ST. PETERSBURG — All Children's Hospital has agreed to pay $7 million to settle a whistle-blower lawsuit alleging it violated antikickback laws by paying inflated salaries and bonuses to doctors so that they would bring in more patients and revenues.
The suit was filed in July 2011 by Barbara Schubert, who was director of operations for the doctors' practice at All Children's for more than a decade. She claimed the hospital overpaid doctors by about $5 million in 2010 alone, violating laws regulating the financial relationships between hospitals and the physicians who bring in patients.
All Children's, which denied any wrongdoing in agreeing to the settlement, relies heavily on the state-federal Medicaid program. In 2010, the year it opened its new facility, 70 percent of its patient care revenues, or $370 million, came from Medicaid, according to an annual report cited in the suit.
All Children's will pay the federal government $4 million and the state of Florida $3 million. As a whistle-blower, Schubert, 61, who lives in Bradenton, will receive $1.9 million out of the state and federal figures.
Neither the hospital nor Schubert and her attorneys would comment in detail, citing a confidentiality clause.
Schubert's suit spoke of a "hiring spree" of physicians meant to insure more referrals. Some doctors, she claimed, were promised "significant bonuses based on the number of procedures performed" at the hospital.
She also alleged that former hospital CEO Gary Carnes and former vice president of strategic business services William "Bill" Horton saw their salaries more than double as a result of their physician hiring practices.
In its legal response, the hospital denied all her claims about executive and physician compensation.
"We cannot comment about this case and/or settlement beyond what has been stated in public documents,'' the hospital said in an emailed statement to the Tampa Bay Times on Thursday. "All Children's Hospital is a leader in children's health and we will continue to provide the best quality care for our patients and their families."
Founded in 1926, All Children's is among the area's most beloved institutions. In 2010, it opened a $400 million facility in St. Petersburg with 259 beds. The lawsuit tied that project to the hospital's need to boost revenues.
In the mid 2000s, the suit said, All Children's Health System "began to feel the sting of lost Medicaid patients and referrals as local competition increased and physicians began referring their patients to other facilities, just as the health system broke ground on a new, $400 million hospital facility."
All Children's offered certain physicians "hundreds of thousands of dollars in bonuses and perks, bought out private medical practices and overpaid new recruits," according to the suit.
By the third year of the effort, "some 80 physicians in 10 specialties" had been hired with exclusivity agreements and financial incentives to keep their referrals within All Children's, the suit said.
For example, a pediatric surgeon was hired at a base salary of $600,000, when the fair market value for a doctor with his experience was closer to $350,000, according to the suit.
The federal Ethics in Patient Referrals Act, known as the Stark law, prohibits compensation that benefits doctors for referring patients using Medicare and Medicaid, the insurance programs for seniors, the disabled and the poor.
Among Schubert's responsibilities at All Children's Pediatric Physician Services was developing market-based pay scales for physicians. After consulting physician salary surveys, she designed a plan setting base salaries between the 25th and 75th percentiles of national norms, based on the individual physicians' experience levels.
Instead, "They were paying whatever it took to get these doctors onboard," Christopher Casper, Schubert's attorney with the James Hoyer Law Firm, said shortly after the lawsuit was unsealed in 2012.
Schubert "felt strongly that it was important to come forward and risk the negative consequences to bring this to light," he said then.
In 2011, All Children's joined Johns Hopkins Medicine, which brought in outside consultants to review the compensation contracts, the lawsuit says.
Hospital officials would not say whether the lawsuit has spurred changes to hiring or payment practices. In its email to the Times, it said the hospital "has always been committed to bringing the highest quality physicians" to the community and "pay fair market value for their services."
Schubert left All Children's in 2011.
Times researcher Caryn Baird contributed to this report. Waveney Ann Moore can be reached at firstname.lastname@example.org or (727) 892-2283.