Federal Court Allows Physician Compensation Fraud Case to Proceed

On Nov. 25, in the Southern District of Indiana, the Honorable Magistrate Judge Doris L. Pryor allowed a plaintiff-whistleblower to amend a complaint to survive dismissal that alleged that Community Health Network (CHN), a nationwide medical group providing primary care, surgical care, and urgent care services, violated the False Claims Act (FCA) by filing false claims for unprovided services for Medicare/Medicaid reimbursement in order to inflate the compensation of physicians to encourage additional referrals to CHN. 

The court laid out the pertinent facts of the litigation as follows: The defendant hired the plaintiff to serve as chief financial officer (CFO) of CHN. During the tenure as CFO, the plaintiff alleged that the defendant, “who employs over 350 physicians through subsidiaries and affiliates,” paid “commercially unreasonable rates” by “knowingly defraud(ing) the (federal government) by engaging in a fraudulent scheme to pay physicians improper and excessive compensation to ensure they referred patients, including Medicare and Medicaid patients, to CHN.” The scheme, the prior CFO alleged, was simple. The defendant gave the physicians kickbacks in the form of above-market compensation for services rendered while recouping the excessive outlay of funds through the filing of Medicare/Medicaid reimbursement claims for services that CHN never provided. The plaintiff further proffered that when he began seeking financial statements to unearth the scheme, he was terminated from his role as CFO of CHN. 

Following the aforementioned termination, the plaintiff filed a suit against the defendant under the FCA, which generally allows private parties to represent the federal government in suits alleging Medicaid/Medicare reimbursement fraud if the government declines to do so, and the Stark Act, which generally prohibits physicians from receiving kickbacks for providing referrals and allows such third-party private representation on behalf of the federal government.

In response, the defendant sought to dismiss the claim, as the federal government sought to intervene in the case after the plaintiff originally filed suit. The defendant argued that the government’s desired intervention rendered the plaintiff’s case moot, as a private party cannot, under law, represent the federal government in an FCA and/or Stark Law claim in which the government chooses to represent itself. 

To combat the motion to dismiss, the plaintiff sought to amend the original complaint to drop the Stark Law violation, arguing that the motion to amend was proper, as the federal government only sought to intervene in the illegal kickback portion of the plaintiff’s original complaint, not the FCA violations. The court agreed with the plaintiff and allowed leave to amend the complaint, holding that the plaintiff “is permitted to litigate non-intervened claims notwithstanding the (federal government’s) partial intervention.”

The plaintiff-whistleblower is represented by DeLaney & DeLaney LLC, Van Meer & Belanger PA, and Joseph, Greenwald & Laake, P.C.