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All Children's Hospital to be cautious of conflict in hiring doctors

All Children’s Hospital paid $7 million to settle accusations that it violated federal law by overpaying physicians to get lucrative patient referrals. 
Published May 4, 2014

ST. PETERSBURG — All Children's Hospital says it will continue hiring its own doctors, despite having to pay $7 million to settle accusations that it violated federal law by overpaying physicians in order to get lucrative patient referrals.

In a whistle-blower lawsuit, a former employee alleged All Children's did whatever was necessary to recruit coveted staff, from courting one surgeon with a $600,000 salary and a promise to hire his physician wife, to paying four neurosurgeons salaries and bonuses worth more than $1 million each. This became a matter of federal and state interest because All Children's draws 70 percent of its revenue from Medicaid, the public insurance program for the poor.

All Children's president Dr. Jonathan Ellen was not employed there during the time frame covered by the lawsuit. In a meeting with the Tampa Bay Times editorial board Wednesday, he denied any wrongdoing by the hospital, saying officials decided to settle to avoid further legal costs. He said his hospital must continue hiring doctors, rather than just giving staff privileges to outside physicians, in order to meet the institution's goals for patient care, research and education.

The future of health care lies in coordination that emphasizes wellness, a goal best achieved, he said, when physicians and hospital are financially entwined. Hiring physicians is a trend hospitals across the nation are embracing, especially as the federal health care law puts further consolidation pressures on medical providers.

Ellen acknowledged more questions could arise as the hospital continues to recruit pediatric specialists. But asked what All Children's will do to avoid future allegations over physician pay, he could offer only an age-old strategy:

He crossed his fingers.

• • •

At issue is the federal Stark law, which prohibits physicians from making referrals to hospitals with which they have a financial relationship. Such arrangements can create conflicts of interest that lead to unneeded procedures and tests, driving up health care costs.

The law allows an exception for hospital-employed doctors — as long as their compensation is set at "fair market value" and doesn't take into account the volume or value of referrals.

That's where All Children's tripped up, argued whistle-blower Barbara Schubert.

Schubert, operations director for the hospital's doctors practice from 1998 to 2011, created a plan to keep salaries and benefits in line with industry norms. The practice's board of directors adopted the plan in 2007.

She drew on three nationwide salary surveys to determine fair-market salary ranges. The pay package guaranteed a base salary that would be at least in the 25th percentile, but not above the 75th percentile.

"Internally, it was little more than a facade," her lawsuit said.

The reason, she said, was that All Children's was losing business just as the health system broke ground on a $400 million facility. It needed referrals to boost revenue, she said.

According to her lawsuit, around 80 physicians were added to the staff at least through 2011 — nearly a third of them with salaries that exceeded the 75th percentile of comparable salaries, with no justification. The lawsuit alleges:

• Nine emergency room doctors were paid salaries of $250,000 to $330,000 — yet the compensation plan called for no more than $179,800.

• Fearing it was losing surgical business to Tampa General Hospital, All Children's successfully courted a pediatric surgeon by agreeing to pay a $600,000 base salary and also hire his physician wife on a per diem basis. The salary alone put him above the 90th percentile of pediatric surgeons nationwide.

• Four neurosurgeons who had also been practicing at TGH and St. Joseph's Hospital in Tampa were hired at All Children's with compensation packages — salaries, bonuses and on-call pay — capped at just over $1 million a year.

• When hiring three cardiologists from a contractor, the hospital also agreed to hire their attorneys should their former employer sue them for breach of contract — without capping their liability.

The two executives who oversaw the hiring — former chief executive officer Gary Carnes and vice president William Horton — were "rewarded handsomely for their efforts," the lawsuit says. Carnes' salary of $603,981 in 2007 soared to $1.2 million in 2008. Horton's salary of $225,829 in 2007 more than doubled to $526,128 the next year.

• • •

Hospitals often hire experts to develop compensation packages that will comply with the Stark law, said Bob Wade, an Indiana health care lawyer who specializes in the law.

Wade said there can be some flexibility, though hospitals must make a case for it. He said a doctor's personal productivity can be taken into account. Indeed, a federal judge in the All Children's case dismissed an allegation over a bonus for a plastic surgeon because the incentive was based on productivity, not referrals he made.

Ellen declined to comment specifically about pay practices, but said the hospital hasn't changed how it pays doctors. Noting that certain pediatric specialists are in high demand, he did say that the hospital tightened documentation to justify cases in which a doctor receives a salary beyond the plan range.

The implications of losing a Stark case are huge.

Consider the case of Halifax Health, a public hospital in Daytona Beach that in March paid $85 million to settle whistle-blower charges.

Halifax acknowledged paying six oncologists incentives based partly on how many prescriptions and tests they ordered and paying three neurosurgeons more than the fair market value.

The Stark law originally applied only to referral of patients with Medicare, the program for seniors and the disabled, though the All Children's case shows Medicaid could increasingly be a focus.

All Children's, which in 2011 joined Johns Hopkins Medicine, would not estimate its potential liability, which could have included claims repayment plus heavy fines and court costs. The hospital agreed to pay a $7 million settlement to state and federal governments, of which Schubert gets $1.9 million, out of its operating margin, said Ellen, adding neither philanthropic dollars nor government funds will be used.

Charles Oppenheim, a California lawyer who works on Stark law cases, said that as hospitals keep buying up physician practices, he expects to see more cases pursued by whistle-blowers and federal authorities.

"The law's been around for a while," he said, "but I think it's getting more and more play."

Jodie Tillman can be reached at jtillman@tampabay.com.

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