Methodist Le Bonheur and West Clinic: Four Affiliation Agreements Behind the Kickback Settlement

The Methodist Le Bonheur West Clinic kickback settlement cost Methodist $7.25 million over alleged hospital kickbacks for Medicare patient referrals. Four agreements covered an asset purchase, management, employees and professional services. For an insider who knows the contracts and the payments, the question cuts across all four: what did the hospital actually buy?

What the Methodist Settlement Resolved

Methodist Le Bonheur Healthcare and Methodist Healthcare-Memphis Hospitals paid the settlement, which the Justice Department announced on January 4, 2024. The government alleged that improper financial arrangements with West Clinic caused false claims to Medicare. It said Methodist used the affiliation agreements in part to induce West Clinic to send Medicare patients to Methodist. That put Medicare’s money behind treatment referrals allegedly bought by the hospital.

The affiliation with West Clinic and the University of Tennessee Health Science Center ran from December 2011 through February 2019.

A former president of Methodist University Hospital and a former dean of the University of Tennessee Health Science Center brought the qui tam case. The United States took over the case. The Justice Department said both whistleblowers would receive a share of the recovery. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

Four West Clinic Agreements, One Alleged Purpose

The government identified an asset purchase and three services agreements as the vehicles for the alleged kickbacks to West Clinic. The agreement names show how much of the business relationship the allegation covered:

1. Asset Purchase Agreement
2. Management Services Agreement
3. Leased Employee and Administrative Services Agreement
4. Professional Services Agreement

What did Methodist receive for the payments, and what part did expected referrals play in the price? The complaint’s drug-profit allegations show why the answer reaches beyond the services named in a contract.

The economics of a health care affiliation explain why referrals matter. Hospital purchases of physician practices can bring outpatient facility payments as well as the revenue from the physician’s own work. Medicare pays a facility fee and a reduced professional fee for care in a hospital outpatient department, compared with a single professional fee in an office. Physician employment can also bring referrals for imaging, laboratory services and surgery. An affiliation’s value can therefore extend well beyond the services named on a physician’s invoice.

The 340B Profits Allegedly Sent to Physicians

The complaint alleged that Methodist sent profits from discounted cancer drugs to West Clinic physicians to encourage referrals. Under the federal 340B drug discount program, an eligible hospital buys outpatient drugs at a discount and can receive reimbursement above its purchase price. That spread explains how hospitals make money on 340B.

The Government Accountability Office explained that spread in its 2015 report on drug-payment incentives. The hospital can keep a drug discount without lowering the patient’s bill. GAO identified an incentive to prescribe more drugs or more expensive drugs, with higher copayments for patients when unnecessary spending results.

The complaint described a particular route for the money. Methodist would acquire oral cancer drugs through 340B. West Clinic physicians would write the prescriptions, and a designated pharmacy controlled by Methodist would fill them. The complaint alleged that Methodist then sent the profits to those physicians.

The complaint put the profits from prescriptions filled by AnnovoRX in 2016 at approximately $10,554,251. It alleged that Methodist transferred the entire amount to West Clinic physicians on top of physician compensation and management fees.

The complaint put the alleged purpose plainly:

The Services Behind the Payments

The complaint alleged that Methodist had paid more than $350 million in cash directly to West Clinic physicians since 2012, beyond other benefits, and that the payments far exceeded the value of their personal services. That allegation tied the compensation question to the referral question: how much of the money paid for the work, and how much allegedly paid for the patients who followed?

There is a separate question about the services themselves. A 2023 review in the Journal of Forensic and Investigative Accounting describes how payments for fictitious services can conceal referral bribes as legitimate compensation.

The paper recommends checking provider contracts against evidence that the work happened. Applied to an affiliation, that distinction is simple. The agreement describes the work the hospital bought. The operating records show what it received.

What an Affiliation Insider Can See

The Methodist allegations connect records that serve different purposes inside a hospital: the agreements, physician compensation, pharmacy transactions and patient referrals. Someone who understands how those records fit together can explain the business relationship behind a payment.

The accounting review also says healthcare staff may notice unusual referral patterns without raising them until someone asks. That gives the operational view its value. A spreadsheet can show a payment. Someone who worked with the arrangement may know what the payment was expected to bring back.

UPMC Hamot’s Agreements and the Missing Work

UPMC Hamot and Medicor Associates jointly paid $20.75 million in a settlement announced on March 7, 2018. The allegations concerned twelve physician and administrative services arrangements intended to secure referrals. Hamot allegedly had no legitimate need for the contracted services, and some work duplicated other services or never happened.

That parallel makes the performance question tangible. A hospital can have signed agreements and still face allegations that the money bought referrals rather than needed work. Methodist’s case placed an asset purchase alongside the services agreements in the alleged referral arrangement. The complaint’s drug-profit allegations added another way money could reach the referring physicians.

What Connected the Affiliation Agreements

If you worked on a hospital affiliation, you may know how referral expectations connected agreements that otherwise look separate. Speak with our whistleblower experts about the payments and referral expectations behind your affiliation. We build the case around what you know, bring in whistleblower lawyers who understand hospital compensation and oncology referral arrangements, and stay in your corner through the case’s resolution.