Hospital Self-Disclosure Led to Settlement with DOJ

In April 2023, the Department of Justice (“DOJ”) announced that Sibley Memorial Hospital (“SMH”) and its parent company, Johns Hopkins Health System (“Johns Hopkins”), have agreed to pay $5 million (fully toward restitution) to resolve allegations of Stark Law violations arising from improper compensation arrangements with physicians. SMH is an urban 150+ bed hospital in Washington, DC, that became wholly owned by Johns Hopkins in late 2010.

According to the Settlement Agreement between SMH and DOJ, in early October 2011, SMH self-disclosed possible violations of the Stark Law to US authorities because of its 2008-2011 financial relationships with 10 named cardiologists that did not meet any Stark Law exceptions.[1] Specifically, the Settlement Agreement stated that the cardiologists had been paid above-fair market value (“FMV”) to read cardiovascular/peripheral vascular (“CV/PV”) studies and had referred patients to SMH for designated health services (“DHS”). SMH submitted payment claims to Medicare for the DHS, which DOJ disclosed as grounds for civil claims against SMH.

While there has been no determination of liability, under the settlement agreement, SMH and Johns Hopkins are released from any future civil monetary claims by the United States; however, the United States did not release liability under the False Claims Act, Internal Revenue Code, or general criminal liability, among other reserved liabilities. Notably, SMH and Johns Hopkins agreed to cooperate fully with all potential future DOJ investigations of individuals and/or entities not party to the settlement.

Valuation Takeaway

The settlement underscores the substantial risk to hospitals in unchecked financial relationships with physicians. 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.

[1] Under the physician self-referral law, or Stark Law, unless certain requirements are met toward specific exceptions, a physician is prohibited from making referrals for designated health services to any entity with which the physician has a financial relationship.