Medicare Compliance & Reimbursement

In what could prove to be the beginning of a high stakes kickback prosecution with ramifications affecting hospitals and physicians nationwide, a federal grand jury July 17 indicted a California hospital on criminal kickback charges.

According to U.S. Attorney Carol Lam, the 17-count indictment accuses Alvarado Hospital Medical Center and Tenet Health System Hospitals Inc. of paying for referrals through physician relocation agreements.

The indictment says that between 1992 and 2002, Tenet and Alvarado paid more than $10 million to fund over 100 physician relocation agreements. The agreements on their face are designed to recruit doctors to areas where there is a shortage of physicians, but the feds maintain that the relocation money was actually funneled to already-established physicians in exchange for referrals to Alvarado. Alvarado's chief executive officer has also been indicted in the case.

"Kickbacks to doctors can wear many disguises, including sham relocation agreements," Lam says. "They are still kickbacks, they are still illegal, and they threaten the integrity of our medical system."

Tenet officials counter that the Department of Justice is launching an assault on a commonplace - and essential - physician recruitment tool. "We believe this very broad indictment mistakenly attacks a well-established, lawful and common means by which U.S. hospitals attract needed physicians to their communities," says Tenet Healthcare Corp. President Trevor Fetter. "We are confident that our corporate policy on physician relocation agreements is entirely appropriate under the law, and we intend to defend ourselves vigorously."

"This prosecution, if successful, threatens a practice in the health care industry that is beneficial to communities," Fetter adds.

Lesson learned: Hospitals should take a second look at their physician recruitment practices to make sure they can't be perceived as running afoul of the anti-kickback law.