Texas Hospital Group Pays U.S. $27.5 Million to Settle False Claims Act Allegations

On October 30, 2009, the U.S. Department of Justice reported that McAllen Hospitals has agreed to pay $27.5 million to resolve claims that it violated the False Claims Act. Between 1999 and 2006, the Texas-based company, which conducts business as South Texas Health System, induced doctors to refer patients to their hospitals through fraudulent payments disguised as contracts.

Bruce Moilan, a former employee of McAllen Hospitals, will receive $5.5 million from the proceeds of the settlement. Under the False Claims Act, whistleblowers such as Mr. Moilan can bring suits on behalf of the government and are entitled to a share of any settlements.

As part of the agreement, South Texas Health Systems will enter into a 5-year Corporate Integrity Agreement that requires it to establish procedures for tracking and evaluating financial arrangements between its health care facilities and their referral sources. The agreement also requires specific training for South Texas Health System representatives involved with financial arrangements, an independent third-party’s annual review of the health system’s compliance with certain Corporate Integrity Agreement obligations involving financial arrangements, and a report to the Office of Inspector General by the independent third-party reflecting the results of the review.

“Improper financial arrangements like these can increase the cost of health care by shifting provider attention to the quantity of treatments, rather than keeping it focused on the quality of care,” said Department of Health and Human Services Inspector General Daniel R. Levinson. “The CIA is important because it requires South Texas Health System to put systems in place to prevent this conduct from happening in the future.”