On November 15, 2019, the Department of Justice (DOJ) announced it had reached a settlement with Sutter Health (Sutter) and Sacramento Cardiovascular Surgeons Medical Group Inc. (Sac Cardio) to resolve alleged violations of the Physician Self-Referral Law (PSR Law), commonly known as the Stark Law. Sutter is a California based health services provider; Sac Cardio is a Sacramento based practice group of three cardiovascular surgeons. The total settlement in excess of $46 million includes $30.5 million from Sutter to resolve allegations of an improper financial relationship specific to compensation arrangements with Sac Cardio, and Sac Cardio has agreed to pay $506,000 to resolve allegations of duplicative billing associated with one of these compensation arrangements. Separately, the settlement includes another $15,117,516 from Sutter to resolve self-disclosed conduct principally concerning the PSR Law.

The allegations originated from a qui tam whistleblower suit brought under the False Claims Act (FCA), which allows whistleblowers to bring suits on behalf of the United States that pertain to submitting false claims to government programs. The PSR Law prohibits a hospital from billing Medicare for certain services referred by physicians with whom the hospital has a financial relationship. Claims prohibited under the PSR Law are false claims for purposes of the FCA. The DOJ can intervene in such suits, as it did here.

Per the DOJ, the $30.5 million portion of the settlement will resolve allegations that a Sutter hospital, Sutter Memorial Center Sacramento (SMCS), violated the PSR Law by billing Medicare for services referred by Sac Cardio physicians. Allegedly, SMCS paid Sac Cardio through a series of compensation arrangements that exceeded the fair market value of the services provided, creating an improper financial relationship with the physicians referring the services to SMCS. Relatedly, the $506,000 settlement with Sac Cardio resolves allegations that it submitted duplicative bills to Medicare for services performed by physician assistants that it was leasing to SMCS under one of those compensation arrangements.

Separately, the settlement includes more than $15 million from Sutter to resolve self-disclosed potential PSR Law violations. According to the DOJ, Sutter disclosed the submission of Medicare claims resulting from referrals by physicians to whom the hospitals “(1) paid compensation under personal services arrangements that exceeded the fair market value of the services provided; (2) leased office space at below-market rates; and (3) reimbursed physician-recruitment expenses that exceeded the actual recruitment expenses at issue.” The DOJ also indicated Sutter disclosed double billing by its ambulatory surgical centers for claims including radiological services Medicare separately paid another entity for performing.

This settlement is yet another example of the government’s continued scrutiny of compensation arrangements under the PSR Law. While the Department of Health and Human Services has proposed regulations to expand the PSR Law exceptions, there continues to be a focus on enforcement against improper arrangements.

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