ATHENS, Ga. (CN) - Five hospitals in Georgia and South Carolina must face claims that they gave kickbacks to clinics that referred undocumented pregnant patients to them, a federal judge ruled.
In a 2009 federal complaint, whistle-blower Ralph Williams alleged an agreement in which clinics providing prenatal services to undocumented Hispanic patients referred those women for Medicaid-paid deliveries to the Health Management Associates hospital in Georgia where he worked.
Undocumented patients are not eligible for regular Medicaid coverage but they generally qualify for Medicaid emergency medical assistance when they deliver their babies.
Williams worked as a chief financial officer at HMA Monroe, which he said paid the clinics between $15,000 and $20,000 per month for purported translation and Medicaid eligibility services. That agreement was actually a sham, however, designed to conceal the hospital's purchase of clinic referrals, according to the complaint.
The federal Anti-Kickback Statute prohibits payments to induce referrals of patients for services that will be paid in whole or in part under a federal health care program.
Williams said the hospital's CEO, who had previously worked for a Tenet Healthcare Corp. hospital, claimed that Tenet hospitals in Georgia and South Carolina had similar agreements with prenatal clinics to increase their volume of Medicaid deliveries.
The whistle-blower alleged that the HMA hospital and four Tenet hospitals in Georgia and South Carolina had violated anti-kickback laws by paying the clinics for patient referrals under the guise of interpreting and consulting services and management fees. He also claimed the hospitals had violated the False Claims Act and state Medicaid laws by asking the federal and state governments to reimburse services provided to clinic-referred patients and by submitting false cost reports.
The hospitals had also allegedly falsely certified compliance with anti-kickback laws when they submitted cost reports under the Medicare Disproportionate Share Program, which reimburses providers of health care services to a disproportionate number of low-income patients.
"It is estimated that more than 340,000 babies are born each year to undocumented alien mothers in United States hospitals," U.S. District Judge Clay Land wrote last week in addressing the claims. "The American taxpayers, through the Medicaid program, pay these hospitals at least $1 billion per year for these deliveries. While the wisdom of the public policy related to these issues is for the legislative and executive branches (and not for this court) to consider, the financial opportunities presented by these numbers reveal why the healthcare industry may be motivated to pursue this slice of the Medicaid pie aggressively. In this case, plaintiffs maintain that defendants' aggressive pursuit violated the law." (Parentheses in original.)
Williams' complaint provided details of the alleged violations at each named hospital. Atlanta Medical Center, a Tenet subsidiary, allegedly paid the clinics more than $40,000 a month for managing a residency clinic, expecting referrals of Medicaid deliveries in return. In exchange for the fees, the clinics unlawfully pressured patients and doctors to choose the hospitals that had signed the agreements, according to the complaint.
Some of the hospitals renewed their contracts with the clinics several times while at least one of them continued to pay the fees even after the contract expired, Williams said. He claimed the fees the hospitals paid exceeded the fair-market value of the services the clinics provided, and in some cases the clinics did not provide any services listed in the agreements.
The United States and Georgia intervened, filing lawsuits that alleged most of Williams' claims.
While the defendant hospitals did not dispute that they had paid fees to the clinics or that the clinics had referred patients for Medicaid-covered deliveries, they disputed that the complaint alleged anti-kickback violations.
In addition to saying there was no evidence that the fees aimed to induce Medicaid referrals, the hospitals also said there was no evidence that they overpaid the clinics for the contracted services.
Land disagreed in the June 24 ruling, noting the complaints and exhibits support the conclusion that some of the hospitals paid for services the clinics did not provide, while others paid excessive so-called management fees.
The complaints sufficiently allege that executives at each hospital knew they were offering illegal kickbacks in exchange for Medicaid referrals and meant to do so, according to the ruling.
Land dismissed the HMA hospital's argument that it could not be held liable for its CEO's actions because he did not have authority to sign contracts with the clinics.
"To describe this argument as unpersuasive is charitable," Land wrote in a footnote. "It would not be hyperbole to describe it as frivolous. The focus here is on plaintiffs' allegations in their complaints, not on what defendants believe plaintiffs may be unable to ultimately prove."
Since compliance with anti-kickback laws is a requirement for payment of a Medicaid claim in Georgia or South Carolina, the plaintiffs have sufficiently alleged false claims violations, the 47-page order states.
Hospitals that submitted Medicaid claims for clinic patients referred under the service agreements falsely certified compliance with the Anti-Kickback Statute, according to the ruling.
The hospitals failed to persuade the court that the requirement applies only to claims submitted after the Patient Protection and Affordable Care Act took effect in March 2010.
Land also advanced allegations that the hospitals inflated their Medicaid disproportionate share reimbursements by including clinic patients whose referrals were bought with illegal kickbacks.
Tenet and HMA may also be responsible as parent corporations for false-claims violations because their executives approved the agreements with the clinics, according to the ruling.
The pay-for-referral scheme allegations also support the conspiracy to defraud the government claims, Land said.
Intervention by the United States and Georgia does not block Williams from pursuing his claims, the court said, while also advancing the plaintiffs' state-law claims.
The defendants are Health Management Associates and its Georgia subsidiary HMA Monroe LLC; Tenet Healthcare Corp. and its subsidiaries Tenet Health System GB Inc. dba Atlanta Medical Center, North Fulton Medical Center Inc. dba North Fulton Hospital, Tenet Health System Spalding Inc. dba Spalding Regional Medical Center and Hilton Head Health System LP dba Hilton Head Hospital; and three clinics: Hispanic Medical Management Inc., Clinica de la Mama and Clinica del Bebe.
Attorneys for the United States and the defendant hospitals did not respond to requests for comment.
A spokeswoman for Georgia said the state is pleased with the ruling and looks forward to proceeding with the case.