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Paul Zimmerman
pzimmerman@mrllp.com
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Health Care Company to Pay $514 Million to Settle Kickback Allegations

Tenet Healthcare Corp. has agreed to pay states and the federal government $514 million to settle allegations that its hospitals in Georgia and South Carolina paid kickbacks for obstetric referrals. This massive settlement illustrates the importance of health care services companies (i.e. hospitals) not only implementing a detailed compliance program but also valuing complete transparency with regard to business relationships, particularly when it comes to maintaining open communication with counsel.

Under the settlement, which must still be approved by a court, two Tenet subsidiaries will plead guilty to one count of conspiracy to violate federal kickback laws. The agreement would resolve a criminal investigation and civil litigation regarding allegations that four Tenet hospitals paid kickbacks for referrals of low-income patients from an operator of prenatal clinics. It includes a criminal forfeiture of $145 million and False Claims Act payouts totaling $368 million, of which an FCA whistleblower will get $84 million.

According to court documents, Tenet asked its in-house and outside lawyers to review and approve agreements between two Georgia hospitals — Atlanta Medical Center Inc. and North Fulton Medical Center Inc. — and Clinica de la Mama (the prenatal clinic at issue in the case). However, it is suggested that crucial facts were often kept from those lawyers. "At various times throughout the conspiracy, certain executives at the Tenet hospitals ... concealed material facts from Tenet lawyers and outside counsel because they knew that the agreements would not be approved if the true nature of the Clinica arrangements were disclosed to the lawyers," according to a court document.

Tenet CEO Trevor Fetter issued the following statement regarding the company’s alleged activities: "The conduct in this matter was unacceptable and failed to live up to our high expectations for integrity. The relationships between the ... hospitals and Clinica de la Mama violated the explicit requirements of our compliance program and were inconsistent with the strong culture of compliance we've worked hard to establish at Tenet."

The alleged breakdown in Tenet’s compliance program demonstrates how critical it is to develop clear and comprehensive protocols regarding referral/marketing relationships in the health care industry. It also underscores the paramount importance of building a culture of transparency – which extends to legal counsel. Health Care entities should consult with experienced legal counsel and conduct a thorough review of all arrangements and transactions; there is often a fine line between smart business development strategies and fraud, and it is a line you do not want to cross – particularly with state and federal officials eager to make examples of bad actors in the health care sector. 

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.