Cayuga Medical Center Settles FCA/Stark Violation Claims for $3.5 Million

The Cayuga Medical Center (Medical Center) of Ithaca, New York has agreed to pay a total sum of $3,576,056.00 to resolve allegations that it submitted false claims to Medicare and Medicaid in connection with improper physician recruitment agreements it entered into with various medical practices in violation of the physician’s self-referral prohibition referred to as Stark Law (42 U.S.C. §1395nn) and the False Claims Act (31 U.S.C. § 3729), the Department of Justice (DOJ) for the Northern District of New York announced. Under the settlement agreement, the State of New York will receive $426,305.00, and federal health care programs will recover $3,149,751.00, according to the DOJ press release.

The settlement resolves a whistleblower lawsuit filed on behalf of the United States of America and the State of New York by Daniel S. Jorgenson, M.D., a plastic surgeon who formerly practiced in Ithaca. Dr. Jorgenson will receive 18 percent of the settlement proceeds, or $566,955.18. The DOJ for the Northern District of New York investigated and prosecuted the case with the Department of Health and Human Services Office of Inspector General (OIG) and the Attorney General of the State of New York, Medicaid Fraud Control Unit. On January 23, 2012, the United States and the State of New York elected to intervene for the purpose of settling the matter.

Under the Stark Law, a physician is prohibited from referring patients to a hospital if the physician has a financial relationship with the hospital, unless an exception applies In addition, the law also prohibits a hospital from billing Medicare for a prohibited referral. The law provides an exception to the prohibition for recruitment agreements between hospitals and physicians if certain requirements are met. Federal regulations (42 C.F.R. §411.350 – §411.389) and related guidelines allow for hospitals to pay for certain expenses of medical practices that employ physicians recruited to the area by the hospital.

The federal qui tam statute (31 U.S.C. § 3730) part of the False Claims Act, allows a whistleblower to file a civil complaint on behalf of the United States and allows a whistleblower to share in a percentage of the government’s recovery. In his complaint, Dr. Jorgenson alleged that (1) the Medical Center’s physician recruitment agreements violated the Stark Law, and (2) the Medical Center submitted claims for payment to Medicare and Medicaid certifying that it was in compliance with federal law, when it was not; and, thus, violated of the False Claims Act. Specifically, Dr. Jorgenson alleged that the Medical Center paid for expenses that were not permitted by the regulations and guidelines and improperly extended a recruitment agreement and, therefore, submitted false claims to Medicare and Medicaid when it certified in connection with billing that it was complying with federal laws and regulations. The lawsuit also alleged a violation of the New York State False Claims Act (N.Y. Fin. Law §§ 187 – 194).

The Cayuga Medical Center voluntarily disclosed to the OIG additional recruitment agreements that did not comply with the Stark Law and cooperated with this investigation. The investigation found no evidence of any criminal violations, either by the Medical Center or any other entity. The investigation found no evidence that patient care or safety was compromised in any way, according to the press release.

In a letter written to the community by Dr. Rob Mackenzie, president and chief executive officer of Cayuga Medical Center, the hospital discovered in 2007 that four of its recruitment agreements signed prior to 2004 no longer complied with federal regulations due to an administrative oversight. Dr. Mackenzie explained that the regulations related to forgiveness of loans to physicians had changed during that time and the government had not grandfathered the prior recruitment agreement provision. The Medical Center self-reported the finding to the OIG, according to Dr. Mackenzie. During the investigation, the government found two other agreements they believed violated the regulations, according to the letter.

Dr. Mackenzie stated that the hospital disagreed with the government’s findings regarding the two agreements, but added “to avoid a lengthy legal proceeding, high legal costs, and to do what is in the best interest of Cayuga Medical Center, we have decided to settle this matter with the Office of Inspector General for $3.5 million.” The Medical Center previously set aside sufficient funds to cover this expense, so that this issue does not impact current medical center operations. The physicians that were recruited have done nothing wrong, and are not required to pay any money back but decided to settle to avoid lengthy legal proceedings and high legal costs, according to the letter.