DOJ Files Suit Against Methodist Hospitals Over Alleged False Claims Act Violations

On April 11, 2022, the United States filed a complaint-in-intervention, alleging that Methodist Le Bonheur Healthcare (MLH) and Methodist Healthcare Memphis Hospitals (collectively, Methodist), paid unlawful kickbacks to West Clinic, P.C. (West) in exchange for West’s patient referrals, in violation of the False Claims Act (FCA) and the Anti-Kickback Statute (AKS).

As outlined in greater detail below, the DOJ alleges that Methodist knowingly agreed to pay West millions of dollars in kickbacks for the revenues Methodist expected to – and ultimately did – realize from West’s referrals. The arrangement lasted from January 1, 2012, through December 31, 2018, which includes time even after Methodist knew that the United States was investigating these allegations following the filing of the whistleblowers’ lawsuit.

The case was initially filed as a qui tam action on May 30, 2017, by Jeffrey H. Liebman, the former President of Methodist University Hospital. Then, in December 2019, David M. Stern, M.D., the former Executive Dean and Vice Chancellor at the University of Tennessee Health Sciences Center, who served on the Board of Directors of MLH from 2011 to 2017, joined the lawsuit. Stern was also a member of the Executive Cancer Council and the Steering Committee for the West Cancer Center.

The complaint outlines the alleged unlawful kickbacks, disguised through a sophisticated business integration where Methodist bought most of the outpatient locations of the largest oncology practice in the Memphis area, owned by West. At the time of the integration, Methodist did not have a comprehensive cancer treatment center.

Under the agreement, West’s patients were treated at Methodist locations by West-employed physicians for outpatient and inpatient services. West also provided management services to Methodist’s adult oncology service line. To benefit Methodist, Methodist would receive increased Medicare reimbursements relating to the cancer care. The parties referred to the agreement as a “partnership” to achieve a cancer “center without walls,” where patients would go to Methodist-owned facilities for all their cancer-related care in what was known as the West Cancer Center. However, despite the agreement, there was never any formal partnership created, as a formal partnership likely would have violated regulatory requirements.

Additionally, as part of Methodist’s business integration with West, Methodist made a separate for-profit investment of $7 million in ACORN Research, LLC (ACORN), an entity in which West and its Medical Director and shareholder, Dr. Lee Schwartzberg, had a personal financial interest. Methodist’s influx of millions of dollars in cash to West through its purchase of certain assets, in addition to the ACORN investment, resulted in a repayment of $3.5 million in debt owed to West and its shareholder, Dr. Schwartzberg.

Kickbacks for the revenues Methodist generated from the West referrals were disguised as payments from Methodist to West for services that were supposed to be – but were not – provided under the management services agreement.

As a result of the agreement, Methodist was able to establish a new stream of income in the reimbursements for outpatient cancer treatment that previously went to West in addition to a huge increase in referrals for inpatient services from West.

By purchasing West’s outpatient locations, Methodist was able to bill Medicare not only for the facility and professional components of outpatient treatment but also for the chemotherapy and other drugs provided. Methodist was able to recoup a discount in costs for the drugs through the 340B Discount Drug Program, which resulted in $50 million in profits to Methodist in just one year alone.

Interestingly, Methodist seemed to be aware under the AKS they could not compensate West in exchange for the volume or value of referrals to Methodist. However, as the referrals to Methodist increased over the seven years of the agreement, so did the payments to between Methodist and West under the management agreement.