Saint Joseph Hospital and Cumberland Clinic: Management Fees for Referrals

In the Cumberland Clinic kickback settlement, two London, Kentucky, cardiologists agreed to pay $380,000 over alleged management payments for exclusive referrals to Saint Joseph Hospital. The government alleged that the hospital paid for management work the physicians did not perform. Someone who knew who did that work, approved the fees or directed patients to the hospital could explain what the management agreement was buying.

The physicians jointly owned Cumberland Clinic, a group providing cardiology services, and Saint Joseph was also based in London. The Justice Department announced their settlement on October 21, 2014. The hospital had already reached its own settlement, covering both the management arrangements and separate allegations about unnecessary cardiac procedures.

What the Management Fees Allegedly Bought

The government alleged that Saint Joseph paid the clinic’s owners for management services they never provided, in exchange for an exclusive agreement to refer Cumberland Clinic patients to the hospital. That referral commitment covered cardiology procedures and other healthcare services.

The Justice Department alleged that the arrangement violated the Stark Law and the Anti-Kickback Statute. The physician kickback allegation concerned what the management money bought and the financial relationship behind the hospital’s Medicare claims.

We would call that buying patients under a management label. The work existed on paper. The referral promise was what the government said the payment secured.

The Hospital’s Cardiac Claims Were a Separate Settlement

Saint Joseph agreed to a separate $16.5 million settlement, announced on January 29, 2014. That resolution covered the alleged sham management contracts and hospital claims for unnecessary or excessive cardiology procedures. The procedure allegations included stents, pacemakers, bypass surgery and diagnostic catheterizations.

The October announcement attributed the unnecessary-procedure allegations to other members of the owners’ cardiology practice. The owners’ later settlement specifically resolved the management and referral allegations. These were different defendants resolving different parts of the case.

That separation matters to someone inside a cardiology practice. Knowledge of the management work and referral instructions explains the alleged payment arrangement. Clinical records and knowledge of why a procedure was ordered speak to the medical necessity of the hospital’s claims. The case reached both the business relationship and the care billed to the government, but the physician settlement addressed the former.

What the Physician Resolution Required

The physicians’ settlement amount was based on their financial ability to pay. Both the owners and the hospital also took on integrity agreements with the HHS Office of Inspector General. The physicians’ agreements required internal reforms and third-party review of their federal health care claims.

What the Management Agreement Cannot Explain Alone

A management agreement describes a job. Someone inside the business can explain whether that job was done. The useful connection here is between the promised management work, the payment and the hospital referrals that allegedly came in return.

For a practice manager or physician, invoices, schedules and management reports may show how the promised duties compared with daily operations. For someone handling referrals or billing, instructions about patient destinations and the resulting claims may show the other side of the exchange. We connect those views with the records behind the government claims.

A separate whistleblower complaint against Gramercy Cardiac illustrates why the payment formula matters. It alleged that sham contractor and lease agreements disguised referral payments. The contracts supposedly called for physicians to supervise tests, but the complaint alleged that sales representatives said the physicians only needed to comfort the patients they referred.

The complaint described the difference between paying for time and paying for patients:

The same complaint alleged that office rental payments were set to make referrals financially attractive, without an analysis of the space and equipment’s fair market value. That allegation gives an insider a concrete comparison: the work performed against the business generated. At Cumberland Clinic, the government’s allegation was more basic still: the paid management services were not performed at all. We would want to hear from the person who knew what the physicians were expected to manage and what actually happened.

Why Exclusive Referrals Matter to Patient Care

Research on physician self-referral identifies conflicts over both how much care a physician recommends and where a patient receives it. The Robert Wood Johnson Foundation’s 2008 research synthesis, Physician Self-Referral and Physician-Owned Specialty Facilities, examined referrals to facilities with which physicians had financial relationships. It identified two incentives: an incentive to recommend additional services, including unnecessary ones, and an incentive to direct patients to a financially connected facility.

We see a useful distinction here between a financial incentive to order more care and one to choose its destination. In the Cumberland case, the physician settlement concerned an alleged purchase of the patient’s destination through hospital management payments. The hospital settlement also reached whether the procedures billed should have happened. A person working with referrals may see the financial pressure behind a destination, while someone reviewing the clinical work may see the reason a procedure was unnecessary.

How Much of a Settlement Does a Whistleblower Get?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Three Lexington cardiologists brought the qui tam case, and the government joined it and took over the allegations.

The three cardiologists’ collective reward from the earlier hospital settlement was $2.46 million. The October physician announcement provided for a separate collective reward from that resolution.

You Know What the Management Fee Paid For

If you saw management fees paid while the promised work went undone, or referral instructions tied to those fees, speak to one of our whistleblower experts about what the management fees really paid for. We work beside you to build your strongest physician kickback whistleblower case around the compensation, the patient business and the government claims, and bring in physician kickback whistleblower lawyers who understand hospital compensation arrangements. Your knowledge of what happened inside the practice gives us the place to start, and we stay with you through the case.