DMC, former and current owners to pay $29.7M settlement in alleged Medicare kickback scheme

The Detroit Medical Center and its current and previous owners agreed to pay a $29.7 million settlement to resolve allegations the companies operated a kickback scheme and falsified Medicare claims for roughly three years, the Department of Justice announced Wednesday.

Federal prosecutors alleged that DMC's Sinai-Grace and Harper University hospitals set up an arrangement to encourage physicians to refer Medicare patients to DMC facilities.

DMC selected 13 physicians who had referred large numbers of patients to its hospitals and provided the services of DMC-employed practitioners to those physicians at no cost or below fair market value between 2014 and 2017.

The Justice Department said DMC "provided kickbacks" to those referring physicians.

"This outcome makes clear that when doctors refer patients for care at hospitals, they must do so based on their own professional judgment and the medical needs of their patients, not personal financial benefit," said U.S. Attorney Dawn Ison for the Eastern District of Michigan in a statement. "Our office stands ready to scrutinize even the most complicated financial arrangements and to pursue justice wherever appropriate."

A whistleblower, former Wayne State University Medical School employee Dr. Jay Meythaler, will receive $5.2 million as part of the $29,744,065 settlement. Meythaler could not be immediately reached for comment Wednesday night.

"Paying and accepting kickbacks encourages providers to put personal financial gain before the needs of their patients," said Special Agent in Charge Mario Pinto of the Department of Health and Human Services Office of Inspector General in a statement.

"As this case demonstrates, those who enter into such improper arrangements and put the safety of their patients at risk will be held accountable."

The lawsuit filed in 2015 alleged DMC leased nurse practitioners or physician assistants to private physicians without collecting full payment in order to induce those physicians to send their patients to DMC, DMC spokesperson Brian Taylor said in a statement.

DMC denies there was an improper purpose to those arrangements. Taylor said no new leases were executed once Tenet owned DMC facilities.

“DMC, Vanguard and Tenet admitted no liability in settling the matter,” Taylor said. “Once we became aware of the allegations, Tenet and DMC fully cooperated with the government throughout its investigation. The matter was resolved fully to avoid the expense and operational distraction. We remain committed to full compliance with all state and federal health care program requirements and providing high-quality care to serve our community.”

DMC operated as a nonprofit hospital system until late 2010, when it transferred its facilities to Vanguard Health Systems Inc. In 2013, Tenet Healthcare Corp. acquired Vanguard's hospitals, including DMC.

Tenet and Vanguard agreed to pay the $29.7 million settlement along with DMC, according to the Department of Justice.

Federal prosecutors alleged the companies violated the Anti-Kickback Statute, which prohibits offering, paying, soliciting or receiving remuneration to induce referrals through Medicare or other federal health care programs.

The settlement also resolves claims filed by Meythaler under the False Claims Act, which states it is illegal to submit false or fraudulent claims to Medicare or Medicaid.

Meythaler raised those claims through whistleblower provisions in the act that allow private parties to file actions on behalf of the federal government and receive a portion of the settlement.

"The Justice Department will pursue improper arrangements that have the potential to compromise physicians’ medical judgment," Deputy Assistant Attorney General Michael Granston said in a statement. "Physicians should evaluate where to send patients for medical services based on the quality of care the patients will receive, not the financial benefits that the physicians will reap."

DMC has faced mounting scrutiny from state and federal authorities and high-level staff departures in recent years.

In April, the U.S. Department of Labor's Wage and Hour division found DMC owed 13 employees $46,864 in back wages and damages for working through meal periods in 2022.

Last year, Sinai-Grace and DMC's Detroit Receiving hospital were found to be out of compliance with federal health standards. The Centers for Medicaid and Medicare Services warned they could lose their ability to participate in the federal programs, although the hospitals later passed inspection. Both hospitals meet CMS criteria, according to the online CMS database.

Federal inspectors in 2018 found that Detroit Receiving stopped surveying surgical site infections, even for patients exposed to dirty surgical instruments, because of staff cuts.

An oversight board established to ensure DMC’s owners maintained their commitment to the community raised red flags over the years, warning of deteriorating conditions, a damaged reputation, a declining interest in training and a lost accreditation program. Ultimately, the board said Tenet met most of its commitments but warned it was unable to monitor the quality of care at DMC.

ckthompson@detroitnews.com