Hospitals are eager to
get particular specialists on staff because they bring in business that can be
highly profitable. But those efforts, if they involve unusually high salaries
or other enticements, can violate federal anti-kickback laws.
By Jordan Rau
MAY 31, 2019
For a
hospital that had once labored to break even, Wheeling Hospital displayed
abnormally deep pockets when recruiting doctors.
To lure
Dr. Adam Tune, an anesthesiologist from nearby Pittsburgh who specialized in
pain management, the Catholic hospital built a clinic for him to run on its
campus in Wheeling, W.Va. It paid Tune as much as $1.2 million a year — well
above the salaries of 90% of pain management physicians across the nation, the
federal government charged in a lawsuit filed this spring.
In
addition, Wheeling paid an obstetrician-gynecologist a salary as high as $1.3
million a year, so much that her department bled money, according to a related
lawsuit by a whistleblowing executive. The hospital paid a cardiothoracic
surgeon $770,000 and let him take 12 weeks off each year even though his
cardiac team also routinely ran in the red, that lawsuit said.
Despite
the losses from these stratospheric salaries and perks, the recruitment efforts
had a golden lining for Wheeling, the government asserts. Specialists in fields
like labor and delivery, pain management and cardiology reliably referred
patients for tests, procedures and other services Wheeling offered, earning the
hospital millions of dollars, the lawsuit said.
The
problem, according to the government, is that the efforts run counter to federal self-referral bans and
anti-kickback laws that are designed to prevent financial
considerations from warping physicians’ clinical decisions. The Stark law prohibits
a physician from referring patients for services in which the doctor has a
financial interest. The federal anti-kickback statute bars hospitals from
paying doctors for referrals. Together, these rules are intended to remove
financial incentives that can lead doctors to order up extraneous tests and
treatments that increase costs to Medicare and other insurers and expose
patients to unnecessary risks.
Wheeling
Hospital is contesting the lawsuits. It said in a countersuit against the
whistleblower that its generous salaries were not kickbacks but the only way it
could provide specialized care to local residents who otherwise would have to
travel to other cities for services such as labor and delivery that are best
provided near home.
The
hospital and its specialists declined requests for interviews. In a statement,
Gregg Warren, a hospital spokesman, wrote, “We are confident that, if this case
goes to a trial, there will be no evidence of wrongdoing — only proof that
Wheeling Hospital offers the Northern Panhandle Community access to superior
care, world class physicians and services.”
Elsewhere,
whistleblowers and investigators have alleged that other hospitals, in their
quests to fill beds and expand, disguise these arrangements by overpaying
doctors or offering other financial incentives such as free office space. More
brazenly, others set doctor salaries based on the business they generate,
federal lawsuits have asserted.
“If
we’re going to solve the health care pricing problem, these kinds of practices
are going to have to go away,” said Dr. Vikas Saini, president of the Lown
Institute, a Massachusetts nonprofit that advocates for affordable care.
‘It’s
Almost A Game’
Hospitals
live and die by physician referrals. Doctors generate business each time they
order a hospital procedure or test, decide that a patient needs to be admitted
overnight or send patients to see a specialist at the hospital. An internal
medicine doctor generates $2.7 million in average revenues — 10 times his
salary — for the hospital with which he is affiliated, while an average
cardiovascular surgeon generates $3.7 million in hospital revenues, nearly nine
times her salary, according to a survey released this year by
Merritt Hawkins, a physician recruiting firm.
Last
August, William Beaumont Hospital, part of Michigan’s largest health system and
located outside Detroit, paid $85 million to
settle government allegations that it gave physicians free or discounted
offices and subsidized the cost of assistants in exchange for patient
referrals.
A month
later in Montana, Kalispell Regional Healthcare System paid $24 million to
resolve a lawsuit alleging that it overcompensated 63 specialists in exchange
for referrals, paying some as full-time employees when they worked far less.
Both nonprofit hospital systems did not admit wrongdoing in their settlements
but signed corporate integrity agreements with the federal government requiring
strict oversight.
“It’s
almost a game of ‘We’re going to stretch the limits and see if we get caught,
and if we get caught we won’t be prosecuted and we’ll pay a settlement,’” said
Tom Ealey, a professor of business administration at Alma College in Michigan
who studies health care fraud.
Dubious
payment arrangements are a byproduct of a major shift in the hospital industry.
Hospitals have gone on buying sprees of
physician practices and added doctors directly to their payrolls. As of January
2018, hospitals employed 44% of physicians and owned 31% of practices,
according to a report the consulting group Avalere prepared
for the Physician Advocacy Institute, a group led by state medical association
executives. Many of those acquisitions occurred this decade: In July 2012,
hospitals employed 26% of doctors and owned 14% of physician practices.
“If you
acquire some key physician practices, it really shifts their referrals to the
mother ship,” said Martin Gaynor, a health policy professor at Carnegie Mellon
University in Pittsburgh. Nonprofit hospitals are just as assertive as
profit-oriented companies in seeking to expand their reach. “Any firm — it
doesn’t matter what the firm is — once they get dominant market power, they
don’t want to give it up,” he said.
But
these hires and acquisitions have increased opportunities for hospitals to
collide with federal laws mandating that hospitals pay doctors fair market
value for their services without regard to how much additional business they
bring through referrals.
“The
law is very broad, and the exceptions are very narrow,” said Kate Stern, an
Atlanta lawyer who represents hospitals.
‘A Man
We Need to Keep Happy’
Lavish
salaries for physicians with high potentials for referrals was the key to the
business plan to turn Wheeling Hospital, a 247-bed facility near the Ohio
River, into a profit machine, according to a lawsuit brought by Louis Longo, a
former executive vice president at the hospital, and a companion suit from the
U.S. Department of Justice.
Between
1998 and 2005, Wheeling Hospital lost $55 million, prompting the local Catholic
diocese to hire a private management company from Pittsburgh, according to the
suits. In 2007, the company’s managing director, Ronald Violi, a former
children’s hospital executive, took over as Wheeling’s chief executive officer.
The
hospital remained church-owned, but Violi adopted an aggressively
market-oriented approach. He began hiring physicians — both as employees and
independent contractors — “to capture for the hospital those physicians’
referrals and the resulting revenues, thereby increasing Wheeling Hospital’s
market share,” the government alleged. Along with greater market share came the
ability to bargain for higher payments from insurers, according to Longo’s
suit.
The
government complaint said at least 36 physicians had employment contracts tied
to the business they brought to the hospital. Hospital executives closely
tracked how much each doctor earned for the hospital, and executives catered to
those whose referrals were most lucrative.
In
2008, the hospital’s chief financial officer wrote in an internal memorandum
that cardiovascular surgeon Dr. Ahmad Rahbar “is a man we need to keep happy”
because the previous year “he generated over $11 million in revenues for us,”
according to the government’s lawsuit.
Dr.
Chandra Swamy, an obstetrician-gynecologist the hospital hired in 2009, was
another physician whose referrals Wheeling coveted. By 2012, Wheeling was
paying her $1.2 million, four times the national median for her peers,
according to Longo’s suit.
An
internal memorandum by the hospitals’ chief operating officer quoted in Longo’s
lawsuit said that the labor and delivery practice where Swamy worked was the
biggest money loser among the specialty divisions and that her salary made it
“almost impossible for this practice to show a bottom line profit.” But the
memo went on to conclude that Wheeling should “continue to absorb the practice
loss” because it “would not want to endanger the significant downstream revenue
that she produces” for the hospital: nearly $4.6 million a year, according to
the lawsuit.
In some
cases it was the specialists who demanded lopsided pay packages. When Wheeling,
eager to get a piece of the booming field of pain management, decided to
recruit Tune, the anesthesiologist responded that he wanted an
“alternative/undefined model” of compensation that could earn him $1 million a
year, according to Longo’s lawsuit.
Instead
of making Tune an employee, Longo alleges, Wheeling leased clinic space to a
company created by Tune and paid him $3,000 a day — more than $700,000 a year.
In its initial contract, Wheeling also let Tune keep 70% of his practice’s net
income, according to the government’s complaint.
Two
years later, when the hospital’s chief lawyer raised legal concerns, Wheeling
revised the contract, dropping the profit-sharing provision but boosting Tune’s
daily stipend to $6,100. The government complaint said this was designed to
make up for the lost incentives and thus remained illegally based on how much
business Tune generated for Wheeling. Indeed, Tune and his clinic earned
roughly the same amount of money as they had received before the new
compensation package, the complaint indicated.
Longo
said his resistance to such deals rankled both Violi and physicians. He was
fired in 2015 because, he alleged, of his objections to various contracts the
hospital struck with physicians. The hospital countersued in March,
saying Longo had breached his fiduciary duties because he never reported any
financial irregularities when he worked there. Wheeling said that after Longo
was fired, he threatened to file his lawsuit unless he received a settlement.
Longo has asked that the case be dismissed and said in court papers he told
Violi about his concerns on “multiple occasions.”
As a
whistleblower, Longo is entitled to receive a portion of any money the
government collects in its complaint. Longo’s lawyer said he would not comment
for this story.
In
financial terms, Wheeling’s tactics succeeded. According to the government’s
suit, over the first five years under Violi, Wheeling earned profits of nearly
$90 million. Violi’s management firm, R&V Associates, also prospered:
Wheeling more than doubled the firm’s annual compensation from $1.5 million in
2007 to $3.5 million in 2018. Violi and his lawyer did not respond to requests
for comment.
“The
hospital has benefited tremendously from Ron’s keen business acumen,” Monsignor
Kevin Quirk, the hospital board chairman, said last week in announcing Violi’s retirement.
Wheeling’s
quality of care has not excelled commensurately, however, according to Hospital Compare,
Medicare’s consumer website. Patients with heart failure or pneumonia are more
likely to die than at most hospitals. In April, Medicare awarded Wheeling
Hospital its lowest rating, one star, for overall quality.
Jordan
Rau: jrau@kff.org,
@JordanRau
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