The Department of Justice announced earlier this week that the government had settled claims under the False Claims Act with St. Mary Medical Center (SMMC) of Bucks County, Pennsylvania for improperly administering certain physician income guarantee agreements.

According to the self-disclosure and resulting  investigation, between January 2005 and August 2010, SMMC had 15 physician income guarantee agreements in place for recruited physicians, but  failed to properly administer the terms of certain of these contracts. Income guarantees are payments provided by a hospital to a physician (or to the physician practice that the physician joins) in order to induce the physician to relocate their medical practice to the geographic area served by the hospital.  Such payment arrangement must be carefully structured in order to meet the requirements for such arrangements set forth in the federal Stark regulations.  As reported by a Department of Justice press release, SMMC’s payments under certain of the income guarantee agreements  resulted in net overpayments to certain recruited physicians.  Because the physicians and their practices referred patients to SMMC for medical treatment that was billed to federally funded programs, the government alleged that false claims were submitted to the government.  After it discovered the problem, SMMC took corrective action to resolve the improper payments, and disclosed the matter to the United States Attorney’s Office. SMMC agreed to pay $2,339,224.70 to resolve the matter.  The settlement serves as a reminder that while physician recruitment agreements (such as those involving income guarantees) must be carefully drafted to avoid non-compliance with the Stark law and regulations, execution of the payment arrangement is equally important and must be monitored on an ongoing basis.