Iowa hospital pays Feds $4.5 million for overpaying doctors with Medicare money

An Iowa hospital has agreed to pay $4.5 million to the federal government to settle claims that it illegally overpaid physicians in an effort to boost business.

Covenant Medical Center in Waterloo is accused of using "Medicare money to pay five doctors to refer patients to the hospital, making the physicians among the highest-paid doctors in the country," The Associated Press/Chicago Tribune reports. "The U.S. Justice Department alleged the five doctors employed by Covenant Medical Center were paid far above market value, disqualifying them from receiving Medicare dollars." The U.S. Justice Department claims the payments "violated the Stark Law, which prohibits improper compensation agreements between physicians and hospitals." The hospital, however, denies wrongdoing and in a written statement, "claimed prosecutors didn't find evidence of any illegal conduct, and the hospital called the physicians 'highly productive.'"

U.S. Attorney Matt Dummermuth said the problem was not just referrals but rather "'the combination of the referrals without being fair-market value and commercially reasonable. That's what has potential to compromise the medical judgment, when there's improper financial incentives potentially at play there.' Dummermuth would not say how the government determined fair-market value for the physicians" (Duara, 8/25).

The Des Moines Register adds that "several years ago, critics noted that at least two of the doctors were making more than $2 million per year, which the critics said was more than double what the doctors could have made elsewhere in Iowa." Leaders of "independent medical practice" Cedar Valley Medical Specialists "noted then that Covenant was paying more to individual doctors than it was spending on charity care for uninsured patients. Like nearly all Iowa hospitals, Covenant is classified as a charity that is exempt from most taxes because of the assistance it purportedly provides to the poor." The Register reports that "no charges were filed" (Leys, 8/26). 

Waterloo Cedar Falls Courier: "Covenant officials said those doctors were specialists working in areas which had been understaffed, and pointed out their compensation was less in subsequent reports" (8/25).

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This article was reprinted from khn.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.