Hospital Self-Disclosure Led to $14 Million Settlement

In September 2024, the Department of Justice (“DOJ”) announced that Siouxland Surgery Center LLP, doing business as Dunes Surgical Hospital (“DSH”), United Surgical Partners International Inc. (“USPI”), and USP Siouxland Inc. have reached a settlement to resolve allegations of False Claims Act violations arising from improper compensation arrangements with two physician groups. According to the Settlement Agreement, the parties have agreed to pay approximately $14 million collectively to the United States and the settling states, of which approximately $9.5 million is restitution. DSH is a 38-bed short-term acute care hospital in Dakota Dunes, South Dakota. DSH is a wholly owned subsidiary of USPI, based in Dallas, Texas, which maintains ownership in more than 480 surgical hospitals and ambulatory surgery centers throughout the United States. USP is a wholly owned subsidiary of USPI, which acquired partial ownership of DSH in 2014, at which point USP also undertook day-to-day management responsibilities of DSH.

The Settlement Agreement states that in April 2021, DSH and USP self-disclosed possible violations of the Stark Law and the Anti-Kickback Statute through HHS OIG’s Self-Disclosure Protocol. Specifically, the Settlement Agreement stated that the self-disclosed conduct included (1) providing free and below fair market value (“FMV”) clinic space, supplies, and employees to Dunes Anesthesia, P.C. d/b/a Siouxland Pain Clinic (“SPC”); and (2) providing financial contributions (between $300,000 and $375,000 per year) to the CNOS Foundation, an organization affiliated with CNOS (The Center for Neurosciences, Orthopedics & Spine) P.C. (“CNOS”). SPC and CNOS are physician groups whose patient referrals accounted for a significant portion of procedures at DSH during the relevant period, i.e., between May 2014 and December 2019. USPI’s 2019 implementation of a new audit and compliance review program was credited with identifying the problematic issues.

The Settlement Agreement also states that once the concerning relationships were identified, DSH, USPI, and USP took steps to remediate matters by removing the employees responsible for the conduct and ending the problematic transactions with SPC and CNOC. The parties cooperated with the government investigation following self-disclosure, which qualified them to receive credit under DOJ’s guidelines for taking disclosure, cooperation, and remediation into account in False Claims Act cases. While there has been no determination of liability, under the settlement agreement, Dunes, USP, and USPI will be released from any future civil monetary claims regarding the covered conduct by the United States; however, the United States did not release liability under the Internal Revenue Code, or general criminal liability, among other reserved liabilities.

Valuation Takeaway

The settlement underscores the substantial risk to hospitals in unchecked financial relationships with physicians and the benefits of self-disclosure upon discovering problematic arrangements. It reinforces the importance of ensuring that financial arrangements with physicians for any type/amount of service provision are fair market value, commercially reasonable for necessary services, and entirely free from any expectation of referrals.

BFMV specializes in the valuation of healthcare businesses, assets, and services. Contact us for third-party opinions or questions regarding fair market value compensation for physician services.