Department of Justice Seal Department of Justice
(202) 514-2007
TDD (202) 514-1888


WASHINGTON, D.C. McLeod Regional Medical Center of the Pee Dee, Inc. has agreed to pay the United States $15,909,470 to resolve allegations of health care fraud against the government. Today's settlement resolves allegations that McLeod submitted false claims for payment to the Medicare and other federal health care programs.

The United States alleged that McLeod submitted false claims to Medicare, Medicaid and TRICARE by billing for hospital and home health services ordered by certain physicians with whom McLeod, and its for-profit subsidiary McLeod Physician Services, had improper financial relationships. The government further alleged that when McLeod purchased certain physician practices it agreed to pay doctors associated with those practices purchase prices and salaries that far exceeded the fair market value of the practices and the services provided. The U.S. also alleged that McLeod entered into these financial relationships to induce and maintain referral relationships with those physicians.

The claims for services referred, ordered or arranged by those physicians were alleged to be false in three respects: First, Section 1877 of the Social Security Act, 42 U.S.C. 1395nn (also known as Stark II), prohibited McLeod from billing Medicare for items or services referred or ordered by physicians with whom it had such financial relationships. Second, McLeod forfeited its right to submit those claims to the federal health care programs by paying remuneration intended to induce those and other referrals in violation of the Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b). And third, McLeod certified falsely on Medicare cost reports that the services identified or summarized were not provided or procured through the payment directly or indirectly of a kickback or billed in violation of federal law. Medicaid and TRICARE also rely on those cost reports for certain purposes.

The government's investigation also revealed that McLeod sought to offset losses incurred in acquiring the practices by including false claims for Medicare reimbursement of unallowable costs on the hospital's cost reports. These unallowable costs included amounts paid to physicians for the "good will" associated with the acquired practices.

In addition to the settlement, McLeod also entered into a corporate integrity agreement with the Office of the Inspector General, Department of Health and Human Services. Under the provisions of that agreement, McLeod has agreed to monitor its future activities for compliance with Federal Regulations.

The United States initiated the investigation in response to a qui tam or whistleblower action brought by Richard Rauh, a former employee of McLeod. Such actions can be brought by private individual whistleblowers on behalf of the United States. Under the qui tam statute, the relator may be entitled to a share of the proceeds recovered by the suit and attorney fees.

The government intervened in the lawsuit and dismissed the lawsuit after settlement had been reached with McLeod Regional Medical Center. The action was dismissed as to all defendants. Rauh waived all rights to recover a share of the recovery or to recoup any attorney fees under the False Claims Act in exchange for the United States and McLeod releasing him from civil liability for his own role in the conduct.

The settlement is the culmination of a joint investigation involving agents, attorneys and auditors from the United States Attorneys Office in Columbia, South Carolina; the Department of Justice; the Office of the Inspector General, Department of Health and Human Services; the Federal Bureau of Investigation; and the Defense Criminal Investigative Service.

The case is entitled United States ex rel Richard Rauh v. McLeod Regional Medical Center of the Pee Dee, McLeod Physician Services, D. Laurence McIntosh, and Ernst & Young LLP. Case No. 3 98-3178 (D.S.C.).