Memorial Health Care System to pay $1.3 million

photo Memorial Hospital is one of three major downtown hospitals.

Memorial Health Care System will pay more than $1.3 million to settle claims it allowed two doctors to use space at the hospital without paying adequate rent and provided space and services at a price lower than market share, according to a settlement the hospital reached with the U.S. attorney's office and other government agencies.

According to the settlement, Memorial entered into a series of financial arrangements with certain physicians and physician groups, beginning in January 2003, that were inconsistent with fair market value and intended in part to induce physicians to refer patients to Memorial facilities.

These arrangements violated the Ethics in Patients Referrals Act -- known as the "Stark law" -- and the Anti-Kickback Statute, the settlement alleges, and resulted in the submission of false claims to the Medicare system.

The laws are intended to protect patients by ensuring that physicians make referrals based on the patients' best interests without being influenced by payments or financial benefits from hospitals, according to the news release from U.S. Attorney Bill Killian's office.

Memorial, a nonprofit owned by Catholic Health Initiatives, did not admit to any wrongdoing in the settlement.

In a news release Thursday, Memorial noted it self-disclosed the lease agreements in December 2009 after it found leases that may have been out of compliance with the federal Stark law.

"We found a problem, we quickly self-disclosed to the appropriate authorities, we corrected the situation and we cooperated fully with the subsequent U.S. attorney's inquiry," Memorial President and CEO James Hobson said in the news release.

The investigation into the alleged violations at Memorial began in early 2009, the U.S. attorney's news release said.

It also noted that before Memorial was specifically notified of the investigation, it self-reported and then cooperated with the investigation.

"This is an excellent example of how a health care provider can self-report billing concerns to the government and avoid costly false claims litigation," said Derrick Jackson, special agent in charge with the Office of Inspector General of the Department of Health and Human Services in Atlanta.

The settlement said Memorial provided time-share space and support services to sleep centers at two of its facilities.

The sleep center agreement negotiated with the hospital between 2003 and 2009 was lower than fair market value, the settlement said.

Memorial also allowed Dr. Anuj Chandra -- affiliated with the sleep centers -- to use space for half a day a week more than permitted in his lease without paying additional rent to Memorial. Another doctor, Dr. Channappa Chandra, was allowed to use a storage closet at Memorial rent-free and without a written agreement, the settlement said.

Under the terms of the settlement, Memorial will pay the amount within 10 days.

In 2005, Erlanger Health System paid $40 million in penalties after a three-year probe, the largest civil penalty ever paid by a hospital at that time, according to Times Free Press archives. The allegations involved four physician groups.

The Health and Human Services inspector general does not track settlements reached as a part of an investigation by the U.S attorney's office, according to spokesman Donald White.

It does track fines from groups that self-disclose violations. It levied eight such fines in 2011 and 17 in 2010, most for amounts less than $1 million.