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Covenant Medical Center Pays $4.5M to Settle Stark Law Violations

John Commins, for HealthLeaders Media, August 27, 2009

Covenant Medical Center in Waterloo, IA, will pay $4.5 million in fines to resolve allegations that it allegedly violated the False Claims Act, according to the Department of Justice.

Federal investigators had alleged that Covenant submitted false claims to Medicare by having improper financial relationships with five physicians that violated the Stark Law.

Covenant issued a statement noting that it admitted to no guilt in the settlement, and that its decision to resolve the case was based only on business concerns about the expense and uncertainty of pursuing the protracted litigation.

Prosecutors say Covenant paid commercially unreasonable compensation—far above fair market value—to five employed physicians who referred their patients to Covenant for treatment. These physicians were among the highest-paid hospital-employed physicians not just in Iowa, but in the entire United States.

"This payment is the largest ever related to claims of healthcare fraud in the Northern District of Iowa," said US Attorney Matt M. Dummermuth of the Northern District of Iowa.

Covenant issued the following statement: "From the beginning of this inquiry, Covenant Medical Center fully cooperated with the government and provided extensive evidence to the government that the physician compensation was consistent with the approved compensation plan, was based on work personally performed by the physicians, and reflected their exceptionally high level of productivity. The government never disputed Covenant's assertion that the compensation paid to the employed physicians was based on work performed by these highly productive physicians.

"This settlement is not an admission of wrongdoing; Covenant believes the government did not produce any evidence that Covenant had engaged in wrongdoing or illegal conduct. 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. Covenant will continue to maintain its robust voluntary compliance program and will not be subject to an oversight or monitoring agreement by the Office of Inspector General as a result of this settlement," according to Covenant.


John Commins is a senior editor with HealthLeaders Media.

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