Wednesday, May 10, 2006

HHS Seeks to Knock Out San Diego Hospital

The Office of the Inspector General for the Department of Health and Human Services is seeking the ultimate punishment against a San Diego hospital by seeking to bar it from participating in federal healthcare programs, most importantly Medicare and Medicaid.  An OIG release (here) states that the Department has issued a notice to Alvarado Hospital Medical Center and its corporate parent, Tenet HealthSystems Hospitals, Inc., that it is seeking the bar because of alleged illegal kickbacks paid to doctors in exchange for patient referrals.  Alvarado and its CEO have been tried twice on criminal anti-kickback and fraud charges in federal court in San Diego, and a hung jury resulted in mistrials both times.  The U.S. Attorney's Office for the Southern District of California is considering whether to try the defendants again, but in the meantime HHS has acted to seek the "nuclear option" in healthcare that would likely cause the hospital to go out of  business.  According to the OIG release:

OIG alleges that, from 1992 to 2003, Alvarado entered into physician relocation agreements through which Alvarado funneled money to existing physician practices in the San Diego area in exchange for patient referrals. Although the relocation agreements were purported to benefit the doctor who actually relocated to the San Diego area, in practice, the agreements primarily benefited the established physician practices where the new doctors were placed. OIG contends these often-excessive payments actually were used to buy referrals. The agreements typically provided the new physician a monthly salary and a monthly guarantee for overhead expenses. The new physician paid this money over, in large part, to the established practice. The agreements also provided the existing physician practices directly with money intended to make improvements to their offices and purchase equipment necessary to accommodate the new physician.

It will be interesting to see if Tenet decides to fight the OIG action, or whether it can resolve the case short of an exclusion from the federal healthcare programs.  Alvarado is a 306-bed hospital that provides the following medical care: "cardiac services, emergency medicine, general surgical services, neuroscience, orthopedics, oncology, rehabilitation, skull base surgery, surgical weight reduction and vascular services."  A company press release (here) states:

We have been attempting in good faith to resolve the Alvarado matter with the federal government.  We believe that nothing in the hospital’s practice of recruiting physicians to eastern San Diego County warrants a forced sale or closure of the hospital – especially given the lack of any evidence that any physician compromised his or her medical judgment when referring a patient to Alvarado.  Two trials in San Diego have ended after both juries deadlocked on whether anyone at Alvarado intended to violate the law regarding physician relocation agreements.  Despite this unfortunate action by the OIG, we will continue to discuss an overall resolution and we hope to reach an equitable result.

That does not sound particularly defiant, so it's likely there will be some penalty assessed, which means the issue will be how much Tenet will have to pay in penalties and possible changes to its agreements with physicians. (ph)

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Has this "nuclear option" ever been sought against a health care provider before? And if Tenet is being singled out in a novel fashion, why? Because of their prior offenses as National Medical Enterprises?

Or, alternatively, is this a sign that the U.S. Attorney's Office in San Diego is not going to pursue a third trial against Alvarado? Anyone have any insight on this?

Posted by: TCS | May 10, 2006 12:42:05 PM


I'm aware of one other case involving South Shore Community Hospital in Miami. Below is a link to an earlier post about it. I suspect there have been other cases, but I'm not an expert in the area so I can't say for sure. In the Miami hospital case, someone who knows the area far better than I said that the closure of the hospital would not have affected healthcare in the area because there are a surplus of beds and it was as small facility.

I get the impression that Alvarado is much bigger, and of course Tenet is a leading corporation in the field. I suspect the problems at Tenet, going all the way back to NME, play at least some roll in the decision to prosecute and to seek the exclusion from federal healthcare programs, an almost-certain "kiss of death" for the hospital. The question about whether this signals an end to the criminal prosecution is a good one, and I would bet the answer is yes, but that's just a guess (and gut reaction). An even better signal would be a civil action against the hospital's former CEO who was also a defendant in the criminal case.

Posted by: Peter Henning | May 10, 2006 6:08:01 PM

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