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October 24, 2005

Department of Justice

United States Attorney William C. Killian Eastern District of Tennessee


Erlanger Will Pay $40 Million to Resolve Chattanooga Federal Health Care Fraud Investigation

Chattanooga, TN - United States Attorney Harry S. Mattice, Jr., announced today that the United States has reached a settlement with the Chattanooga-Hamilton County Hospital Authority, the public nonprofit corporation that owns and operates Erlanger Medical Center. As part of the settlement, Erlanger will pay the total sum of $40 million, of which $37 million will be paid to the United States and $3 million will be paid to the State of Tennessee. In addition, Erlanger has entered into a comprehensive five-year Corporate Integrity Agreement with the Office of Inspector General of the U. S. Department of Health and Human Services to ensure its continued compliance with federal health care benefit program requirements.

The settlement agreement alleges that beginning as early as January 1995, Erlanger entered into a series of financial arrangements with certain physician groups through which it paid money and other compensation, directly or indirectly, to certain physicians who were affiliated with those groups. These financial arrangements were intended to induce physicians to refer patients to its facilities and, as such, were in violation of federal laws known as the Ethics in Patients Referrals Act (or the Stark law) and the Anti-Kickback Statute. Mr. Mattice explained that these laws are intended to protect patients – that is, to ensure that physicians make decisions regarding referrals to health care facilities based on what is in the best interest of patients without being induced by payments from hospitals competing for their business. In addition, these laws are designed to protect the integrity of the government-funded health care benefit programs. Federal law prohibits hospitals from submitting claims to government-funded health care benefit programs such as Medicare and Medicaid for inpatient and outpatient hospital services referred, ordered, or arranged for by physicians who have prohibited financial arrangements with those hospitals.

The Settlement Agreement also alleges that from January 1995 through August 2003, Erlanger submitted claims in violation of the federal False Claims Act, to Medicare, Medicaid and TRICARE (federal military retirement health care program) for inpatient and outpatient hospital services referred, ordered, or arranged for by physicians with certain physician groups with whom Erlanger had these prohibited financial arrangements. Medicare and the other health care benefit programs paid the claims for those hospital services because Erlanger did not disclose the nature of its relationship with the physicians referring those services. The payments Erlanger must now make in connection with this settlement are to compensate the Medicare and Medicaid trust funds, TriCare and TennCare for the moneys paid out of those funds which Erlanger improperly claimed and received during that time period.

“Today's settlement is an example of the Justice Department's determination to enforce the Ethics in Patient Referrals Act and to protect the Medicare and Medicaid trust funds to ensure that these programs remain viable,” said United States Attorney Mattice.

Mr. Mattice further noted that this settlement resulted from a comprehensive, ongoing investigation by the Eastern District of Tennessee Health Care Fraud Task Force which began in early 2003. After an administrative subpoena was served on Erlanger in April 2003, Erlanger began cooperating with the investigation. During the next two years, Erlanger provided to the government thousands of documents, many of which had not been requested by the subpoena, made its personnel available for interviews, and conducted its own internal investigation, the results of which it also provided to the government. As a result of both the thorough nature of the investigation and the cooperation of Erlanger, this settlement concludes the investigation of, and any resulting claims against, Erlanger. Other investigations concerning matters involving individuals and other companies are pending.

The Health Care Fraud Task Force members who participated in this joint investigation include the U.S. Department of Health and Human Services - Office of Inspector General, Tennessee Valley Authority - Office of Inspector General, Tennessee Bureau of Investigation, and the Federal Bureau of Investigation. U. S. Attorney Mattice commended the cooperative efforts of the multiple agencies who participated in this complex investigation, and in particular lead HHS-OIG Agent Jennifer Trussell for her dedication and AUSAs Betsy Tonkin and Will Mackie for their excellent and professional legal representation of the United States’ interests in this case.

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