Hospital Fraud – Illegal Payments to Doctors

Unfortunately, many hospitals commit fraud against the federal government in the way they pay doctors and physicians.

To understand this type of fraud, you have to understand how hospitals bill the Medicare system. Generally, bills can be divided into two categories. First, the hospital bills Medicare for work personally performed by the doctor, for example, a patient visit. Second, the hospital bills Medicare for all the tests and services the doctor orders, but does not personally perform. These might include x-rays, MRI tests, laboratory tests, physical therapy, or radiation therapy.

Hospitals make way more money from tests and services ordered by the doctor than from work actually performed by the doctor. Obviously, then, the hospital has a financial incentive to encourage the doctor to refer more of these tests and services. More tests equals more money.

The Government has a different motive. The Government only wants to pay for tests and services that are truly medically necessary for the patient. The Government does not want doctors and hospitals to unnecessarily “run up the bill.”

For this reason, the Government has enacted various laws and rules to govern the method by which hospitals pay doctors. These rules are designed to remove any financial incentive for the doctor to order medically unnecessary tests. In other words, doctors should order the tests and services they believe are truly, medically necessary for the patient. Doctors should not be incentivized to make more money if they order more tests and services.

One of the Government’s primary weapons in this fight is the Stark Law. In general terms, the Stark Law says that doctors cannot refer certain tests and procedures, known as “designated health services,” to be performed by an entity, such as a hospital, if the doctor has a financial relationship with that hospital, unless certain exceptions are met. One of the most common exceptions is the “employee exception.” This means a doctor who works for a hospital can make a referral to the hospital, provided that the requirements of the employee exception are satisfied. To be considered a valid “employee” under the Stark Law, these requirements must be satisfied:

• the amount of salary paid to the employee doctor must be consistent with the fair market value of the doctor’s services;
• the amount of salary paid to the employee doctor must not take into account the volume or value of referrals the doctor makes to the hospital; and
• the amount of salary paid to the employee doctor must be commercially reasonable even if no referrals were made.

In other words, the hospital cannot pay the doctor based on a sliding scale that encourages the doctor to order more tests and make more referrals. The doctor should make the same amount of money regardless of the number of tests ordered or services referred. This removes the doctor’s incentive to “run up the bill.”

Many hospitals run afoul of the Stark Law and concoct elaborate schemes designed to encourage and reward doctors for referring more and more services to the hospital, which in turn, the hospital can bill to Medicare.

In extreme cases, hospitals have been found to pay doctors more money than the doctor actually collects from personally performed services. Imagine the hospital bills $500,000 a year to Medicare based upon a doctor’s time and work visiting patients in the hospital. The doctor is therefore worth $500,000 per year in gross revenue to the hospital. Yet the hospital pays the doctor a salary of $1 million per year. Why? Because the doctor also refers patients for $2 million worth of testing and treatment each year.

Under the Stark Law, the hospital cannot pay the doctor based upon his referrals. This is fraudulent because it encourages unnecessary testing. The doctor knows that if he or she stops ordering all the tests, he or she will no longer be worth $1 million a year to the hospital. Therefore, the doctor has a financial incentive to keep making referrals, regardless of whether they are truly, medically necessary.

Many hospitals have been forced to pay whistleblower awards to the federal government in the hundreds of millions of dollars for violating the Stark Law.

If you know about hospital fraud or Stark law violations, contact one of our lawyers for a free consultation. You may be eligible to become a whistleblower and may be entitled to receive a portion of any recovery made by the Government.