Update: The story has been updated with comment from Methodist Le Bonheur Healthcare.
A Memphis, Tennessee-based hospital system engaged in an elaborate healthcare fraud scheme, paying an outpatient cancer center kickbacks for referring patients to its hospitals, and received Medicare reimbursements for hundreds of millions of dollars, the U.S. Department of Justice alleged in court filings on Monday in the Middle District of Tennessee.
The U.S. government brought the suit against Methodist Le Bonheur Healthcare and Methodist Healthcare Memphis Hospitals, accusing the hospital system of paying millions of dollars of kickbacks to West Clinic, P.C., a cancer center with sites across the Southeast, according to a DOJ press release. Officials were tipped off by the former President of Methodist University Hospital and the former Executive Dean and Vice Chancellor at the University of Tennessee Health Sciences Center who served on the hospital board.
“Methodist purchased substantially all of the outpatient locations of the largest oncology practice in the Memphis area,” according to the news release. At the time, Methodist lacked its own cancer treatment center.
The government alleges the hospital system violated the False Claims Act and the Anti-Kickback Statute in an arrangement that lasted from January 1, 2012 to December 31, 2018.
The scheme was set up so that cancer patients would be treated by West-employed physicians for inpatient and outpatient services at Methodist hospital locations, and West employees would operate the management services for Methodist’s adult oncology service line. As a result, Methodist received increased Medicare reimbursements relating to the cancer care, according to the DOJ.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
“By purchasing West’s outpatient locations, Methodist was able to bill Medicare not only for the facility and professional components of outpatient treatment but also for the chemotherapy and other drugs provided, for which Methodist could recoup a staggering discount in costs through the 340B Discount Drug Program, resulting in $50 million in profits to Methodist in one year alone,” per the news release.
The 340B program allows covered hospitals to purchase drugs, including chemotherapy drugs, at a discounted rate often 30 to 50% off the drug’s list price.
According to the news release, the parties set out “to achieve a cancer ‘center without walls.’” But there was never a formal agreement, which would’ve violated regulations.
According to the complaint filed this week, West also needed a cash influx to “protect or increase physician compensation, as insurer reimbursements were decreasing, and it was expanding with considerable overhead.”
To provide West with a large sum of cash, Methodist invested $7 million in an entity in which West and its medical director and shareholder had financial interest, called ACORN Research. This covered $3.5 million of debt owed to West. Kickbacks were paid back separately and disguised as payments and double-payments to West over the course of seven years, according to the press release.
“Damages are sought for the tainted claims Methodist submitted or caused to be submitted to Medicare during the seven years of the deal, which includes the unlawfully obtained patient referrals,” U.S. Attorney Mark H. Wildasin said in a statement.
A Methodist Methodist Le Bonheur spokeswoman provided the following statement after publication:
The government’s complaint recycles a familiar set of allegations that mischaracterize the relationship between MLH and West Clinic. As we have said many times since this lawsuit was made public more than two years ago:
The affiliation’s compensation structure was designed by respected outside experts who determined it reflected fair market value for such services. Our payments were appropriate, and MLH received the services due under affiliation agreements. The government’s belated decision to intervene in the suit two years after it declined to do so has changed nothing about the case.
We are proud that our partnership with West succeeded in creating an integrated cancer diagnosis treatment and surgical service that not only improved cancer care, but provided care where it was needed most, reduced health disparities and led to better patient outcomes for the Memphis and Mid-South communities. Indeed, it is undisputed that the affiliation brought much needed cancer care to our community and delivered the highest level of services.
MLH will refute the government’s allegations in detail in the appropriate legal forum. We are confident that we will demonstrate that MLH’s affiliation with West Clinic was proper and reflected customary and legal business arrangements, and that the affiliation with West was in keeping with our mission to provide high-quality, cost-effective patient and family-centered care.
Photo: Gearstd, Getty Images
