Hospital System and 2 MDs Settle for $69M Over Improper Referral Relationships

The U.S. District Court for the Eastern District of Michigan approved the joint stipulation for dismissal in U.S. ex. rel. Godsholl v. Covenant Healthcare. This followed the resolution of three settlements related to False Claims Act (FCA), Michigan Medicaid False Claim Act, Federal Anti-Kickback Statute (AKS), and Stark Act violations. The case involved allegations of a regional hospital system engaging in improper financial relationships with referring physicians. The settlement payments amount to more than $69 million.

A former Vice President of Covenant Healthcare and CEO of Covenant Medical Group filed the action against Covenant Healthcare System and Covenant Medical Center in 2012. The lawsuit alleged that Covenant rewarded top referral sources with compensation and benefits not consistent with fair market value. Covenant, one of Michigan’s largest health systems, operates a hospital in Saginaw and has multiple office locations and outpatient facilities in the mid-Michigan region.

The settlement with Covenant was finalized in 2021, resulting in payments of $67 million to the United States and $1.8 million to the State of Michigan. The settlement remained sealed while investigations against a neurosurgeon, and an electrophysiologist, were ongoing. These investigations led to settlements for $406,551.15 and $345,987.54, respectively, to resolve allegations related to their relationships with Covenant.

A former VP was involved in the formation and oversight of Covenant Medical Group as a subsidiary of Covenant Healthcare System. She alleged that she was terminated after challenging Covenant’s practices.

The alleged improper remuneration included awarding medical directorships and other perks in exchange for referrals, retaining employees to provide services to independent physicians and specialists as a “gift” for high referrals, paying overhead costs of independent physicians as a “gift” for referring patients to Covenant, and billing Medicare and Medicaid for services without proper supervision at Covenant’s infusion center.

Under the False Claims Act the whistleblower could have received up to $20.7 million dollars as a whistleblower award