On March 29, 2023, the U.S. District Court for the Eastern District of Michigan granted the parties’ joint stipulation for dismissal in U.S. ex. rel. Godsholl v. Covenant Healthcare, following three settlements of the relator’s claims pursuant to the False Claims Act, 31 U.S.C. § 3729 (“FCA”), the Michigan Medicaid False Claim Act, MCL 400.601, et seq., the Federal Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b) (“AKS”), and the Stark Act, 42 U.S.C. § 1395nn (“Stark”), alleging that a regional hospital system engaged in improper financial relationships with referring physicians. The settlement payments total more than $69 million.
In 2012, Dr. Stacy Godsholl, former Vice President of Covenant Healthcare and CEO of Covenant Medical Group (“Godsholl”), brought an action against Covenant Healthcare System and Covenant Medical Center (“Covenant”) alleging that her former employer rewarded known top referral sources with compensation, remuneration, and other favorable business arrangements inconsistent with fair market value. Covenant is one of the largest health systems in Michigan, with a hospital in Saginaw, office locations in Saginaw, Bay City, Midland, and Frankenmuth, and numerous outpatient facilities through the mid-Michigan region.
Covenant’s settlement, finalized in 2021, resulted in a payment to the United States of $67 million and to the State of Michigan of $1.8 million. This settlement remained under seal while the government continued its investigation into neurosurgeon Dr. Mark Adams and electrophysiologist Dr. Asim Yunus, which led to the settlements with Adams and Yunus. Drs. Adams and Yunus will pay the United States $406,551.15 and $345,987.54, respectively, to resolve allegations related to their relationships with Covenant.
In her various positions at Covenant, Godsholl was involved in the formation, integration, and incorporation of Covenant Medical Group as a subsidiary of Covenant Healthcare System. As such, she was directly involved in the oversight of clinical integration encompassing both employed and independent physicians and was privy to information regarding mid-level provider recruitment, contracting, and compensation for employed and independent physicians of Covenant. Godsholl alleged that she was terminated after she openly challenged Covenant’s practices, and in particular the conduct of Dr. Adams, a neurosurgeon formerly employed by Covenant, who, after entering private practice was alleged to have knowingly solicited and accepted bribes, including excessive compensation and free management services, in exchange for referrals to Covenant.
The allegedly improper remuneration included: (a) awarding medical directorships and other “perk” appointments in exchange for referrals, where the compensation far outstripped the fair market value of the labor provided by the physician; (b) retaining employees to provide independent physicians and specialists with physician assistant, billing, and administrative services as a “gift” for high referrals, where the physicians and specialists did not pay for or provide labor to Covenant to justify the services; (c) paying the overhead costs of independent physicians as a “gift” for referring a significant volume of patients to Covenant; and (d) billing Medicare and Medicaid for services provided while no supervisory physicians were on location at Covenant’s infusion center, in violation of state and federal healthcare regulations. Godsholl alleged that these practices were financial schemes to reward independent physicians for high referral volume, that they constituted violations of the AKS and Stark to which no exception was applicable, and that any referral from the independent physicians with whom Covenant had tainted financial or compensation relationships which was subsequently billed to Medicare and Medicaid constituted a false claim.
Key to the improper appointments allegation was that no oversight was maintained and no records were kept to account for work justifying the additional compensation received by specialists and surgeons in association with the allegedly sham titles. The allegations regarding gratuitous employee services were premised on situations where the independent physician was induced to switch from a different referral hospital to Covenant or was delinquent on medical documentation and was provided with assistance to catch up administratively so as to focus on generating more referrals to Covenant. The improper payment of overhead costs allegations centered on situations where Covenant paid independent physicians monthly amounts to host embedded Covenant-employed physicians in their private practices, where those amounts were far in excess of the fair market value of true overhead costs.
While the government’s allegations and theories of liability are relatively straightforward the case serves as a useful reminder to providers on the importance of routinely reviewing and scrutinizing all aspects of your relationships with referral sources.