A Texas hospital’s recent settlement demonstrates that equity grants to physician owners, if not structured appropriately, can trigger government scrutiny and implicate fraud and abuse laws.
On November 29, 2021, Flower Mound Hospital Partners LLC, a partially physician-owned hospital in Flower Mound, Texas, agreed to pay $18.2 million in settlement of allegations that it violated the False Claims Act by knowingly submitting claims to the Medicare, Medicaid and TRICARE programs arising from violations of the Physician Self-Referral Law (“ Stark Law”) and the Anti‑Kickback Statute (“AKS”).
Flower Mound Hospital was specifically accused of violating the Stark Law and AKS by conditioning its physicians’ ownership interest on their volume of referrals. The Hospital allegedly repurchased 20 percent of the shares of each physician-owner age 63 and older, and then resold those shares to a list of physicians selected based on the amount of referrals brought to the Hospital. The Hospital’s Bylaws and Company Agreement also allegedly required physician owners to have at least 24 “patient contacts” to maintain ownership. Notably, the 24- “patient contacts” requirement was more than double similar requirements at area hospitals, exceptions or waivers were not permitted, and “patient contacts” was narrowly defined to include only procedures performed at the Hospital.
The Flower Mound settlement underscores the Department of Justice’s continued focus on enforcing the False Claims Act. In 2020 alone, the DOJ recovered over $2.2 Billion from False Claims Act cases, and an average of 13 cases of qui tam cases were filed through the Act each week.
In light of Flower Mound and the harsh penalties associated with the False Claims Act — including treble damages and possible exclusions from federal programs — healthcare entities should carefully scrutinize their ownership structures and procedures to ensure physician equity is never conditioned on the volume or value of referrals.
