The US Department of Justice filed a complaint in intervention alleging violations of the False Claims Act (FCA) and the Anti-Kickback Statute (AKS) by Methodist Le Bonheur Healthcare (MLH) and Methodist Healthcare Memphis Hospitals, for paying unlawful kickbacks to West Clinic in exchange for West’s patient referrals, announced U.S. Attorney Mark H. Wildasin for the Middle District of Tennessee.
The government began investigating the wrongdoing alleged in the complaint in response to a lawsuit filed under the whistleblower provisions of the False Claims Act. The action was initially filed in May 2017 by Jeffrey H. Liebman, the former president of Methodist University Hospital. In December 2019, David M. Stern, M.D., the former executive dean and vice chancellor at the University of Tennessee Health Sciences Center, who served on the Board of Directors of MLH from 2011 to 2017, joined the lawsuit. Stern was also a member of the Executive Cancer Council and the Steering Committee for the West Cancer Center.
The scheme caused damages to Medicare and Medicaid in excess of $800 million, according to an amended complaint filed in 2021.
The complaint sets forth in detail the unlawful kickbacks, disguised through a sophisticated business integration in which Methodist purchased substantially all of the outpatient locations of the largest oncology practice in the Memphis area, owned by West. At the time of the arrangement, Methodist lacked a comprehensive cancer treatment center.
The multi-agreement transaction purported to be a lawful way to allow West’s patients to be treated at Methodist locations by West-employed physicians for outpatient and inpatient services, with West providing management services to Methodist’s adult oncology service line. As a result of the deal, Methodist would receive increased Medicare reimbursements relating to the cancer care. The parties described it as a “partnership” to achieve a cancer “center without walls,” where patients would go to Methodist-owned facilities for all their cancer-related care in what was called the West Cancer Center. However, there was never any formal partnership created, as to do so likely would have violated regulatory requirements, the DOJ said in a news release.
As part of Methodist’s business combination with West, Methodist made a separate for-profit $7 million investment in ACORN Research, in which West and its Medical Director and shareholder, Dr. Lee Schwartzberg, had a personal financial interest. Through the deal, Methodist provided an immediate influx of millions of dollars in cash to West through its purchase of certain assets, as well as the ACORN investment, which resulted in a repayment of $3.5 million in debt owed to West and its shareholder, Dr. Schwartzberg. Kickbacks for the revenues Methodist generated from the West referrals, however, were disguised as payments Methodist made to West during the seven years of the deal, and expressly for certain services that were supposed to be – but were not – provided under a management services agreement.
As a result of the transaction, Methodist, which prior to the deal had no outpatient cancer treatment, was able to establish a new stream of income in the reimbursements for outpatient treatment that previously went to West. Methodist also realized a huge increase in referrals for inpatient services from West, which previously referred the bulk of its patients to Methodist’s competitors, including Baptist Memorial Hospital.
By purchasing West’s outpatient locations, Methodist was able to bill Medicare not only for the facility and professional components of outpatient treatment but also for the chemotherapy and other drugs provided, for which Methodist could recoup a staggering discount in costs through the 340B Discount Drug Program, resulting in $50 million in profits to Methodist in one year alone.
Methodist knew that it would be a violation of the AKS to compensate West in exchange for the volume or value of referrals to Methodist, yet, as the referrals to Methodist increased over the seven years of the deal, so did Methodist’s payments to West under the management agreement.
Methodist also knew that West had not been providing all the management services at all the locations required by the MSA. For the management services West was performing, Methodist often was double-paying West, as it was paying West separately for these services pursuant to other agreements.
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. The arrangement lasted from January 2012 through December 2018, and continued even after Methodist knew that the United States was investigating these allegations following the filing of the whistleblowers’ lawsuit.
The matter is being investigated by the Department of Health and Human Services, Office of Inspector General. Read more.
