A Diagnostics & Imaging Week

HealthSouth (Birmingham, Alabama) and two physicians have agreed to pay the U.S. a total of $14.9 million to settle allegations that HealthSouth submitted false claims to the government and paid kickbacks to physicians who referred patients for care in some of its hospitals, outpatient rehabilitation clinics and ambulatory surgery centers.

In the current action, HealthSouth will pay $14.2 million and the physicians will pay a total of $700,000, under separate settlements.

The settlement results from disclosures made by HealthSouth in 2004 and 2005 to the U.S. Attorney for the Northern District of Alabama, Alice Martin, and the Department of Health and Human Services’ Office of Inspector General, after a change in management and an internal investigation.

The Department of Justice (DoJ) says that the settlement resolves claims made by HealthSouth to Medicare and Medicaid for services provided to patients referred by orthopedic surgeons James Andrews, MD, and Lawrence Lemak, MD, of Birmingham, when HealthSouth had financial relationships with these physicians, their former partnership, the Alabama Sports Medicine and Orthopaedic Clinic, and their research and training foundation, the American Sports Medicine Institute. These relationships violated CMS anti-kickback rules and a provision of the Social Security Act known as the Stark Law.

Martin said that her office has entered into a $450,000 settlement with Andrews and a $250,000 settlement with Lemak, resolving the government’s claims.

The HealthSouth settlement also resolves allegations that the company paid kickbacks to, and entered into improper financial relationships with, other physicians, including a group in Los Angeles, in an attempt to induce the referral of patients.

The government said that its investigation of certain of the other physicians is continuing.

“Hidden financial agreements between healthcare providers and physicians may influence where patients receive treatment and what treatment is received,” said Jeffrey Bucholtz, acting assistant attorney General for the DoJ’s Civil Division. “Medicare beneficiaries deserve their physicians’ unbiased judgment regarding their treatment, free of improper financial influences. Today’s settlement sends a loud message to healthcare providers that we will strongly enforce the Anti-Kickback Statute and the Stark Law . . . .”

Martin added, “Former HealthSouth management’s improper financial relationships were made known to us through self-disclosures by new management. To preserve the independence of healthcare providers it is critical that business relationships not violate the Anti-Kickback Statute, the Stark law, and the False Claims Act.”

Thomas O’Brien, U.S. attorney for the Central District of California, said, “Medicare providers seeking federal funds must play by the rules. Providing sweet deals to physician groups to insure a steady stream of referrals runs afoul of those rules and will not be tolerated.”

As a condition of participation in government healthcare programs, the Office of Inspector General of HHS required HealthSouth to amend its existing corporate integrity agreement to address kickback issues.

HealthSouth has also signed an agreement with the DoJ on behalf of the Office of Inspector General of the HHS to resolve issues associated with various practices under the company’s previous management team.

Earlier this year, HealthSouth founder Richard Scrushy settled an SEC lawsuit for $81 million as a penalty for the organization’s $2.6 billion accounting fraud while he headed the company. Without admitting or denying the allegations, Scrushy agreed to pay $77.5 million that the government claimed he profited from in the HealthSouth fraud and another $3.5 million in civil penalties.

The first settlement related to HealthSouth’s financial reporting troubles brought in a class action suit against the organization and certain former directors and officers yielded payment of HealthSouth stock and warrants valued at $215 million and cash payments of $230 million.

HealthSouth was one of the largest providers of outpatient rehabilitation services, ambulatory surgery services, and diagnostic imaging services until it sold those lines of business earlier this year.