Business

South Shore Hospital to pay $1.8m fine over kickbacks

7/18/14 East Weymouth, Mass. Emergency entrance at South Shore Hospital in East Weymouth, Mass. on Friday afternoon, July 18, 2014. (Zack Wittman for the Boston Globe)
Zack Wittman for the Boston Globe
The emergency entrance at South Shore Hospital in Weymouth.

An administrative arm of South Shore Hospital will pay nearly $1.8 million in civil penalties after state and federal investigators said the organization was running an illegal kickback scheme, paying doctors to refer patients to services within the hospital’s health care network.

The doctors, members of independent physicians groups affiliated with South Shore Hospital, received cash incentives for keeping treatments within South Shore’s system instead of referring patients out of network, according to court documents.

Authorities said the kickbacks included 103 payouts to 33 physician groups over nine years ending in 2010. They continued despite “a number of instances in which [the organization’s] attorneys and others raised concerns about the legality of the program,” the complaint said.

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The case raises questions of whether doctors were working to pad their wallets or provide the best possible care for patients, analysts said.

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“Beyond that the fact that it is illegal, it is clearly unethical,” said Dr. Ashish Jha, a professor at Harvard School of Public Health. “We want doctors making choices based on what’s best for the patient, not based on the physician’s own financial well-being.”

South Shore Physician Hospital Organization, which does contracting and administrative work for South Shore Hospital and its affiliated doctors, denied wrongdoing in settling the case. The nonprofit organization said it self-reported the kickback scheme after an internal investigation in 2012 and cooperated with the investigation by state Attorney General Martha Coakley and US Attorney Carmen Ortiz.

Matthew Whalen, the organization’s executive director, said patients benefited from the program by gaining access to high-quality doctors. He described it as a grant program that was “intended to help our member medical practices meet community health needs by recruiting primary and specialty care physicians.”

Federal and state authorities, however, said the arrangement deceived patients and limited their choices, ultimately raising medical costs for patients and insurers, including Medicare and Medicaid. “As a result, patients who were referred to higher-cost physicians and health care facilities suffered financial harm, as did their party payors,” the legal complaint said.

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Such incentives are common in other industries — a food company can give supermarkets free products for a prime display, for example. But incentives that reward independent doctors for referrals are illegal under state and federal laws, which aim to protect consumers from high costs and unnecessary care.

“When health care organizations want to put out money to recruit or hire physicians, they want a return on their investment. But the problem is you cannot under the law pay for referrals,” said Jackie Caynon, a health care lawyer with the law firm Mirick O’Connell in Westborough. “You’re not just interfering with the patient choice, but you’re also providing these incentives to physicians which interfere with their medical judgment, and may also run up costs and do procedures that aren’t needed.”

South Shore Hospital in Weymouth is one of the busiest community hospitals in Eastern Massachusetts. It had 87,000 visits in the emergency room last year and admitted and discharged nearly 25,000 patients. Its affiliated doctors group includes 400 physicians.

South Shore and Partners HealthCare, the system that owns Brigham and Women’s and Massachusetts General hospitals in Boston, are pursuing a merger. The merger is part of a larger deal with the attorney general’s office that is awaiting court approval.

A spokeswoman for South Shore Hospital said its administrative arm did the right thing by disclosing the incentive program to state and federal officials.

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“This settlement is in the best interests of both the [organization] and the government, and avoids the delay, uncertainty, inconvenience, and expense of litigation,” spokeswoman Sarah Darcy said in a statement.

The settlement includes penalties of $1.15 million to the federal government and $620,000 to the state.

Globe correspondent Jack Newsham contributed to this report. Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com. Follow her on Twitter @priyanka_dayal.