Medicare Compliance Report 31, no. 14 (April 18, 2022)
The Department of Justice (DOJ) said on April 11 that it had intervened in a whistleblower lawsuit against Methodist Le Bonheur Healthcare (MLH) in Memphis, Tennessee, and Methodist Healthcare Memphis Hospitals (collectively, Methodist) that was started by the former president of an MLH hospital and a former MLH board member. Methodist is accused of violating the Anti-Kickback Statute (AKS) and the False Claims Act (FCA) by paying West Clinic PC, which owns outpatient oncology clinics, for patient referrals through compensation and management arrangements made in its quest to build a “wallless” cancer center, according to the U.S. Attorney’s Office for the Central District of Tennessee. West, known as West Cancer Center, is not named in the complaint.
In addition to disputing the alliance’s motive, the DOJ alleged that Methodist planned to increase its access to 340B drug discounts by acquiring West’s cancer clinics, an unusual allegation in an FCA lawsuit.
Methodist purchased West’s assets and entered into agreements to lease its non-physician employees and compensate doctors for their professional and management services from 2012 to 2018, paying West $300 million. There was no plan for the Methodists to employ the doctors. “Notwithstanding the contracts and the requirements therein which purported to provide a legal means for Methodist to pay West in exchange for dismissals, the conduct of Methodist and West shows that these agreements were largely meaningless paper,” the alleged DOJ in its April 11 complaint.
DOJ Intervenes in FCA Over Alliance Case
The whistleblowers are Jeffrey Liebman, former president of Methodist University Hospital, and David M. Stern, MD, former member of the MLH board of trustees and a member of the cancer executive board and steering committee of the West Cancer Center. They raised concerns about certain aspects of the alliance, according to the whistleblowers’ amended third complaint. For example, when Stern learned that doctors in the West would share the “drug profits” of 340 billion Methodists for chemotherapy and oral cancer drugs, he told then-Methodist CEO Gary Shorb that “he was very unusual that drug profits of 340 billion were used to increase the number of doctors”. income,” the complaint alleged. “Dr. Stern has repeatedly objected to the use of $340 billion in drug profits to fund payments to physicians in the West as inappropriate and excessive. Dr. Stern argued that drug profits 340B should be used for almighty care, cancer research, and for the development of an NCI-designated cancer center in Memphis. Dr. Stern was repeatedly rebuffed” by Shorb, then Chris McLean, director Methodist financier.
But the DOJ will have a hard time proving their case “unless they have a real gun,” said attorney Andrew Ruskin, of K&L Gates in Washington, DC. He sees none in the complaint. “Clearly there was a lot of desire to do this the right way” (eg Methodists getting fair market valuations for doctors’ compensation). Ruskin added that he finds it “offensive” that the complaints point to $340 billion in drug savings “as evidence of trying to” pay doctors. “Hospitals come together with other hospitals and with physicians to continuously recognize the savings made through synergies and efficiencies. How is trying to save money on meds different from other efficiencies? It bothers me because it’s a buzzword, and they shouldn’t use buzzwords to try to pique someone’s interest when the deal is otherwise in weak territory.
The complexity of any alliance, with multiple agreements, increases compliance risk, said attorney Bob Wade, of Barnes & Thornburg LLP in South Bend, Indiana. From a compliance perspective, “every link in the chain needs to be analyzed and managed separately,” he said. “There needs to be a compliance process where you have oversight of all services rendered so that you don’t have services that spill over from one compensation arrangement to another.”
DOJ: “There was never a formal agreement”
According to the DOJ complaint, West was attractive to Methodist, which had no dedicated inpatient cancer unit or outpatient cancer clinics in 2011, while West had the largest market share of cancer patients in the Memphis area, but lacked radiation oncology, surgical oncology (excluding breast surgeons) and pathology. So they joined forces from 2012 to 2018, with “the vision of becoming a nationally accredited program,” according to the complaint. But “there has never been a formal agreement between Methodists and the West that documents a legal partnership.”
Instead, they signed an Asset Purchase Agreement, a Leased Employee Agreement, a Professional Services Agreement, and a Management Services Agreement (also known as a Co-Management Agreement). With its December 2011 asset purchase agreement, Methodist purchased certain tangible and intangible assets of West, including most of the equipment, inventory and office space at West’s outpatient cancer treatment centers in Tennessee and one in Mississippi for $10.5 million. They became Methodist Outpatient Services on January 1, 2012.
The agreement stipulated that Methodist had obtained an opinion on the fair market value of the purchase price, which did not take into account the volume or the value of the references. Methodist, which serves Medicaid and indigent patients, was also able to “capitalize” on the 340B drug discount program through the new outpatient sites, according to the complaint.
Methodist also leased West’s 193 non-physician employees and separately paid doctors under the professional services arrangement based on their labor relative value units (wRVU). “A first JVM [fair market value] Notice was obtained in early October 2011 to determine rates per wRVU based on physician specialty and group level,” the complaint states. The opinion however did not reflect the benefits and a new assessment was not obtained until 2016. performance (MSA), which required them to provide management services for the line of inpatient and outpatient adult oncology services in six Methodist facilities and cancer centers. Methodist also made a separate $7 million for-profit investment in West-affiliated ACORN Research LLC, in which West’s chief medical officer and shareholder, Dr. Lee Schwartzberg, had a financial interest, according to the complaint.
“Internal Methodist documents show that it expected revenue to increase from $1.25 billion to $1.45 billion with the West transaction,” the complaint alleged.
DOJ: Some Management Services Were Not Provided
Some of the management services Methodist paid West for were never provided, according to the complaint. For example, “Methodist and West have acknowledged in the United States that a substantial portion of the management services required under the MSA were not provided during the first two years,” the complaint alleged.
The DOJ alleged that Methodist and West repeatedly referred to the West Cancer Center as a “partnership,” even though West had sold its assets to Methodist and was obligated to provide services to hospitals under the other agreements. “Had a legal partnership been formalized, it likely would have violated HHS guidelines regarding such arrangements, which could violate AKS and/or Stark law,” the complaint alleged.
Methodists and Westerners continued to believe that cancer centers in the West “were always Western,” according to the complaint. In fact, West’s employees who were hired full-time from Methodist were providing services to West on non-Methodist business.
“The contracts are essential for Methodist to bill Medicare for outpatient services and obtain 340B program rebates. If the contracts are fiction, Medicare should not have reimbursed Methodist for outpatient claims, and Methodist would never have been able to realize the benefits of the 340B program,” the complaint alleged. “If the contracts were real, then Methodist gave West rent-free space and paid the salaries of West’s employees to do work to further West’s business.”
Lawyer: Methodist might be able to ‘get by’
West told Methodist in August 2018 that he planned to terminate the deal and ultimately paid Methodist $16 million for assets and $51 million for real estate.
Ruskin said Methodist may be able to “get out of this case, but only after significant cost” and the distraction of the investigation. Much of the Sturm und Drang could have been avoided “by making sure everyone agreed to frame it in their minds as an acquisition, rather than a partnership. Framing it that way would have resulted in the use of the proper characterization of the issue in all communications surrounding the arrangement and would have diminished the likelihood of GM interest,” Ruskin said.
In a statement, MLH said, “The government complaint recycles a familiar set of allegations that misrepresent the relationship between MLH and West Clinic. As we have said many times since this lawsuit became public over two years ago: The Affiliate compensation structure was designed by respected outside experts who determined that it reflects the fair market value of these services. Our payments were appropriate and MLH received the services due under the Affiliate Agreements. The government’s belated decision to intervene in the prosecution two years after refusing to do so has not changed the case. We are proud that our partnership with West has succeeded in creating an integrated cancer diagnostic treatment and surgery service that not only improved cancer care, but also delivered care where it was needed most, reduced health disparities and leads to better outcomes for patients in Memphis and Mid-South communities. Indeed, it is undisputed that membership has brought much needed cancer care to our community and provided the highest level of service. MLH will refute the government’s allegations in detail in the appropriate legal forum. We are confident that we will demonstrate that MLH’s affiliation with West Clinic was appropriate and reflected customary and legal business agreements, and that affiliation with West was consistent with our mission to provide high quality, cost-effective, patient-centered care. the patient and the family. .”
1 Department of Justice, United States Attorney’s Office for the Middle District of Tennessee, “United States Files Suit Against Methodist Le Bonheur Healthcare And Methodist Healthcare-Memphis Hospitals,” press release, April 11, 2022, https://bit.ly/ 3xntbnS.
2 Complaint, United States ex rel. v. Methodist, Case No: 3:17-cv-00902 (MD Tenn. April 11, 2022), https://bit.ly/3xx0uVM.
3 Third Amended Complaint, United States ex rel. v. Methodist, Case No: 3:17-cv-00902 (MD Tenn. May 12, 2021), https://bit.ly/3EhkoW4.