Detroit Medical Center’s Settlement Agreement

Before it was acquired by Vanguard Health Systems, Detroit Medical Center (DMC) entered into a Settlement Agreement with the US Department of Justice (US DOJ) and the US Department of Health and Human Services, Office of the Inspector General (OIG) to resolve potential violations of federal law as a result of entering into improper financial relationships with referring physicians. DMC agreed to pay $30 million in exchange for a release from liability under the False Claims Act, the Civil Monetary Penalties Law (which authorizes civil penalties for violations of the anti-kickback statute), the Program Fraud Civil Remedies Act, and the civil money penalties under the Physician Self-Referral (Stark) Law.

DMC discovered the improper relationships through the due diligence process. The improper relationships included so-called “technical violations” of Stark, such as the failure to have a written agreement in place that met the requirements of a Stark exception. It also included more substantive violations that may have raised a colorable allegation of an anti-kickback violation, such as providing business courtesies to physicians and paying higher than fair market value compensation.

Although it attempted to use the new CMS Voluntary Self-Referral Disclosure Protocol, CMS encouraged the hospital to work through US DOJ after DMC advised that they wanted to settle the matter within four to six weeks so they could close on the acquisition.

It is interesting to note that CMS was not a party to the settlement agreement. Further, the agreement does not resolve DMC’s obligation to repay Medicare for any claims that it submitted in violation of the Stark law, only the civil penalties that would be assessed for such violations. Such repayments are required under 42 CFR §411.353(d), and arguably, the statute itself, although the statute addresses only the obligation to refund payments to individuals.

CMS is authorized to compromise the amount due and owing for violations of the Stark law, including the repayment obligation, when the provider makes a submission under the Self-Referral Disclosure Protocol. Hopefully, in the future, CMS will also exercise this authority if the provider enters into a settlement agreement with US DOJ or the OIG.

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