Wheeling and Dealing: The $100 million turnaround based on Stark and Anti-Kickback violations
Incentives matter.
Fun fact: It’s hard for a hospital to lose money. Health care spending in the U.S. just keeps going up and up, people are getting older, and medical bills aren’t getting any cheaper. If a hospital is losing money, something is going wrong. The typical response is that it’s management’s fault. Throw those bums out and get some people who know how to do the job right.
When new management comes in, they have one job—raise revenue. In fact, that job is so important and so much of a focus that their compensation is tied to meeting that goal. Makes sense: Get the hospital back in the black, make some money, everyone wins. The unsaid part is that they have to turn the ship around and do it legally. There are ways to increase revenue that are illegal—new management is not supposed to engage in those. Theoretically their pitch to get the job included a lot of legal ways to raise revenue. Presumably, they did not telegraph their intention to violate the Stark Law and Anti-Kickback Statute.
Stark Law
The Stark Law, originally enacted as amendments to the Social Security Act, is designed to prohibit physician self-referrals for designated health services (DHS) covered by Medicare. Specifically, the law forbids hospitals and other entities from submitting Medicare claims for services that result from referrals made by a physician who has a financial relationship with the hospital unless an applicable exception is met. If a physician refers a patient for services at an entity with which they have a financial relationship, and no exception applies, Medicare will not pay for the services, and any payments made must be refunded.
Initially passed in 1989, the Stark Law applied solely to clinical laboratory services, but its scope was expanded in 1993 to include ten additional DHS, such as inpatient and outpatient hospital services, radiology, and laboratory services. Congress further broadened the law in 2008 to include outpatient speech-language pathology services. The central objective of the Stark Law is to prevent conflicts of interest that could lead to overutilization of services, reduced quality of care, or inflated costs to the Medicare program and the healthcare system.
Key to the Stark Law is its definition of "financial relationships," which includes compensation arrangements between physicians and entities that provide DHS. These financial arrangements can be direct or indirect and must adhere to specific guidelines to avoid violating the law. Notably, the Stark Law establishes that Medicare may not pay for any services provided under prohibited referrals, and any entity collecting payments for such services must refund the amounts in a timely manner.
However, the Stark Law includes several exceptions for certain financial relationships, including bona fide employment relationships, personal service arrangements, and rental of equipment. Each of these exceptions has strict requirements that must be met, such as ensuring that the compensation is consistent with fair market value, does not take into account the volume or value of referrals, and is commercially reasonable. These exceptions serve as affirmative defenses, and the burden is on the entity or physician to prove compliance with the detailed requirements.
Anti-Kickback Statute
The Anti-Kickback Statute (AKS) is a federal law that prohibits offering, paying, soliciting, or receiving anything of value to induce or reward referrals for services reimbursed by federal health care. It is designed to prevent financial arrangements that can compromise medical decision-making and lead to unnecessary or poor-quality healthcare services. Congress enacted the AKS in 1972 in response to concerns that payments to people who influence healthcare decisions—whether cash, gifts, or other forms of remuneration—could result in overutilization of services or the provision of harmful care. Unlike some other fraud laws, the AKS imposes a per se prohibition on kickbacks, meaning that any payment made to induce referrals is illegal, regardless of whether it directly results in overuse or poor care.
At its core, the AKS makes it a criminal offense to knowingly offer, pay, solicit, or receive any form of remuneration to induce or reward referrals of services that are reimbursable by federal healthcare programs, including Medicare and Medicaid. This covers a wide range of "remuneration," from outright kickbacks and bribes to more subtle forms like rebates or excessive compensation for services. Importantly, the law does not require proof that the kickback directly caused harm or unnecessary services—just the intent to induce referrals is enough for a violation.
The scheme
Wheeling Hospital lost $55 million between 1998 and 2005. To address this financial decline, Wheeling Hospital entered into a management contract with R & V Associates, led by Ronald Violi, in 2006. This partnership aimed to improve the hospital's financial performance and steer it back to profitability.
Under this arrangement, R & V and Violi took over key management functions, including physician recruitment and regulatory compliance. The compensation scheme included generous incentive structures for R & V and Violi themselves. The more revenue the hospital brought in, the better R & V and Violi did financially. The firm was initially paid an annual fee of $1.155 million, which increased over time to $3.5 million by 2018. These payments were tied to the hospital’s financial success, thus giving R & V and Violi a direct incentive to increase revenue through physician referrals, regardless of legal or regulatory compliance.
And it worked. Well, sort of. Revenue increased. But the methods that R & V and Violi used were allegedly illegal. The turnaround strategy involved a compensation structure that incentivized the recruitment of physicians to capture their referrals for hospital services. The hospital entered into numerous financial arrangements with physicians that allegedly violated the Stark Law and Anti-Kickback Statute. These illegal arrangements were apparently designed to increase revenue by paying physicians based on the volume and value of referrals, leading to the submission of false claims to Medicare.
How Wheeling allegedly got in trouble with Stark.
Wheeling Hospital’s violations of the Stark Law were deeply connected to how it tracked and compensated physicians. Central to this scheme were the Physician Impact Reports, internal documents used by the hospital to monitor the financial contributions of its employed and contracted physicians. These reports broke down the revenues generated by each physician, not just from their professional services but also from the hospital’s technical revenues—the facility or service fees tied to the care those physicians referred to the hospital.
By relying on these Physician Impact Reports, Wheeling Hospital allegedly tied physician compensation directly to the income their patient referrals brought in, effectively incentivizing doctors to steer more patients to the hospital. This financial relationship between the hospital and its doctors violated the Stark Law, which forbids physicians from making referrals for designated health services (DHS) to entities with which they have a financial relationship, unless certain exceptions apply. The hospital’s compensation arrangements allegedly went well beyond fair market value and were based on referral volume and revenue generation, which is explicitly prohibited under Stark.
For example, physicians were allegedly not only paid fixed salaries but also received incentive bonuses tied directly to the hospital’s revenue from their patient referrals, as reflected in the Physician Impact Reports. This created a clear financial motivation for physicians to make referrals to Wheeling Hospital, violating the Stark Law’s prohibition against self-referral unless an exception, such as a fair market value arrangement, applies.
Ultimately, Wheeling Hospital used these reports to justify illegal compensation schemes and submitted claims to Medicare for services that were referred in violation of the Stark Law. Because Medicare prohibits payment for such services, Wheeling’s failure to disclose these financial arrangements while continuing to bill for the services led to illegal payments, exacerbating their legal troubles.
How Wheeling allegedly violated the Anti-Kickback Statute.
In Wheeling Hospital’s case, the hospital’s compensation arrangements with physicians violated the AKS because these payments were tied to the value and volume of referrals. By offering incentive bonuses and other financial rewards to physicians based on how much business they brought in, Wheeling effectively paid physicians to steer patients to the hospital, triggering AKS violations. Claims submitted to Medicare or other federal programs that stem from such illegal payments are considered "false claims" under the False Claims Act, which means that any reimbursement Wheeling received based on these referrals was fraudulently obtained.
While the AKS has certain "safe harbors"—protections for legitimate arrangements that meet specific regulatory conditions—Wheeling Hospital’s physician payment schemes did not qualify for these exceptions. For example, safe harbors require that any compensation be fair market value and not based on referral volume or value, a condition that Wheeling clearly violated with its revenue-based bonuses.
The penalty
Wheeling Hospital Inc., an acute care hospital located in Wheeling, West Virginia, has agreed to pay the United States a total of $50,000,000 to resolve claims that it violated the False Claims Act by knowingly submitting claims to the Medicare program that resulted from violations of the Physician Self-Referral Law and the Anti‑Kickback Statute.
The whistleblower
Louis Longo, former Executive Vice President of Wheeling Hospital, blew the whistle. Under the qui tam provision of the False Claims Act, a private party (also referred to as a whistleblower or relator) may file an action on behalf of the United States and receive a portion of the recovery, typically between 15-30%.
The claims resolved by this settlement and which are contained in this post are allegations only and there has been no determination of liability. Here is the Complaint and Complaint in Intervention. The Stone Law Firm and Phillips and Cohen represented the whistleblower.
If you think you’ve observed fraud or misconduct, we can evaluate your options. Vivek Kothari is a former federal prosecutor who represents whistleblowers. For a free consultation, contact Vivek by email, phone, Signal, or fill out the contact form.