A recent case, involving big-ticket acquisitions made by Indianapolis-based Community Health Network (CHN), alleges that the health system compensated providers significantly over fair market value (FMV) in order to roll up referrals from their practices, which would be in clear defiance of Stark law.

Specifically, the qui tam case that the U.S. Attorney in the Southern District of Indiana joined against CHN alleges that the hospital network “integrated” physicians with existing business in lucrative specialties, such as cardiology, OB-GYN and advanced imaging, into CHN and paid them well above FMV and even paid bonuses on physicians achieving a minimum target of referral revenues to the hospital. Federal auditors and compliance officials consider FMV a reasonable estimate of true worth based on what is normally paid in the market.

For example, the average actual compensation for the cardiologists in 2007 was $397,000 per physician. The CHN compensation plan would pay the cardiologists an average of $803,000 per physician, an increase of 102%. CHN executives developed plans to increase hospital revenues to cover the higher compensation per physician.

CHN recruited physicians from the local Indianapolis market many of whom already had staff privileges, practiced at, and/or referred patients to a CHN hospital or affiliated facility according to the complaint. These integrations were believed to be defensive in nature and meant to secure the referrals from these physicians.

Basing compensation of any kind based on the value or volume of referrals violates Stark and anti-kickback laws. Stark Law violations makes it even easier to prove an AKS [anti-kickback statute] and False Claims Act violation when there is evidence of subjective intent to induce or reward referrals.