Sharp pays $6.2 million to settle whistleblower case for Medicare fraud at its organ transplant centers

Allegations include scheme to pay certain doctors for patient referrals

March 6, 2003 – Sharp Memorial Hospital, a San Diego hospital, has agreed to pay the federal government $6.2 million to settle a whistleblower lawsuit that alleged it defrauded Medicare by filing fraudulent claims for reimbursement for costs associated with its heart and kidney transplant centers.

The Department of Justice joined the lawsuit, which had been filed "under seal" and was not made public until today. Judith King, a registered nurse who is a heart transplant coordinator for Sharp, brought the "qui tam" (whistleblower) lawsuit.

"Judy King put her career on the line to stop Medicare fraud," said Bonny Harbinger, a Washington, D.C., attorney with Phillips & Cohen LLP, which is representing King. "This experience has been a very difficult one for her."

The lawsuit and the federal government said that Sharp overcharged the Medicare program by submitting fraudulent claims from 1990 to 1999 for reimbursement of costs the hospital said were related to organ acquisition but were not.

These included the costs for employees whose work was unrelated to organ acquisition and so was not reimbursable by Medicare and costs that were essentially illegal financial inducements for physicians to refer patients to the organ transplant centers.

To encourage patient referrals, Sharp awarded certain physicians medical directorships that involved minimal administrative services for which the doctors were paid huge sums. For example, two doctors were paid $175,000 per year as medical directors for their administrative work, which essentially involved going to the hospital twice a month or so for an afternoon to attend a few meetings, the qui tam lawsuit said. Sharp claimed reimbursement for those costs in its annual Medicare "cost reports." Directorship fees paid to physicians are reimbursable under Medicare if the services rendered are administrative services and the costs are reasonable.

Sharp also claimed in Medicare cost reports that all costs associated with its Human Leukocyte Antigen Laboratory were organ acquisition costs and sought full reimbursement for them, according to the government. However, only a percentage of those costs were eligible for reimbursement. The government also charged that Sharp inflated in its cost reports the amount of square footage related to organ acquisition to increase its Medicare reimbursement.

In addition to paying $6.2 million, Sharp will enter into a corporate integrity agreement with the U.S. Department of Health and Human Services.

"The doctors and other medical staff at the transplant centers had nothing to do with the fraud," King said. "I love working at the transplant center and think highly of the work we do here. But I felt something had to be done to stop the hospital from taking money from Medicare that it wasn't entitled to, particularly given the poor financial future of the Medicare program."

The qui tam lawsuit, brought under the False Claims Act, was filed in April 2000 in federal district court in San Diego. The law requires that qui tam lawsuits be filed under seal, meaning that they are not made known to the public.

The False Claims Act allows individuals to file lawsuits against individuals and companies that defraud the federal government. The government is entitled to recover as much as three times its losses plus $5,500 to $11,000 for each false claim. The law rewards whistleblowers with 15 percent to 25 percent of whatever the government recovers as a result of their qui tam lawsuits if the government joins the case and up to 30 percent if it doesn't.

For more information about Phillips & Cohen's record, see P&C's Successful Whistleblower Cases.

The case referred to above is:

U.S. ex rel. Judith A. King v. San Diego Hospital Association, case no. 00 CV00848 BTM.

For more information, please see the following news stories:

  • "Nurse turned whistleblower alleges hospital manipulated cost-report logs," Report on Medicare Compliance," 3/13/03.
  • "Sharp will pay $6.2 million to settle whistleblower suit," Cheryl Clark, San Diego Union-Tribune, 3/7/03.
  • "Sharp Memorial to pay $6.2 million to settle Medicare fraud," Seth Hettena, Associated Press, 3/6/03.