Nov. 9—An Indianapolis judge has denied a request by Community Health Network to dismiss a federal lawsuit alleging the hospital group submitted false claims to Medicare, resulting in millions of dollars of extra revenue.

The U.S. Department of Justice last year filed a civil complaint accusing Community Health of violating the federal False Claims Act and the federal Stark Law.

Community Howard Regional Health in Kokomo is part of Community Health Network. The hospital was formerly owned by the county but was purchased by Community Health in 2012.

The lawsuit alleges the hospital group aggressively recruited hundreds of physicians, including breast surgeons, cardiovascular specialists and neurosurgeons, by offering and paying salaries that were significantly higher than what those physicians received in their own practices.

Community pursued these hires to secure the physicians' referrals and out of concern that those referrals would "leak" to local competitors, the complaint says.

The salaries Community paid the physicians were well above fair market value, but the network could afford to do it by calculating each physicians' historical referral patterns, the lawsuit alleges.

The Stark Law requires that physician compensation must be fair market value and not determined in a manner that considers the value or volume of referrals. The law also prohibits a hospital from billing Medicare for services referred by a physician with whom the hospital has an "improper financial relationship."

The complaint says Community stood to receive more in Medicare reimbursement for these services since it receives a higher rate for certain services when they are provided in a hospital instead of a physician's office.

Community Health is also accused of conditioning those physicians' bonus payments on achieving a minimum target of referral revenues to the hospital.

Medicare accounts for about one-third of its revenue, and Indiana Medicare accounts for another 10%, according to the complaint.

Community filed a motion to dismiss the lawsuit, arguing in part that the DOJ failed to show that the compensation paid to its physicians violated the Stark Law.

Southern Indiana's U.S. District Court Judge Richard Young last month denied the motion, saying the DOJ made plausible allegations that Community violated federal law.

"As a result of those alleged violations, it is plausible that Community received payment to which it was not entitled and was thereby unjustly enriched," Young wrote in his ruling.

Community Health said it is unable to comment on pending litigation, but said it is "committed to upholding the highest regulatory and ethical standards in all our business practices."

"We are confident we have operated and continue to operate in a legally compliant manner," the network said in a statement.

The lawsuit was first filed under the whistleblower provisions of the False Claims Act, which allow private parties to file suit on behalf of the United States for false claims and to receive a share of any recovery.

The whistleblower who filed the complaint was Thomas Fischer, the former chief operating officer and chief financial officer of Community Health Network. He was terminated from the company in November 2013, according to the complaint.

Community Health is based in Indianapolis and includes nine hospitals, including facilities in Anderson and Greenwood.

Carson Gerber can be reached at 765-854-6739, carson.gerber@kokomotribune.com or on Twitter @carsongerber1.