The Justice Department said Monday that it has joined a whistle-blower lawsuit that claims Tenet Healthcare Corp., the No. 2 U.S. hospital chain, paid doctors to refer patients to a Florida hospital.
The fraud lawsuit, filed in Miami by a former employee, alleges that Tenet-owned North Ridge Medical Center in Fort Lauderdale, Fla., paid doctors who worked for the hospital more than fair-market compensation in exchange for Medicare patient referrals, beginning in 1993, according to the U.S. government.
The Justice Department said the practice violates a federal law that prohibits doctors from referring Medicare patients to hospitals with which the doctor has a financial relationship. Doctors are exempt if their pay is based on fair-market value and not on the number or kind of patients they refer.
Santa Barbara-based Tenet said the government's decision to join the lawsuit "is based on incomplete and inaccurate information" and said it will fight the suit.
Shares of Tenet fell $1.56 to close at $44.35 on the New York Stock Exchange. They've more than doubled in the last 12 months.
The company said the Justice Department is focusing on physician-employment agreements in one group practice affiliated with North Ridge. It said the contracts were made between 1993 and early 1995, when a Tenet subsidiary acquired the hospital.
Tenet said the contracts were "commercially reasonable" when they were negotiated because of the competitive environment in South Florida in the early to mid-1990s, when hospitals were hiring physician practices to get managed-care contracts.
Tenet said it had disclosed the lawsuit and a related subpoena in 1998 and 1999 filings with the Securities and Exchange Commission. The company said it has cooperated with the government on the matter.
The Justice Department described the differential between fair-market compensation and the compensation Tenet doctors received as substantial, though no figures were provided.
The government also said it will pursue allegations involving cost reports at North Ridge, though Justice Department spokesman Charles Miller declined to elaborate on those allegations.
The Justice Department didn't join the lawsuit's allegations that physicians at the hospital exaggerated the severity of some medical cases to obtain higher reimbursements.
The lawsuit was filed in 1997 by Sal A. Barbera, who worked in Tenet's physician-practice services unit in 1996 and 1997, Tenet spokesman Harry Anderson said. Barbera filed the lawsuit after he was fired, Anderson said.
The False Claims Act allows whistle-blowers to sue and share in any money the government recovers.
North Ridge, formerly part of the American Medical Holdings Inc. hospital chain, became part of Tenet in March 1995, when Tenet forerunner National Medical Enterprises bought American Medical.