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West Penn Allegheny Health System will pay $1.5M for alleged kickback scheme

| Wednesday, March 19, 2014, 12:09 p.m.

West Penn Allegheny Health System will pay a $1.5 million penalty to settle federal allegations that it paid kickbacks to doctors in exchange for patient referrals.

The five-hospital system, which was acquired by health insurer Highmark Inc. last year after years of losing thousands of patients and millions of dollars, disclosed the problem to government regulators in late 2012 as a result of an internal compliance audit.

In announcing the civil settlement on Wednesday, U.S. Attorney David Hickton said the hospital network “leased space to physicians at below-market rates to induce referrals of patients to WPAHS, in violation of the Anti-Kickback Statute.”

The alleged kickback scheme violated the Stark Law, Hickton said. The law forbids a hospital from billing federally funded programs, such as Medicare and Medicaid, for medical services referred by physicians who have a financial relationship with the hospital.

The hospital network, which did not admit wrongdoing, started the alleged practice with an undisclosed number of independent physicians in the mid-2000s, but the majority of the alleged violations occurred between 2008 and 2012, the U.S. Attorney's Office said.

The office declined to say how many doctors were involved, whether any are being investigated for their roles in the scheme, or if the hospital network or doctors will be subject to criminal liability.

West Penn Allegheny spokesman Dan Laurent said the system voluntarily disclosed the situation in December 2012 to the Office of the Inspector General of the Department of Health and Human Services, which investigated.

“Our actions leading to the settlement reflect how seriously we take our compliance responsibilities and the diligence with which we monitor and fulfill those obligations,” Laurent said.

Lisa McGiffert, director of the Safe Patient Project at Consumers Union in Austin, said trading financial incentives for hospital referrals takes away patient choice and could hurt patient safety.

“They (kickbacks) can really steer the business of health care into a direction you don't want it go, because it might not lead to patients getting the best quality care,” McGiffert said. “It might lead to patients getting care from the companies that offer the most benefits to the doctors.”

The health system told bondholders in early 2013 of the potential violations in a financial report for the quarter ended Dec. 31, 2012, noting that it “may be subject to fines and penalties and has recorded an estimated liability of $2.2 million.”

West Penn Allegheny became the anchor in Highmark's Allegheny Health Network, a seven-hospital system established to compete with UPMC, in April.

Highmark spokesman Aaron Billger said the insurer was informed of the problem as soon as it was discovered.

“We're glad that Allegheny Health Network has a compliance program as strong as it does, and we're glad that they were able to identify the issue,” Billger said.

West Penn Allegheny was nearly bankrupt prior to Highmark's $1.1 billion acquisition. The system produced operating losses totaling more than $380 million from 2008 to 2012 as patient volume at its hospitals dropped by nearly 30 percent.

Under Highmark, the system's finances have improved. In the October-December quarter, West Penn Allegheny narrowed its operating loss to $2.1 million, compared with $33.1 million in the same quarter the year before.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or

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