Federal court unseals lawsuit claiming kickbacks, Medicare/Medic

UPDATED: Court unseals suit claiming major fraud against Covenant Health

Posted: Updated:
LUBBOCK, Texas -

U.S. Senior Judge Sam Cummings has unsealed a 2016 whistleblower lawsuit against three Covenant entities and its parent system, claiming a "closed loop" kickback scheme coerced physicians to refer admissions and medical services exclusively to Covenant services, in violation of federal and Texas law.

Court records indicate Dr. Howard Beck was a high-level employee at Covenant when the Department of Justice filed the lawsuit in September 2016, and had been there since Covenant Health's induction in 1998. The lawsuit indicates Beck brought his personal knowledge to the U.S. Attorney in Central California -- where St. Joseph's Health, Covenant's parent when the suit was filed, was headquartered -- for the office to pursue.

Beck told the government Covenant Medical Group used excessive compensation to convince doctors to refer exclusively to Covenant services in order to generate a significant revenue stream for Covenant Health -- that, in turn, transfers millions of dollars to the Covenant Medical Group to maintain the inflated salaries. A statement from Dr. Beck's attorney states the suit seeks to recover "billions of dollars of improper Medicare and Medicaid claims paid by the government".

Citing tax year 2013, the lawsuit claims 15 out of Covenant Medical Group's 23 physicians were paid in excess of $100,000 more than the 90th percentile of an American Medical Group Association survey. The lawsuit cites one interventional cardiologist was paid $2,028,112 in 2013, while the 90th percentile of AMGA interventional cardiologists were paid $757,294. The lawsuit calls this "commercially unreasonable."

The lawsuit claims those "exorbitant salaries" induce cardiologists to refer diagnostics, pacemaker placement, angioplasty, stents, and intense surgeries exclusively to Covenant doctors; those costly procedures are then reimbursed by insurers -- including Medicare and Medicaid -- at desirable rates, forming a key source of revenue for Covenant Health and its parent company when the suit was filed, St. Joseph Health. The parent company is now Providence St. Joseph Health.

The salaries, the lawsuit claims, forced the Covenant Medical Group to operate at a loss for years, but realize substantial gains from hospital admissions and those ancillary service referrals. This table was in the lawsuit's body.

Tax Year Revenue Less Expenses
2009  $-22,318,239
2010  $-20,621,653
2011  $-25,204,356
2012  $-23,996,881
2013  $-23,241,248

Oppositely, the lawsuit claims, Covenant Health -- a separate entity than the Medical Group -- reported a net income of $62,070,236 in 2013, as well as $35,748,437 in 2012.

The lawsuit claims Covenant Health, Covenant Medical Center, and St. Joseph's Health compensate for the massive losses at CMG, allowing CMG to continue paying out the hefty salaries while referring patients into the "closed loop" system.

The lawsuit claims all the referrals made from Covenant Medical Group physicians to the Covenant Medical Center are illegal kickbacks, because Covenant Health keeps the Medical Group afloat to continue referrals; non-compliance with the federal anti-kickback statutes violates participation in federal health insurance programs (Medicare, Medicaid), and constitutes fraud. 

The lawsuit claims Covenant continued to bill the government for self-interested referrals from its extensive network of 250 physicians.

At attorney for Dr. Beck, Gaines West, said in a statement the suit was on file for several years but was only unsealed today so that it could proceed. West promised "vigorous prosecution of these claims for the benefit of the federal government and all taxpayers".

The U.S. government, as the plaintiff, asks the federal court to order St. Joseph's Health (California), Covenant Health, Covenant Medical Group, and Covenant Medical Center, to pay three times the amount of damages the federal government and Texas have sustained, plus civil penalties; as well as place a permanent injunction on the defendants from such unfair competitive acts.

The U.S. Attorney for Lubbock's region declined to intervene in the lawsuit Monday, but will allow Dr. Howard Beck to continue with the U.S. government as a plaintiff. The case can't be dismissed without the government allowing it. While all previous docket items will remain sealed, from Tuesday forward, the case will be public record. The U.S. Attorney could still intervene in the case at any time. 

Covenant Health System issued the following statement Tuesday evening: 

Covenant Health System was contacted by the U.S. Department of Justice ("DOJ") in 2017 seeking information concerning whether it paid employed physicians compensation about fair market value. Covenant cooperated fully with the DOJ and provided information concerning the basis for the compensation paid to its physicians. Importantly, after reviewing all the information provided by Covenant, DOJ declined to intervene in this lawsuit.

The allegations in Dr. Beck's civil False Claims Act lawsuit apparently prompted the government's inquiry.

Covenant Health System has not yet been served or had adequate time to review each of the allegations. Therefore, we cannot comment other than to say that Covenant follows rigorous standards for Medicare and Medicaid reimbursement claims, based on all relevant regulation and supported by our core values. Because the lawsuit is pending, we are not in a position to comment any further.

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