Recent Settlement Illustrates Enforcement Risks Associated With Physician Roll-Ups

On December 2, 2021, the Department of Justice (“DOJ”) issued a press release announcing that Flower Mound Hospital Partners (“Flower Mound”), a partially physician-owned hospital, agreed to pay just over $18 million to resolve allegations that it had violated the False Claims Act by submitting claims that violated the Stark Law and the Anti-Kickback Statute.

The settlement was based on allegations that Flower Mound had induced referrals by repurchasing shares from retiring physician-owners and then allocating those shares to other physicians based on the physicians’ expected referrals.  DOJ alleged that this arrangement violated the AKS and the Stark Law because it induced the new physician-owners to refer patients to Flower Mound and because it effectively conditioned physician ownership on making or influencing referrals.  In connection with the settlement, Flower Mound also entered into a five-year Corporate Integrity Agreement (“CIA”) with the Department of Health and Human Services Office of Inspector General.

When physicians choose to consolidate their practices under one umbrella organization, a practice known as a “roll-up,” they often obtain equity in the umbrella organization.  Spurred by private equity investment, physician roll-ups have trended upward in recent years.  But as the Flower Mound settlement demonstrates, equity grants as part of roll-ups, if not structured appropriately, can implicate healthcare fraud and abuse laws and trigger government enforcement scrutiny.

The settlement agreement can be found here.

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