Medicare fraud lawsuit could cost Iasis Healthcare millions
Former Iasis executive alleges hospital chain performed unnecessary medical procedures and illegally compensated doctors for patient referrals

Aug. 13, 2007 -- Iasis Healthcare LLC is facing a whistleblower lawsuit that alleges Iasis Healthcare illegally compensated doctors to refer patients to Iasis hospitals and performed unnecessary medical services, including interventional cardiology procedures, to boost its profits.

Iasis Healthcare could be liable to pay the government millions of dollars as a result of the lawsuit, which was brought under the False Claims Act and had been under seal in federal district court in Phoenix, Ariz., until recently. The law allows individuals to file "qui tam" (whistleblower) lawsuits against companies that are defrauding the federal government and recover funds on the government's behalf.

The lawsuit says Iasis Healthcare paid doctors for referrals in various hidden ways, including:

• Entering into contracts with doctors for sham medical directorships for which they did little if any work to earn their pay.
• Giving doctors below-market rent for office and lab space.
• Making lease payments at above fair-market rates for catheter labs or other diagnostic equipment owned or controlled by physicians.
• Other improper incentives and payments to doctors.

All Medicare and Medicaid claims that arise from instances where there is an improper financial relationship between a doctor and a hospital are considered false or fraudulent claims under the False Claims Act. Companies found liable under the False Claims Act can be required to pay as much as three times the government's losses plus $5,500 to $11,000 for each false claim. Thousands of Medicare and Medicaid reimbursement claims by Iasis hospitals are covered by this case.

Jerre Frazier, a former vice president for ethics and compliance for Iasis Healthcare, filed the qui tam lawsuit on behalf of the government. Mr. Frazier also served as the company's chief compliance officer and as chairman of its corporate compliance committee. He is represented by Phillips & Cohen LLP, the nation's most successful law firm representing whistleblowers in qui tam lawsuits. Cases brought by the firm's attorneys have returned more than $2 billion to the federal government.

"Our client was in a position to know exactly what Iasis Healthcare was doing to increase its profits," said Colette G. Matzzie, a Washington, DC, attorney with Phillips & Cohen. "The evidence in the case is quite detailed and strong."

Several of the top executives of Iasis Healthcare formerly worked for HCA, a for-profit hospital chain that paid the government a total of $1.7 billion to settle multiple Medicare fraud cases. Phillips & Cohen brought three of the successful qui tam cases against HCA that accounted for more than $600 million of HCA's total payment to the government.

A federal judge unsealed the qui tam lawsuit against Iasis Healthcare after the government filed a notice that it was unable to meet a court-imposed deadline for a decision on whether it would intervene in the case. The government said it is investigating the allegations and would decide whether to intervene once its investigation was completed.

In addition to making allegations about improper financial relationships with physicians, the qui tam lawsuit also alleges that many medically unnecessary procedures, including interventional cardiology, radiology and other procedures, have been performed at Mesa General Hospital at Mesa, Ariz.; St. Luke's Hospital in Phoenix, Ariz.; Park Place Hospital in Port Arthur, Tex.; Odessa Regional Hospital in Odessa, Tex.; and Memorial Hospital in Tampa, Fla., and other Iasis Healthcare hospitals.

Iasis Healthcare, a privately held company, owns or leases 16 acute-care hospitals and one behavioral health hospital in six states and has a total annual net revenue of about $1.8 billion. TPG (formerly known as Texas Pacific Group), a private equity firm that manages over $13 billion in assets, is the single largest investor in Iasis Healthcare.

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Case citation: CV-05-0766-PHX-LOA