Massive Stark Law settlement underscores continued government scrutiny of health system physician employment arrangements

April 15, 2024
Business Affairs
Joseph Keillor
By Joseph Keillor

In a settlement of stunning magnitude, an Indianapolis-based health system settled with the Department of Justice for $345 million to resolve Stark Law and False Claims Act allegations relating to its employed physician compensation arrangements. This massive settlement, finalized in December 2023 after nearly a decade of litigation, reflects the complexities and importance of appropriately structuring physician compensation, and the government's continued focus on fraud and abuse enforcement.

The health system's former chief financial officer and chief operating officer filed a whistleblower lawsuit alleging a laundry list of improper conduct in employed physician contracting. For example, the health system allegedly intentionally provided its appraisers false information on multiple occasions (including by inflating collections figures of the physicians), often doubled the salaries of physicians compared to what they had been earning in private practice, and persistently ignored multiple appraisers' warnings about large disconnects between very high compensation of numerous physicians and moderate productivity. For a limited number of specialties, an incentive component of compensation was allegedly explicitly dependent on the individual physician's technical referrals made in such compensation period, in flagrant violation of Stark Law restrictions on determining compensation in a manner that takes into account the volume or value of referrals (the Volume/Value Standard).

The government chose to join the whistleblower lawsuit, lending its extensive resources to the suit. The government’s publicly-accessible legal filings against the health system provide some interesting insights into how enforcement officials analyze and approach these matters. For example, the government recites the unseemly allegation that the health system calculated incremental ancillary profits it would likely receive from integrating physicians, discussed, and essentially negotiated the conceptual split of such profits with the physicians, with the health system in one case offering 40 percent and the physicians demanding 50 percent. That is certainly an unseemly negotiating approach that should be avoided, but the government seemed to stretch the Stark Law quite far in asserting that the negotiating approach caused the health system to fail the Volume/Value Standard.

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