Methodist University Hospital building mounted sign
The federal government told a court this week that Methodist Le Bonheur Healthcare agreed to pay a private oncology practice "for referrals and the opportunity to recoup discounts through the 340B program." Methodist has vowed to vigorously defend itself against what it says are meritless claims.

Feds Tell Court Tennessee Health System Paid for Referrals to Recoup “Staggering” 340B Discounts

The federal government on Monday accused a Tennessee health system of unlawfully paying a Memphis-area private oncology practice for patient referrals, letting the system “recoup a staggering discount in costs” through the 340B program. The 340B health system—Methodist Le Bonheur Healthcare in Memphis—disputed the allegations and has vowed to vigorously defend itself against what it says are meritless claims.

In an April 11 complaint filed in federal district court in Nashville, the U.S. Justice Department (DOJ) said Methodist’s allegedly illegal multi-year business deal with the West Clinic resulted in $50 million in profit to Methodist through the 340B program in 2017 alone.

“The stated goal of the ‘partnership’ was to make the Methodist inpatient facilities seamless with [West’s] outpatient sites to form a comprehensive cancer care center without walls,” DOJ said. “In reality, Methodist agreed to pay West in exchange for referrals and the opportunity to recoup discounts through the 340B program.” 

Methodist contends the allegations are unfounded and unfair. “We uphold the highest standards and comply with all legal and regulatory requirements. MLH entered into the arrangement to elevate cancer care in its community. MLH’s professional agreements with West Clinic provided needed medical services for cancer patients, and our payments for those services were appropriate,” Methodist told 340B Report last month.

DOJ is intervening in a federal False Claims Act whistleblower lawsuit brought against Methodist in 2017. It was filed on the government’s behalf by the former CEO of Methodist University Hospital, the health system’s flagship hospital, and a former vice chancellor of the University of Tennessee Health Science Center who served on Methodist’s board of directors. A federal district judge last month granted DOJ’s motion to intervene in the case and take it over from the whistleblowers.

The whistleblowers alleged in an amended complaint filed in 2021 that Memphis illegally channeled more than $125 million to West physicians over seven years for their patient referrals. 340B profits funded these payments, they said.

In a footnote in its complaint, DOJ said that although the government “has not yet had an opportunity to investigate the accuracy of this allegation, West confirmed that it expected access to the 340B program to provide it with funding.” West physicians originally were co-defendants with Methodist. They began providing documents and testimony after settling with the whistleblowers.

No Allegation of 340B Statute Violation

DOJ’s complaint does not allege that Memphis violated the 340B statute or 340B program requirements. Neither the statute nor its regulations address how hospital covered entities may use revenue from their participation in 340B.

The lawsuit instead claims that Memphis violated both the False Claims Act and the Anti-Kickback Statute. According to an April 11 news release, the government “seeks to recover hundreds of millions of dollars.” The whistleblowers will share in any recovery or settlement.

A Methodist spokesperson did not respond to a request yesterday for comment on DOJ’s April 11 complaint. The health system told 340B Report last month that the whistleblowers’ claims are unfounded and that it will aggressively defend itself.  

“We are confident that a balanced and accurate assessment of our affiliation with West Clinic will present an entirely different picture than the one alleged in the suit and now led by the Justice Department, which is why we believe the claims are without merit and why we will vigorously defend ourselves.”

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