Waterloo hospital to pay $4.5 million for false claims allegation

Covenant Medical Center is paying $4.5 million to settle claims that it improperly used Medicare money to pay five doctors to refer patients to the Waterloo hospital, making the physicians among the highest-paid doctors in the country.

“This payment is the largest ever related to claims of health care fraud in the Northern District of Iowa,” U.S. Attorney Matt Dummermuth said on Tuesday.

The U.S. Justice Department alleged that the five doctors employed by Covenant were paid far above market value, disqualifying them from receiving Medicare dollars.

“They can do the referrals. That's not necessarily the problem,” Dummermuth said. “It's the combination of the referrals without being fair-market value and commercially reasonable. That's what has potential to compromise the medical judgment, when there's improper financial incentives potentially at play there.”

Dummermuth would not say how the government determined fair-market value for the physicians.

In a written statement, Covenant denied any wrongdoing. Covenant claimed federal prosecutors found no evidence of illegal conduct, and the hospital called the five physicians “highly productive.”

“Covenant Medical Center made a business decision to settle to avoid the uncertainty of litigation, disruption and high expense associated with protracted litigation with the government, despite our firm belief that Covenant's compensation to its physicians was reasonable and fell within fair-market value,” the statement said.

The government claimed the amount the hospital paid the five physicians violated the Stark Law, which prohibits improper compensation agreements between physicians and hospitals.

“Those claims for reimbursement under Medicare were tainted by this improper financial arrangement,” Dummermuth said. “The Department of Justice received more than one complaint back in 2005 about Covenant, and that prompted the start of the investigation.”

Neither Covenant nor the government would name the five doctors. But Covenant spokesman Chris Hyers said the doctors in question are two orthopedic surgeons, two neurosurgeons and a gastroenterologist.

The hospital's highest-paid physician, gastroenterologist Victor Lawrinenko, was part of the inquiry and was paid $1.8 million in 2008, Hyers said, but it's unclear whether the next four highest-paid physicians were part of the inquiry.

The investigation by the U.S. Justice Department and the Department of Health and Human Services began in 2005.

Dummermuth said the government “is actively working with our investigative partners to ensure Medicare funds are properly spent, and we will continue to aggressively pursue all types of fraud in order to protect federal health care dollars.”

The matter was handled jointly by Assistant U.S. Attorney Robert M. Butler, and Amy L. Easton, a trial attorney for the Justice Department's commercial litigation branch, with investigative assistance provided by the Office of the Inspector General, Department of Health and Human Services.