October 6, 2020 Legal Intelligencer article by Lamb McErlane PC Health Law Attorneys Vasilios J. Kalogredis^I and Rachel E. (Lusk) Klebanoffⁱⁱ

Wheeling Hospital, Inc., a 223-bed acute care hospital located in Wheeling, West Virginia, is the latest facility to be dinged by the Department of Justice (DOJ).

The hospital, which has several subsidiaries and a physician network, has agreed to pay the federal government $50 million to resolve allegations that it violated the False Claims Act by knowingly submitting claims to Medicare that resulted from violations of the Physician Self-Referral Law and the Anti-Kickback Statute.

Federal prosecutors from the Northern District of West Virginia and Western District of Pennsylvania alleged that the hospital, under the direction and control of its former management company, R&V Associates, Ltd. and its former CEO, Ronald Violi, paid physicians well above market value — in some cases more than $1 million a year — for referring patients to the facility from 2007 and 2020.

The settlement stemmed from a whistleblower complaint filed by Louis Longo, a former executive vice president at Wheeling Hospital, in December 2017 after he was fired for reportedly raising concerns to Violi about the medical facility’s financial conduct. The lawsuit was originally filed under seal through Phillips & Cohen LLP, but caught the attention of the DOJ who intervened in the lawsuit in March 2019. Mr. Longo will receive $10 million of the settlement.

According to the 2017 complaint, the hospital was facing a dire financial situation in the early 2000s, having lost more than $55 million from operations between 1998 and 2005. In an effort to spearhead a financial turnaround, Wheeling retained R&V, a business consulting firm owned and run partially by Violi, in 2006 and immediately turned the hospital’s perennial financial losses into nearly $90 million profits in the first five years. According to Longo, the hospital paid R&V and Violi millions for their services.

At Wheeling, Violi was the “driving force” behind the improper compensation arrangements, aimed at “gaining monopolistic power” in the Ohio Valley market to give the hospital more bargaining power with insurers, Longo claimed.

Longo and the DOJ charged that Wheeling Hospital paid some physicians – notably, OB/GYNs, oncologists, cardiologists, and a pain specialist – well above fair market value in order to capture their referrals and subsequent “downstream” revenue. This included annual compensation of $1.2 million each for an OB/GYN and two radiation oncologists, and $780,000 plus nearly a quarter of the year off for a cardiologist. A pain specialist made $1.5 million two years in a row and made more than $1 million in other years.

Those salaries exceeded fair market value and weren’t commercially reasonable, the DOJ alleged.

The hospital even paid some of those specialists knowing their practice would operate at a loss, which would be “made up by that downstream revenue,” according to the Longo and DOJ complaints. For example, in one 2008 memo regarding pay for surgeon Ahmad Rahbar, the hospital’s chief financial officer wrote, “we should keep in mind that Rahbar is a man we need to keep happy. In FY07 he generated over $11 million in revenues for us.”

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 hospital’s 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).

“As a result, since at least 2007, defendants knowingly submitted and caused to be submitted thousands of false claims to the United States, which resulted in millions of dollars in reimbursements to Wheeling Hospital by the Medicare program for claims that were ineligible for payment because of defendants’ unlawful conduct,” the suit says.

The Physician Self-Referral Law, commonly known as the Stark Law (42 U.S.C. § 1395nn), prohibits a hospital from billing Medicare for certain designated health services (which include inpatient and outpatient hospital services, clinical laboratory services, outpatient prescription drug services and physical and occupational therapy and imaging services) referred by physicians (or immediate family members) with whom the hospital has a financial relationship, unless the relationship satisfies one the law’s statutory or regulatory exceptions.

The Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), forbids paying or incentivizing physicians for referring patients for treatments or services covered by federal payer programs, including Medicare and Medicaid.

Both the Stark Law and the Anti-Kickback Statute are intended to ensure that medical decision-making is not compromised by improper financial incentives and instead is based on the best interest of the patient.

According to the hospital’s new Chief Executive Officer, Douglass Harrison, “The settlement was in the best interest of the long-term viability of the hospital and the community, prolonging the lawsuit would have paralyzed the ability of the hospital to attract the best physicians and to make the necessary capital improvements to ensure that the highest quality health care continues to be provided in the Upper Ohio Valley. The settlement will not impede the hospital’s focus on patient care or its commitment to compliance, ethical conduct and integrity.”

The settlement does not mandate a standard, five-year monitoring agreement for the hospital, nor an admission of wrongdoing on the hospital’s part.

The Stark Law and the Anti-Kickback Statute have resulted in a barrage of DOJ lawsuits in recent years. Physicians critical of the laws say they are outdated and hamstring efforts to manage patient care across multiple sites and episodes, and holding back value-based arrangements. Proponents of the laws, however, note they are an important check against fraud and abuse. In fact, almost 90% of the $3 billion recovered by the federal government last year from fraud and false claims came from the healthcare industry.

Read the Legal Intelligencer article here.

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ⁱ Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other health care professionals and their businesses for over 40 years. He is Chairman of Lamb McErlane PC’s Health Law Department. bkalogredis@lambmcerlane.com. 610-701-4402.

ⁱⁱ Rachel E. (Lusk) Klebanoff is a senior associate at Lamb McErlane PC who focuses on health law and health care litigation. She represents physicians, dentists, medical group practices, and other health-related entities in transactional, regulatory, and compliance matters. rlusk@lambmcerlane.com. 610-701-4416.