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MMM Healthcare Update - $513 Million Settlement of Civil and Criminal Liability for Tenet


This article was also published by Law 360. Click here to read it on their web site.

In a cautionary tale of extreme import for healthcare providers, yesterday several subsidiaries of Tenet Healthcare Corporation (“Tenet”) agreed to plead guilty to conspiracy to defraud the United States and to paying and receiving kickbacks and bribes.  This Plea and agreement is the latest chapter in connection with a referral scheme that took place over a decade involving Medicaid patients.  A Whistleblower (or “Relator”) filed a qui tam lawsuit against, inter alia, Tenet in December 2009.  An active criminal investigation later ensued.  The specific Tenet subsidiaries that have agreed to plead guilty include:  Atlanta Medical Center, Inc. (“Atlanta Medical”) and North Fulton Hospital, Inc., d/b/a North Fulton Medical Center (“North Fulton”).  As a result, Atlanta Medical Center agreed to a money judgment and forfeiture in the amount of $84.7 million and North Fulton in the approximate amount of $61.1 million.  Those amounts will be in satisfaction of criminal forfeiture amounts outlined in a Criminal Information filed today in the United States District Court for the Northern District of Georgia, Criminal Information No. 16-CR-350.

In addition to those criminal forfeiture amounts, Tenet and subsidiaries agreed to pay to the United States, the State of Georgia, and the State of South Carolina an additional amount of $368 million, with $244 million going to the United States, approximately $123 million going to the State of Georgia, and approximately $890,000 to the State of South Carolina.  In addition, the Relator will receive approximately $84 million for the combined civil settlement amount.

There are several significant areas of focus and analysis that providers should review and understand as a result of this matter.  They include:

  1. The necessity on close focus and review of financial relationships between a hospital and its referral sources, including legal review and investigation of such relationships by competent and sophisticated counsel;
  2. The fact that the Government uncovered certain egregious factors such as the steering of pregnant women to certain facilities when, according to the Criminal Information, other facilities were closer and available, thus heightening providers’ focus on the necessity of ensuring efficient, quality care in the best clinical interests of patients rather than focus on financial remuneration to their detriment;
  3. The fact that Tenet was under a Corporate Integrity Agreement requiring its heightened compliance with federal and state regulatory laws punctuated and heightened the egregiousness of the conduct at issue;
  4. The overlap of potential criminal liability for egregious violations of federal healthcare laws that also include a civil component; and
  5. The focus on or the fact that the involvement of certain individuals as alleged in the Criminal Information may result in further proceedings consistent with the Yates Memo to hold individual executives accountable for wrongdoing.

The conduct that is the subject of the Plea Agreement, Criminal Information and Settlement Agreement is described in detail in the Criminal Information, an accompanying Settlement Agreement, and an accompanying Non-Prosecution Agreement entered into by the Department of Justice.  As part of the Non-Prosecution Agreement, Tenet stipulated to a series of detailed and specific facts detailing the conspiracy.

In general, however, as alleged in the Criminal Information, the Government alleged and Atlanta Medical and North Fulton agreed that those hospitals and other Tenet affiliates including Spalding Regional Hospital in Georgia around 2000 and thereafter entered into contracts with Hispanic Medical Management, Inc., d/b/a Clinica de la Mama (“Clinica”), and later in 2010, with corporate successors to Clinica.  Clinica held itself out as operating several medical clinics that provided prenatal care to predominately undocumented Hispanic women in Georgia and South Carolina.  The Government alleged and Tenet agreed that Atlanta Medical and North Fulton understood that the owners and operators of Clinica “were very successful at attracting pregnant, undocumented Hispanic women to its clinics for prenatal care and were able to control where these women delivered their babies,” and further that Atlanta Medical and North Fulton “could potentially realize a significant revenue stream from Medicaid and Medicare DSH (“Disproportionate Share Hospital”) payments for providing labor and delivery services to the Clinica patients and for providing services to their newborn babies.” 

According to the Criminal Information, Atlanta Medical and North Fulton, among others, entered into contracts agreeing to pay Clinica for certain management services, marketing consulting, translation services, translation management services, community outreach, Medicaid eligibility determination paperwork, educational classes and both certificate services.  According to the Government, the “true purpose of the relationship, however, was to induce the owners and operators of Clinica to refer the Clinica patients to the Tenet Hospitals . . . and arrange for services to be provided to the Clinica patients and their newborns at the Tenet Hospitals.”  The Government alleged and Tenet agreed that the services supposedly performed by Clinica were in some instances not needed, duplicative of other services, substandard or not rendered at all. 

According to the Government, and the Criminal Information filed and agreed by the parties, the “owners and operators of Clinica were able to steer Clinica patients to particular hospitals, and arrange for Clinica patients and their newborns to receive services at the Tenet hospitals . . . based on:  (1) their control of the patients who sought services from them; and (2) their leverage over the physicians who saw these patients in its clinics.”  To facilitate this, and ensure that Clinica patients delivered at Atlanta Medical and North Fulton, Clinica would only allow physicians who had delivery privileges at Atlanta Medical and North Fulton to work in the clinics during particular times.  Further, Clinica employees engaged in a series of schemes and ruses to steer patients to Atlanta Medical and North Fulton with the clear implication that they were required to deliver their baby at Atlanta Medical or North Fulton.

The net result of this arrangement was that Clinica received over $12 million from Tenet Hospitals over a decade-long period.  In turn, Atlanta Medical and North Fulton and two other hospitals received more than $125 million in Medicaid funds and $20 million in DSH funds for services provided to Clinica patients.  Atlanta Medical received $74 million of this amount while North Fulton received $48 million of this amount.

This conduct occurred prior to and then after the time that Tenet and various subsidiaries, including North Fulton and Atlanta Medical, had entered into a Corporate Integrity Agreement (“CIA”) with the Government to resolve allegations of earlier, unrelated wrongdoing at various other facilities.  Clearly, this fact punctuated the investigation here because the Government alleged that Atlanta Medical, North Fulton and Tenet certified that they were in compliance with federal and state law while the Clinica scheme continued unfolding.  Further, according to the Government, lawyers for Tenet were misled about the true nature of the Clinica contracts.

In summary, the granular level of detail from the Government about the tracking of referrals and the tracking of the costs and benefits of the referrals received from Clinica versus the amounts paid to Clinica heighten the focus that all business arrangements in the health care context must be reasonable given prudent norms of business ethics and considerations, and specifically, must be reasonable without regard to the volume or value of referrals of Governmental patients that may be made as a result of a business deal.