039: Texas Heart Hospital False Claims Act scheme

Learning Objectives

Upon completion of this Case Study, participants should: 

  • Understand basic concepts of the False Claims Act;
  • Describe how Whistleblowers and Qui Tam actions can negatively affect a business;
  • Learn how the Department of Justice can bring a civil action against a business;
  • Explain ways to avoid becoming involved in federal investigation; and
  • Identify how to show federal investigators a business complies with the law. 

State of the Industry

Recent whistleblower, or Qui Tam lawsuits, in the healthcare industry resulted in massive settlements in favor of the federal government. Pfizer recently paid $2.3 billion, and GlaxoSmithKline recently paid $3 billion. When healthcare companies and other businesses fail to examine their internally written compliance plans, they expose all stakeholders to the costs of federal investigations, fines, and lawsuits.

Businesses and corporations of any size can come under the scrutiny of the United States federal government. These federal investigations can lead to years of turmoil for the business, exorbitant legal fees, and tens of thousands of dollars of lost revenue due to the business owners’ or leaders’ diverted attention. Compliance procedures can assist business of any size prove no intentional wrongdoing to government investigators.

Background and Analysis

This case study profiles a respected Texas hospital referred to federal investigators by two whistleblowers via a civil lawsuit. All the information in this background comes from two sources: one Department of Justice press release, and one newspaper article.

In this case, a whistleblower / Qui Tam lawsuit alerted federal investigators with the Justice Department’s Civil Division were to wrongdoing by Texas Heart Hospital of the Southwest LLP and THHBP Management Company, LLC (Hospital). 

  • According to Whistleblowers.gov, federal whistleblower statutes protect employees from retaliation for reporting violations of federal laws with which the company must comply. The Whistleblower statute process mandates the employees file a civil lawsuit, called a Qui Tam action, against their employer in the name of the United States of America alleging some type of specific wrongdoing. If any proceeds from the defendants exist at the end of the lawsuit, the whistleblowers share those proceeds with the US government. 

Here, two former physicians with the Hospital filed a Qui Tam action against the hospital and its subsidiary alleging the Hospital violated federal Physician Self-Referral Law, the Stark Law, and federal Anti-Kickback Statutes.

According to the lawsuit, the Hospital had an annual 48 patient-contact requirement for each to maintain their ownership-interest in the Hospital. Physician-owners fulfilled the 48 patient-contact requirements by making referrals to other medical providers with which Hospital had a vested financial interest, while both Hospital and the other medical providers billed Medicare for their services.

The Qui Tam lawsuit alleged a violation of the Stark Law, which prohibits a hospital from submitting bills to Medicare for services if the physicians who make the referral to the hospital have a vested financial interest with that medical provider, unless an exception to the rule exists.

Additionally, federal anti-kickback statutes prohibit hospitals and other healthcare providers from providing any type of financial benefits to another to obtain patient referrals for services covered by federally funded programs like Medicare. According to the Qui Tam lawsuit, the Hospital’s ownership policy mandated the physician-owners perform this task 48 times per year.

In this case study, the Hospital agreed to pay $48 million to the US government as a result of the violations of federal law. According to the DOJ’s Civil Division, the two whistleblowers will each receive an even split of their portion of the settlement which amounts to a total of $13,920,000, which is approximately 28 percent of the Hospital’s settlement with the government.


We recommend that employers offer more training on white collar crime. Most compliance programs focus on best practices for performing duties. For example, a healthcare company’s compliance programs may focus on matters like storage, or cleanliness. Undoubtedly, those courses add value. With the rise in prosecutions for white collar crime, however, we recommend that business leaders should train on such cases. Such training will lessen the number of people that participate in schemes like violating the Stark Act.

Although the facts of the Hospital case show corporate involvement in an illegal scheme, other businesses do not have to fall into the same downward spiral.

In this case, the hospital agreed to settle the civil Qui Tam lawsuit for $48 million. Small and mid-sized businesses can avoid falling victim to the same result by implementing a written internal compliance program to show business leaders and employers its intention to fully comply with the laws in its given industry.

Poor management or bad leadership can wreak havoc on a business and result in civil lawsuits or more severe federal criminal investigations. 

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