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Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Friday, October 30, 2009
Texas Hospital Group Pays U.S. $27.5 Million to Settle False Claims Act Allegations

WASHINGTON – A hospital group based in McAllen, Texas, has agreed to pay the United States $27.5 million to settle claims that it violated the False Claims Act, the Anti-Kickback Statute and the Stark Statute between 1999 and 2006, by paying illegal compensation to doctors in order to induce them to refer patients to hospitals within the group, the Justice Department announced today. McAllen Hospitals L.P., d/b/a/ South Texas Health System, is a subsidiary of Universal Health Services Inc., a company based in Pennsylvania that owns hospitals and other health care centers around the country.

The settlement announced today involved allegations that the defendants had entered into financial relationships with several doctors in McAllen in order to induce them to refer patients to the defendants’ hospitals. The government alleged that these payments were disguised through a series of sham contracts, including medical directorships and lease agreements. Under the Stark Statute, Medicare providers are prohibited from billing Medicare for referrals from doctors with whom the providers have a financial relationship, unless that relationship falls within certain exceptions.

"Improper financial relationships between health care providers and their referral sources can corrupt a physician's judgment about the patient's true healthcare needs," said Tony West, the Assistant Attorney General for the Department’s Civil Division. "In addition to yielding a substantial recovery for taxpayers, this settlement should deter similar conduct in the future and help make health care more affordable for patients."

The settlement resolves allegations raised against both the parent and the subsidiary in a qui tam or whistleblower lawsuit filed in 2005 by Bruce Moilan, a former employee of the defendants, United States ex rel. Moilan v. McAllen Hospitals, L.P., et al., Case No. M-05-CV-263 (S.D. Tex.). Under the False Claims Act, private citizens can bring suit on behalf of the government and share in any amounts that are obtained through that legal action. Mr. Moilan will receive $5.5 million from the proceeds of the settlement.

"Payment by hospitals to doctors for patient referrals violates federal law and carries the inherent risk that the independent judgment of doctors regarding the best facility for the treatment and care for a particular patient may be adversely influenced; the patient and his medical needs should always be foremost," said Tim Johnson, U.S. Attorney for the Southern District of Texas. "Our district will continue in its joint effort with our law enforcement partners to enforce these federal laws that protect the public."

As part of the agreement, South Texas Health Systems will enter into a 5-year Corporate Integrity Agreement that requires it to establish procedures for tracking and evaluating financial arrangements between its health care facilities and their referral sources. The agreement also requires specific training for South Texas Health System representatives involved with financial arrangements, an independent third-party’s annual review of the health system’s compliance with certain Corporate Integrity Agreement obligations involving financial arrangements, and a report to the Office of Inspector General by the independent third-party reflecting the results of the review.

"Improper financial arrangements like these can increase the cost of health care by shifting provider attention to the quantity of treatments, rather than keeping it focused on the quality of care," said Department of Health and Human Services Inspector General Daniel R. Levinson. "The CIA is important because it requires South Texas Health System to put systems in place to prevent this conduct from happening in the future."

Of the $27.5 million to be paid by the defendants, the federal government will receive $25,208,333 and the state of Texas will receive $2,291,667 for claims submitted to the state Medicaid program.

The case was handled by the Justice Department’s Civil Division, the U.S. Attorney’s Office for the Southern District of Texas, the Texas Attorney General’s Office and the Office of Inspector General of the Department of Health and Human Services.

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