A Recent U.S. Complaint Against a Tennessee Health System Reveals Fair Market Value Implications

On July 26, 2024, the government filed a False Claims Act complaint alleging that a Tennessee-based health system “had employment relationships with a number of physicians that did not meet any Stark Law exception because the compensation … paid to the physicians was well above fair market value.”

The employed physicians were generally in high downstream revenue-generating specialties including electrophysiology, orthopedic surgery, oncology, neurosurgery and cardiothoracic surgery.

The lawsuit was originally filed by the U.S. under the qui tam or whistleblower provisions of the False Claims Act, and the relators were a former chief compliance officer and chief financial officer.

Primary Discoveries in the Complaint

The health system allegedly “paid compensation higher than the amounts found to be consistent with fair market value in internal and external analyses.” The internal fair market value (FMV) analyses were performed by the system and external FMV analyses were performed by outside consultants. Moreover, advice of outside consultants and the CCO’s request to engage compensation consultants were allegedly ignored by the health system.

Percentile Benchmarks in the Compliant

The complaint provides six alleged “examples of compensation to employed physicians in excess of fair market value.” In each example, it is alleged that during certain periods total compensation amounts exceeded the 90th percentiles and were approximately 2x to 3.5x of the medians for the specialties, compensation to collections ratios exceeded the 75th or 90th percentiles, and compensation rates per work relative value unit (wRVU) exceeded the 75th or 90th percentiles.

In other consultant reviews, it is noted that during certain periods, wRVUs exceeded the 75th or 90th percentiles and were approximately 2x to 3x the medians for the specialties.

Non-clinical Compensation in the Complaint

In one example, it is alleged that a material retention bonus of $400,000 was excluded from determining fair market value of compensation per wRVU rate. There were also two instances of alleged excess on-call payments of $500,000 that did not have certified written time records as required by contracts.

Another example indicates that medical director and academic salaries were allegedly near the 90th percentile for the specialty, and time records were not believed to be kept. Additionally, an example alleges that a program incentive payment of $150,000 had not been set at the time the contract was signed.

Downstream Referral Value Relative to Compensation

In two other examples, it is alleged that during certain periods, physicians referred a certain number of patient days resulting in approximately $5.9 and $7.73 million in payments to the health system, with corresponding professional collections of approximately $750,000 & $1.25 million and compensation of approximately $1.04 and $1.64 million.

“This complaint serves as a warning to health care entities that attempt to increase profits through improper financial arrangements with referring physicians,” said Special Agent in Charge Tamala E. Miles of the Department of Health and Human Services Office of Inspector General (HHS-OIG) in the related press release. “HHS-OIG will continue to investigate such deals to prevent financial arrangements that could compromise impartial medical judgment, increase health care costs, and erode public trust in the health care system.”

The government’s intervention serves as an industry-wide warning that emphasizes the critical nature of health care fraud. Contact us to learn more about Weaver’s health care practice and discuss how we can support your compliance needs.

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