Healthcare News & Insights

Hospital System Pays $9.3M to resolve FCA and Stark violations

Freeman Health System, a healthcare provider and hospital system in Joplin, MO, agreed to pay $9,316,139 to put an end to allegations that it knowingly provided incentive pay to physicians in a way that violated the Stark Law and False Claims Act. 

When physicians have a financial relationship with a hospital, the Stark Law forbids a hospital from billing Medicare for certain services referred by those physician. An example of such a relationship would be an agreement between a hospital and a physician to compensate the physician based on the volume of the physician’s referrals, explained the Justice Department.

Voluntary disclosure

A 2009 internal review revealed that Freeman had made errors in the way it structured its physician-compensation agreements causing Stark violations.

“We caught this on our own. Nobody but us found the problem and we voluntarily disclosed it,” Paula Baker, president of Freeman Health Systems, told

Baker went on to say that the Freeman’s patients won’t see the costs of the settlement absorbed in the hospital’s services, because the hospital is always prepared for the unexpected in terms of a financial loss.

After Freeman discovered the errors, they hired an outside experts to analyze the system and make suggestions for improvement. The experts agreed that the health system’s physician contracts didn’t comply with the law. However, the experts also noted that no patient or government program was billed for services not provided.

Freeman voluntarily disclosed its noncompliance and was investigated by the U.S. Attorney for the Western District of Missouri.

Government review

According to the Justice Department, the United States alleged that Freeman provided incentive pay to 70 physicians employed at clinics operated by the health system. And these payments were based on the revenue generated by the physicians’ referrals for certain diagnostic testing and other services performed at the clinic. This financial arrangement created an incentive to refer patients, which are Stark violations.

“Today’s resolution underscores our commitment to ensure that healthcare decisions are based on the best interests of patients, rather than the personal financial interests of referring physicians,” said Stuart Delery, acting assistant attorney general for the Department’s Civil Division. “The Department of Justice encourages companies to disclose potential violations of law, as was the case here.”

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