Massachusetts Eye and Ear: The Stark Settlement Over Physician Pay

In the Massachusetts Eye and Ear Stark settlement, the hospital agreed to pay over $5.7 million to resolve government allegations of improper physician financial relationships under the Stark Law. For someone who works in physician contracting, finance or practice management, the question reaches behind the paycheck: what did the arrangement reward, and what business did the physician bring to the hospital?

The Justice Department announced the resolution on May 24, 2023. The government challenged seven physician compensation models involving 44 physicians.

Compensation That Continued After Acquisition

According to the Justice Department’s account of the acquisition and compensation changes, Mass General Brigham has owned and operated Massachusetts Eye and Ear since April 2018. All the compensation models at issue began before that acquisition. One ended before Mass General Brigham took control, while the remaining six continued under the new owner. Mass General Brigham voluntarily terminated those models on October 1, 2019. The government alleged that the compensation violated the Stark Law, which connects physician financial relationships to referrals and Medicare billing.

For a compensation or integration team, that sequence puts the period after the purchase in focus. The arrangements being challenged crossed an ownership change, so the account of physician pay cannot stop at who originally designed a plan. Someone who understands the inherited contracts and the payments made under the new owner may be able to explain how the arrangement continued in practice. We examine that connection between the agreement, the payment history and the hospital’s government claims.

The announcement also describes how the issue reached the government. A whistleblower’s qui tam lawsuit under the False Claims Act prompted the investigation. Mass General Brigham disclosed the compensation issue in connection with that investigation into related allegations. The Justice Department credited Massachusetts Eye and Ear’s cooperation. The disclosure and the whistleblower’s lawsuit therefore belong in the same account: the company supplied information during an investigation that the whistleblower’s allegations had prompted.

That history matters to an insider who knows the earlier compensation system as well as the replacement. The date an arrangement ended and the payments made while it operated answer different questions about the hospital’s billing. We look at what the compensation rewarded while it was in force, who understood that calculation and how the physician’s referrals connected to Medicare revenue. That is the work behind turning knowledge of an inherited payment arrangement into a physician compensation whistleblower case.

How Does the Stark Law Affect Physician Self-Referrals?

The Centers for Medicare & Medicaid Services explains that the Stark Law restricts referrals for designated health services paid by Medicare when the physician has a financial relationship with the receiving business, unless an exception applies. It also restricts billing for the resulting services. Compensation is one kind of financial relationship, and the covered services include laboratory testing, imaging, outpatient prescription drugs and hospital care.

That is why physician self-referral fraud reaches inside a compensation agreement. A hospital’s claims for services arising from prohibited referrals can become the basis of a False Claims Act case. The payment to the doctor, the referral to the hospital and the hospital’s government claim belong in the same account of the business. Looking only at the physician’s salary leaves out the revenue the referral produces.

The physician self-referral regulations give employment arrangements specific conditions, including identifiable services, fair market value and a business purpose that makes sense without referrals. We look at the work being purchased and the calculation used to pay for it, because a compensation label tells us much less than the agreement behind it.

The Justice Department’s settlement account for Covenant Healthcare described allegations that physician contracts, forgiven rent and equipment leases generated false government claims. In Community Health Network, the government alleged that compensation exceeded fair market value and took referral volume into account, including bonuses tied to referrals.

The Physician’s Fee Is Only Part of the Money

Physician work and hospital revenue are separate parts of the same encounter. Medicare’s payment for a physician working in a facility recognizes that another entity supplies resources, and the hospital may submit a separate institutional claim. The doctor’s fee alone therefore does not show the full payment for the patient’s care.

The Robert Wood Johnson Foundation’s 2008 research synthesis, Physician Self-Referral and Physician-Owned Specialty Facilities, explains why revenue beyond the physician’s own work matters. In physician-owned facilities, a doctor can receive a professional fee and a share of facility profit, with little additional physician time needed to receive facility or imaging profits. For a hospital compensation insider, the question is how those separate revenue streams enter the pay formula: does the calculation follow the physician’s work, or the business sent to the hospital?

The same synthesis found strong evidence that self-referral increases use of health care services, with indirect evidence that some of that increase is medically inappropriate. Those findings explain why referral incentives deserve attention alongside the salary figure: the financial consequences reach patients and the programs paying for their care.

The Insider Who Understands the Calculation

An insider can explain what a compensation formula rewards and connect it to the claims that follow. In A Forensic Accountant’s Guide to the Most Potent Federal Laws Used Against Healthcare Fraud, the Journal of Forensic and Investigative Accounting explained the value of inside information in 2020.

In a hospital compensation case, that knowledge may sit with the person who understands the contract, the payment calculation or the revenue attributed to a physician. Our work on physician fraud evidence starts with those connections. We examine what the agreement says the physician will do, what the payment rewards and how referrals reach government billing. If you know why a compensation arrangement worked the way it did, that knowledge gives the numbers a meaning an outsider may miss.

How Much of a Settlement Does a Whistleblower Get?

The Massachusetts Eye and Ear announcement said the unnamed whistleblower would receive 17% of the recovery. A qui tam whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We help compensation insiders connect what they know to a case and understand the whistleblower reward it may support.

You Know What the Payment Rewarded

If you know how physician pay connects to hospital referrals, speak to one of our Whistleblower Experts about the arrangement. We work with you to build your strongest Stark whistleblower case around the compensation decisions and government claims. We bring in physician compensation whistleblower lawyers who understand these arrangements and stay beside you throughout the case.