violated the False Claims Act. Under the False Claims Act, a private individual can sue on behalf of the government, and if the suit is successful the whistleblower may be eligible to receive between 15% and 30% of the government’s total recovery. In this case, the whistleblower – who was a well-placed insider – will receive a whistleblower award of more than $12 million for coming forward.

In announcing the settlements, Dawn N. Ison, the U.S. Attorney for the Eastern District of Michigan, stated: “Improper financial relationships and kickbacks undermine the integrity of federally-funded healthcare programs by influencing physician decision making…. [T]his outcome emphasizes our Office’s commitment to pursuing justice against parties on both sides of those relationships—the hospital seeking to influence the physician via certain compensation schemes and the physician accepting the compensation.”