A California health system and its affiliated healthcare technology company have agreed to pay $31.5 million to the United States to resolve allegations that they violated the False Claims Act by providing financial benefits to referring physicians, Acting US Attorney Michele Beckwith announced on May 14, 2025.
The settlement resolves claims that both the health system and its technology affiliate offered a range of improper incentives to Fresno-area physicians to encourage patient referrals to the system’s facilities, in violation of the False Claims Act. The affiliate, a healthcare technology company formed and funded by the health system, was created to support physicians’ adoption of the system’s electronic health records (EHR) platform. According to the United States, the affiliate also played a key role in securing referrals through improper means. In a custom-built lounge at the affiliate’s offices, known as HQ2, physicians were provided with expensive wine, liquor, cigars, and meals—with the knowledge and support of the health system.
The settlement also addresses allegations that the health system and affiliate subsidized EHR technology and equipment in physicians’ private offices in exchange for referrals of patients covered by government healthcare programs. In addition, it resolves claims that bonuses were paid to certain physicians under the guise of clinical integration efforts, when the true purpose was to reward referrals.
The United States alleges that these benefits violated the federal Anti-Kickback Statute, leading to false claims submitted to government programs for services referred by incentivized physicians. The government also contends that the arrangements violated the Physician Self-Referral Law (the “Stark Law”), which prohibits providers from billing Medicare for certain services referred by physicians with whom they have financial relationships, unless specific legal exceptions are met—exceptions the government asserts were not satisfied.
As part of the resolution, the health system entered into a five-year Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General (HHS-OIG). The agreement requires, among other things, a risk assessment and internal review process to address compliance risks, along with annual reviews by an independent organization to assess the system’s policies and oversight of financial arrangements with referral sources.
“Kickback arrangements aimed at improperly influencing medical decisions will remain a top investigative priority for our agency,” said Acting Special Agent in Charge Robb R. Breeden of HHS-OIG. “This settlement demonstrates HHS-OIG’s commitment to identifying and holding accountable those who engage in unlawful financial relationships at the expense of Medicare patients and the taxpayer.”
Compliance Perspective
Issue
The Anti-Kickback Statute prohibits the offering, payment, solicitation, or receipt of any form of remuneration to induce or reward referrals for items or services reimbursed by Medicare, Medicaid, or other federally funded healthcare programs. The Physician Self-Referral Law, also known as the Stark Law, prohibits healthcare providers from billing Medicare for designated health services referred by physicians with whom they have certain financial relationships, unless a specific legal exception applies. These laws are designed to protect patients and federal healthcare programs from the influence of financial arrangements that could improperly influence medical judgment. Violations of the Anti-Kickback Statute or the Stark Law may result in liability under the False Claims Act. Healthcare staff must be able to recognize improper financial arrangements and understand the importance of reporting potential violations. Failing to identify or report concerns may result in significant penalties for individuals and providers.
Discussion Points
- Review policies and procedures to ensure they effectively address the prevention, detection, and reporting of false claims, kickbacks, and improper financial relationships. Include guidance on acceptable compensation arrangements and referral practices. Confirm that policies clearly outline how to assess whether services or referrals meet applicable regulatory requirements.
- Provide regular training for all relevant personnel—including clinical, administrative, and billing staff—on the Anti-Kickback Statute, the Stark Law, and the False Claims Act. Ensure staff understand what constitutes a kickback or improper financial relationship, and how to report concerns through appropriate channels. Emphasize the importance of timely and accurate documentation, and clarify that reporting suspected violations is mandatory.
- Conduct routine audits of billing, documentation, and financial relationships with referral sources to identify potential compliance risks. Include assessments of whether staff are following reporting procedures and understand their compliance obligations.
*This news alert has been prepared by Med-Net Concepts, Inc. for informational purposes only and is not intended to provide legal advice.*