Hospital System’s “Deliberate, Corporate-Driven Scheme” Treated with $98.15M Settlement

Community Health System, Inc. (CHS), which is, according to the Department of Justice, the “nation’s largest operator of acute care hospitals” has agreed to pay $98.15 million in settlements to bring an end to a collection of lawsuits that have alleged the hospital system violated the False Claims Act (FCA) and the physician self-referral law, or Stark Law. While the FCA violations rest in the assertion that Tennessee-based CHS engaged in a system-wide policy of deliberate submission of improper claims to Medicare, Medicaid and other federal health care programs, the Stark Law violation accusations were specifically directed at one CHA affiliate, Laredo Medical Center (LMC), which is located in Laredo, Texas.

False Claims Act

According to the DOJ’s announcement of the CHS settlement, the system, which is based in Franklin, Tennessee but has 206 affiliated hospitals in a total of 29 states, was accused of submitting bills to Medicare, Medicaid, and the Department of Defense’s (DOD) TRICARE coverage for beneficiaries over the age of 65 for inpatient procedures that should have been performed as outpatient or observation procedures. In other words, it was alleged that “the inpatient admission of these beneficiaries was not medically necessary, and that the care needed by, and provided to, these beneficiaries should have been provided in a less costly outpatient or observation setting.” This practice was, according to the DOJ, the result of a “deliberate corporate-driven scheme” employed to increase inpatient admissions of these types of beneficiaries, who were “originally presented to the emergency departments at 119 CHS hospitals.”

Stark Violations

In terms of the activities at the LMC, the government similarly claimed that certain cardiac and hemodialysis procedures were performed in inpatient settings rather than the proper outpatient basis, which resulted in higher claims amounts being submitted to Medicare. In addition to these FCA claims, LMC was accused of improperly billing Medicare “for services referred to LMC by a physician who was offered a medical directorship at LMC, in violation of the Stark Law,” which prohibits “a hospital from submitting claims for patient referrals made by a physician with whom the hospital has an improper financial relationship.”


In regard to the FCA claims within the corporate structure of CHS and throughout the 119 hospitals that were alleged to be involved, CHS agreed to pay $89.15 million in a settlement with the government and several relators that initially brought qui tam suits in order to bring these activities to light. For the alleged Stark Law violations by the affiliated LMS, CHS agreed to pay $9 million dollars. The U.S. District Attorney for the Middle District of Tennessee, David Rivera, noted that “this is the largest [FCA] settlement in this district and it reaffirms this office’s commitment to investigate and pursue health care fraud that compromises the integrity of our health care system.” In addition to paying for their alleged wrongdoings, CHS also, as part of the settlement agreement, will enter into a corporate integrity agreement (CIA) with HHS’s Office of Inspector General (HHS-OIG). That agreement will require CHS to “to engage in significant compliance efforts over the next five years,” and specifically, will require it to “retain independent review organizations to review the accuracy of the company’s claims for inpatient services furnished to federal health care program beneficiaries.”

Government Effort

According to the DOJ’s announcement of this settlement, the identification and resolution of these claims was the “result of a coordinated effort by the U.S. Attorney’s Offices for the Middle District of Tennessee, Southern District of Texas, Northern and Southern Districts of Illinois, Northern District of Indiana, and Western District of North Carolina; the Civil Division’s Commercial Litigation Branch; HHS-OIG; DOD’s Defense Health Agency – Program Integrity Office and the FBI.” The DOJ also notes that this settlement “marks another achievement for the Health Care Fraud Prevention and Enforcement Action (HEAT) initiative,” which was formed by the partnering of the Attorney General’s office and HHS in an effort to “reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.”