Suit alleges Methodist, West Clinic contrived $800M in fraud

Methodist Le Bonheur Healthcare is under a years-long federal investigation into whether it awarded more than $400 million, a significant portion in kickbacks, to a group of physicians in reward for business that generated $1.5 billion over seven years.

It is unclear whether the U.S. Attorney’s Office will join a lawsuit brought by two former executives against the hospital.

The lawsuit was originally filed in 2017 and sealed from public view while the government investigated. In September 2019, the government said it would not join the case, although its investigation continues.

“We haven’t made a decision yet as to whether we will intervene or not; we are still evaluating the case,” David Boling, public information officer for the U.S. District Attorney’s Office in Nashville, said Tuesday.

“We can neither confirm nor deny the existence of a criminal investigation. The case is moving forward, at least from the relators’ point of view, based on the filings. They are continuing with their side.”

Methodist Le Bonheur denies the claims.

“Methodist Le Bonheur Healthcare upholds the highest standards and complies with all legal and regulatory requirements,” the hospital said in a statement late Monday.

“Our professional agreements with The West Clinic and its physicians provided needed medical services for cancer patients. Our payments for the services provided were appropriate. We cooperated fully in the government’s investigation of these allegations, and we are pleased the government has decided not to intervene in the lawsuit at this time. The lawsuit lacks merit, and we will continue to vigorously defend ourselves.”

The West Clinic became aware that the government was reviewing its affiliation with Methodist and fully cooperated in that review, West CEO Mitch Graves said in a statement Wednesday.

In December 2019, it was revealed that the government’s review was the result of a lawsuit filed by a former Methodist Le Bonheur executive and a former dean at the University of Tennessee’s Health Science Center, Graves said.

West also learned that after conducting an extensive investigation, the government chose not to intervene in this lawsuit.

“We are disappointed that these individuals have filed this lawsuit,” Graves said. “West vigorously disagrees with the allegations in the complaint and looks forward to having the opportunity to prove them incorrect in a court of law.

“West was founded 40 years ago with the intent to provide integrative care with the most advanced treatment options for all patients, regardless of socioeconomic status,” he said. “We will not allow the distraction of this unfortunate and wrongful lawsuit to impact our support and care for patients and their families who are managing the difficult challenges of cancer.”

The whistleblowers are former CEO of Methodist University Hospital, Jeffrey Liebman, and Dr. David Stern, former executive dean and vice chancellor of clinical affairs at the University of Tennessee Health Science Center.

Statutory liability under the False Claims Act triples the damages to $2.4 billion.

In March, the defendants filed a motion in the U.S. District Court of Middle Tennessee to dismiss the suit.

In the suit, originally filed by Liebman in 2017 and joined by Stern in late 2019, the two say the hospital and its signatories, including current CEO, Michael Ugwueke, and former CEO, Gary Shorb, signed off on schemes that enriched them personally through bonuses and rewarded West physicians for their business, making them among the top paid 10% of oncologists in the nation, regardless of their skill or productivity.

The suit also alleges the hospital paid West $25 million in management fees to “manage” the cancer oncology business at the four hospitals. There is no record it did. Methodist invested $7 million in a West-owned research company, half of which was used allegedly to pay off physician debt. And in the end, it helped move the bulk of its practice to Germantown, where the patient payor mix was more beneficial to the hospital.

Taylor Chenery, at Bass, Berry & Sims in Nashville, represents the defendants. Bryan Vroon in Atlanta is lead attorney for the whistleblowers. Neither would comment.

The case was unsealed last December.

The suit also names West Clinic senior partner Dr. Lee Schwartzberg, CEO Erich Mounce, former Methodist chief administrative officer Chris McLean and 100 John Doe physicians at West Clinic.

According to the suit, signatories in 2011 began the plan to funnel West’s business to Methodist, taking business from Methodist’s chief rival, Baptist Memorial Health Care.

West controls about 80% of the oncology market in the region.

From 2012-2014, the number of cancer patients being admitted to Methodist more than doubled. Discharges for oncology patients went from 7,320 to 15,834, an increase of 8,514 admissions a year.

Oncology claims Methodist filed with Medicare followed suit. In 2011, it filed 31,981 Medicare out-patient oncology claims. In 2012, when the deal went into effect, the number jumped to 84,952. Medicare reimbursements followed a similar trajectory, going from $7.6 million to $29.1 million in the same period.

According to the suit, the average Medicare payment for a cancer patient at Methodist hospitals was $13,500 per admission. Over the seven-year period the alliance was in place, single damages to Medicare and Medicaid from inpatient referrals alone totaled $487.85 million.

The alliance also generated significant out-patient referrals to Methodist facilities, including Methodist hospitals and West Cancer sites, which were billed as Methodist out-patient departments. Medicare payments for outpatient services went increased from $40 million in 2011 to $123.65 million in 2017, nearly a 300% increase.

“The Defendants’ scheme has resulted in massive financial enrichment to all parties at the expense of the Medicare and Medicaid Programs,” the suit says, alleging single damages to Medicare and Medicaid exceed $800 million.

One of the funding mechanisms, according to the suit, was the 340B Drug Discount Program, which requires pharmaceutical companies that participate in Medicaid drug rebates to give discounts on drugs, including chemotherapy drugs, administered in its out-patient settings.

Methodist qualified for the discounts because it is a nonprofit hospital. Methodist bought the drugs at discounts of 30-50% and shared more than half of the $500 million in profits with West physicians over the years, funneling them back as kickbacks and inducements for their continued business, according to the suit.

Knowing the referrals quickly improved their incomes, the suit alleges West physicians referred more patients for chemotherapy or oral cancer drugs. Oncology referrals grew from about $30 million in 2014 to $63.74 million in 2016, even though the number of cancer patients in the region had not substantially changed nor had West’s share of the market.

Originally, the drug deal was to produce $15 million a year in profits, which were to be shared equally among UTHSC, Methodist and West. Stern wanted UT’s share invested in a National Cancer Institute-caliber cancer center based at UTHSC in Memphis, allowing patients from across the region to benefit from the investment and physician skill.

When the fund began increasing, UTHSC continued to get $5 million, while West and Methodist, split the rest, the suit says.

West cancer doctors were making annual salaries of more than $1 million. Senior physicians were making in excess of $3 million a year.

When Stern and Liebman objected to sharing the drug profits with West physicians, they were removed from the inner circle of communication. Stern’s hope of building a world-class cancer center was marginalized in senior-management level meetings attended by West’s leaders and hospital administrators. He was eventually told if he didn’t change his tune, “bad things” would happen.

He was removed from the Methodist board of directors in July 2017 and left UTHSC in 2019.

Stern now is the head of Integrated Addiction Care Associates in Bartlett, a medical practice that helps people with addiction. A year ago, Stern and Baptist Memorial Health Care established the Center of Excellence in Addiction Medicine, starting with its flagship hospital on Walnut Grove Road in East Memphis.

Then it added Baptist Memorial Hospital for Women. In early February, Baptist hospitals in Collierville and Tipton County joined the group.

Liebman, who was CEO of Methodist University, resigned in 2017. He filed the initial whistleblower suit within a few months. He is now CEO of a healthcare system in Rhode Island.

The sides continue to be engaged in the discovery process. The next report is expected by Oct. 30. The case is being heard by District Judge William Campbell Jr. in Nashville.