Judge tosses motion to dismiss Stark Law case against Community Health Network

Wooden gavel and gold legal scale that appear to have sunlight falling on them
The Department of Justice sued Community Health Network in January 2020 for allegedly improper financial relationships with physicians, which the nonprofit system asked the court to dismiss earlier this year. (Getty Images/William_Potter)

A district court has denied Community Health Network’s motion to dismiss a whistleblower case alleging that the Indianapolis-based provider overpaid physicians for in-network referrals.

In a Wednesday filing, Judge Richard Young of the U.S. District Court for the Southern District of Indiana ruled that the Justice Department’s early 2020 filing argued a “plausible” False Claims Act violation and was pleaded with “sufficient particularity.” Young also decided that the government may proceed with its claims for payment by mistake and unjust enrichment.

“For the foregoing reasons, Defendant's Motion to Dismiss United States' Complaint in Intervention is denied,” the judge wrote.

Community had filed its motion to dismiss in January 2021.

The government’s case is tied to a 2014 whistleblower complaint filed by former Chief Financial Officer Thomas Fischer, in which he alleged that the system had violated federal and state false claims laws through a five-year “scheme to pay improper compensation to physicians to induce them to illegally refer patients.” The Justice Department chose to pursue a portion of Fischer’s allegations after a multiyear investigation.

In its 2020 filing, the department alleged that Community recruited “hundreds” of physicians by offering and paying salaries “well above fair market value.” The government argued Community did so to keep referrals within its network and, once the physicians became employees, to receive greater Medicare reimbursement for delivering services in a Community hospital rather than at a practice.

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The Justice Department alleged that Community engaged two valuation firms to determine whether their compensation fell within fair market value so as not to violate the Stark Law. Both firms found the physicians’ salaries to be roughly around the 90th percentile of national benchmark data.

“Despite this information, Community continued to pay its physicians salaries that were above fair market value and continued to submit claims to Medicare for health services improperly referred by its physicians,” according to background included in this week’s filing. “Additionally, Community conditioned awarding incentive compensation to its physicians on the physicians meeting a target of ‘hospital downstream revenue specific to the physician.’"

The allegations led the Justice Department to assert five causes of action against the system—three under the False Claims Act and two under federal common law.

“Improper financial relationships between hospitals and physicians corrupt clinical decision-making, threaten patient care, and ultimately drive up Medicare costs,” said Jody Hunt, assistant attorney general of the Justice Department’s Civil Division, in a 2020 statement when the lawsuit was announced.

Community Health Network runs nine hospitals and has more than 200 care locations and affiliates across central Indiana. The nonprofit integrated system includes the state’s largest network of primary care physicians through its Community Physician Network and had roughly 2 million patient encounters in 2020, according to its website.

Fierce Healthcare has reached out to the health system for comment on this week’s decision.