DOJ Alleges Methodist Violated False Claims Act, Anti-Kickback Laws

April 14, 2022 - The US Department of Justice (DOJ) has filed a lawsuit against Methodist Le Bonheur Healthcare and Methodist Healthcare Memphis Hospitals, alleging that the health systems violated the False Claims Act and the Anti-Kickback Statute by paying kickbacks to West Clinic, PC (West) in exchange for patient referrals.

The government began investigating the health systems, collectively referred to as Methodist, after the former president of Methodist University Hospital, Jeffrey H. Liebman, filed a lawsuit under the whistleblower provisions of the False Claims Act in May 2017.

The alleged fraudulent behavior started when Methodist purchased all of the outpatient locations in West’s oncology practice in Memphis, Tennessee. Methodist had not had its own comprehensive cancer treatment center at the time.

The transaction aimed to allow West patients to receive outpatient and inpatient services at Methodist locations by West physicians. Meanwhile, West would provide management services to Methodist’s adult oncology service line.

The entities described the deal as a partnership that would achieve a cancer center without walls, but they never created a formal partnership as it would have violated regulatory requirements.

Methodist received increased Medicare reimbursement for cancer care as a part of the deal, the complaint stated. Methodist billed Medicare for the facility and professional components of the outpatient treatment, chemotherapy, and other drugs. This allowed Methodist to receive cost discounts through the 340B Discount Drug program, resulting in $50 million in profits in one year.

DOJ alleged that Methodist violated the False Claims Act, which states that it is illegal for companies to knowingly submit fraudulent Medicare or Medicaid claims.

Methodist also established a new income stream from the outpatient cancer treatment reimbursement that previously had gone to West. In addition, Methodist saw an increase in referrals for inpatient services from West, which had previously referred most patients to Methodist’s competitors. In exchange for patient referrals, Methodist paid kickbacks to West.

Methodist disguised the kickback payments as payments for services that were supposed to be provided under the management services agreement but ultimately were not.

According to the lawsuit, Methodist knew that compensating West in exchange for patient referrals would violate the Anti-Kickback Statute. However, Methodist increased its kickback payments to West over the years as the referrals increased.

Methodist was also aware that West was not providing all the management services that the agreement required. For the services West was providing, Methodist was often double-paying West due to other contracts, the lawsuit stated.

“In sum, Methodist knowingly agreed to pay West millions of dollars in kickbacks for the revenues Methodist expected to, and ultimately did, realize from West’s referrals,” DOJ wrote. “The arrangement lasted from January 1, 2012, through December 31, 2018, and continued even after Methodist knew that the United States was investigating these allegations following the filing of the whistleblowers’ lawsuit.”

The HHS Office of Inspector General is currently investigating the case.

Healthcare fraud, waste, and abuse continue to be a problem for the industry. Experts have suggested that healthcare digitization, including the increased use of telehealth and EHR, has led to a higher volume of healthcare fraud and False Claims Act violations.

Lawyers also predicted that Coronavirus, Aid, Relief, and Economic Security (CARES) Act funding could increase False Claims Act cases. For example, providers could face False Claims Act allegations if the government determines that provider organizations submitted false or inaccurate information regarding how they used Provider Relief Funds.