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Community Health Network has agreed to pay out another $145 million to settle claims that it engaged in a years-long scheme to recruit physicians and pay them huge salaries and bonuses in return for referrals.
The payment includes $6.3 million to Community’s former chief financial officer, Thomas Fischer, who claimed he was fired in 2013 in retaliation for repeatedly asking questions about the large salaries paid to recruit physicians.
Community revealed the payment in a financial filing Monday afternoon. It includes legal expenses that took Community’s expense in the matter to $145.7 million.
The amount is in addition to the $345 million that Community paid in December 2023 to settle much of the case with the U.S. Department of Justice.
The latest settlement agreement is designed to finally close the door on an 11-year legal struggle that has played out in U.S. District Court in Indianapolis, racking up nearly 900 motions, orders and other filings.
“We have now settled all remaining claims with no finding of wrongdoing,” Community spokeswoman Kris Kirschner told IBJ on Monday.
The legal fight began when Fischer sued Community, claiming he was improperly fired in retaliation for raising numerous questions about the large salaries.
Fischer declined to comment Monday, referring IBJ questions to his lawyers, who did not immediately offer comment.
Community said in its financial filing that the claims had no merit, but it chose to settle to avoid expenses and risks associated with continuing litigation.
Community operates eight hospitals and hundreds of clinics, surgery centers and urgent-care centers.
The federal government had claimed that senior management at Community recruited hundreds of local physicians as far back as 2008 and paid them salaries that were significantly higher, sometimes double, than they were receiving in their former practices.
The Justice Department had claimed that violated a federal statute known as the Stark Law, which prohibits hospitals from billing for certain services referred by physicians with whom the hospital has a financial relationship, unless the physicians’ compensation are consistent with fair market value and not based on the value or volume of their referrals to the hospital.
The Justice Department had alleged that the compensation that Community paid to its cardiologists, cardiothoracic surgeons, vascular surgeons, neurosurgeons and breast surgeons was “well above fair market value.” It said Community awarded bonuses to physicians that were tied to the number of their referrals.
The government said Community was well aware of Stark Law requirements on physician compensation and even hired valuation firms to analyze the compensation. One of the firms, Indianapolis-based Katz, Sapper & Miller, concluded that the compensation was “staggering” and “high compared to productivity in all specialties and primary care.”
The other, Chicago-based Sullivan Cotter, found that the salaries were above fair-market value and needed to be below the 75th percentile of national benchmark salary data.
The alleged scheme, the government said, was brought to light with the help of Fischer, who served as Community Health’s chief financial officer for eight years before departing without explanation in 2013.
At the time, Community officials said Fischer resigned in a private meeting with Mills but declined to give any further explanation. Fischer, reached Monday by email, declined to comment, as he has all along.
Fischer filed a so-called “qui tam” lawsuit, more commonly known as a whistleblower suit, against his former employer in 2014, which was unsealed in 2019.
In his lawsuit, Fischer said Community Health began a campaign around 2009, under Mills, to beef up the number of physicians employed by the network.
Between 2008 and 2013, Community Health nearly doubled the number of physicians it employed, from 191 to 360, Fischer’s lawsuit said. But the health system paid the doctors such high compensation packages that it lost $132 million in 2013 on its employed physicians, his complaint said.
The Justice Department later intervened in the matter, and Community settled that portion of the case for $345 million last year, and agreed to enter into a five-year Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of Health and Human Services.
The latest settlement agreement resolves the remaining claims with Fischer in which the Department of Justice and the state of Indiana did not intervene.
A payment of the DOJ and State of Indiana settlement of $135 million plus interest was paid earlier this month, Community said. The $6.3 million payment to Fischer will be paid in January.
Fischer’s attorneys’ fees are still being negotiated but Community accrued $14 million in its consolidated balance sheet.
Community issued the following statement Monday evening to IBJ:
“Last December, Community Health Network settled a 10-year-old legal matter with the federal government. At that time, certain claims made by a former employee, which the government chose not to pursue, remained pending.
We have now settled all remaining claims with no finding of wrongdoing.
It is important to note that these issues are unrelated to the quality or appropriateness of the exceptional health care Community provides its patients.
The resolution of this civil matter allows Community to fully focus on its core mission of enhancing the health and well-being of the communities it serves.”
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