Big money settlements in qui tam cases regarding kickbacks to doctors have often been seen in cases involving pharmaceutical or medical device companies, but getting big settlements for hospital kickback schemes is rare, according to an attorney involved in such a settlement last week.

Pietragallo Gordon Alfano Bosick & Raspanti partner Michael A. Morse said the $12.6 million settlement his client helped the government reach last week against Cooper Health System was one of the largest such settlements he has seen involving allegations that a hospital paid physicians kickbacks to refer patients its way.

A multiyear investigation into allegations Cooper Health System paid kickbacks to physicians in an effort to increase referrals to the hospital’s cardiac unit resulted in the $12.6 million settlement for alleged violations of federal and state False Claims Act statutes.

The Camden, N.J.-based hospital is not admitting any liability through the settlement, out of which it will pay the United States $10.27 million and the state of New Jersey $2.33 million.

The case, United States v. The Cooper Health System, was filed in 2008 in the U.S. District Court for the District of New Jersey by Delaware Valley cardiologist Nicholas L. DePace. As the relator in this qui tam action, DePace will receive a total of nearly $2.4 million from the $12.6 million settlement. His cut of the settlement includes about $1.95 million from the United States and nearly $443,000 from New Jersey, according to the settlement.

Cooper has also agreed to pay DePace’s attorneys at Pietragallo Gordon an additional $430,000 for expenses, attorney fees and costs. Pietragallo Gordon was also working on a contingency-fee basis on behalf of DePace. Morse worked on the case along with Pietragallo Gordon partner Marc Raspanti and senior associate Pamela C. Brecht.

DePace, who runs a solo cardiology practice with offices in Philadelphia and South Jersey, was invited in 2007 to join the Cooper Heart Institute Advisory Board. CHIAB was established in 2004 with the purpose of having prominent area physicians to advise Cooper Heart Institute regarding innovative technologies, management strategies, community needs and research initiatives, DePace said in court filings.

According to DePace’s claims, however, Cooper paid CHIAB members $18,500 a year to watch lectures consisting mainly of marketing presentations on cardiac care at Cooper. In exchange for these payments, the CHIAB physicians would refer their patients to Cooper for “expensive inpatient and outpatient cardiac services,” DePace alleged. He alleged that these referrals were not done based on the best medical interests of patients, but rather because of the alleged kickbacks the doctors received.

DePace alleged in his complaint that the referrals can inflate costs to federal and state health care programs like Medicaid and Medicare by overusing or inappropriately using the services of a specific hospital.

DePace filed his qui tam action a year after joining the board, alleging violations of the New Jersey False Claims Act, the federal False Claims Act, state and federal anti-kickback laws and state and federal physician self-referral laws.

Morse said cases implicating Medicare or Medicaid will always involve the federal False Claims Act along with a state False Claims Act if the conduct was done in one of the 28 states that have False Claims Act statutes. Pennsylvania does not have such an act while New Jersey passed one in 2005.

Morse said DePace’s case was one of the first his firm filed under the New Jersey statute, which he said is nearly identical to the federal statute. The federal and state governments were interested in the investigation from almost the very beginning, Morse said, and they began their investigation shortly after the case was filed. Settlement discussions between the government and Cooper were going on “for some time,” Morse said, not wanting to get into specifics about settlement negotiations.

While having the government agree to intervene in the case doesn’t bolster the merits of the case, Morse said, it does provide additional logistical support and adds the imprimatur of having the federal government on the relator’s side.

Morse said he felt the settlement amount was a good, fair and reasonable result, though he said settlements are often lower than what a jury verdict could bring given the statutes allow for treble damages and damages on each instance of a patient being referred to the hospital. Morse noted the damages in qui tam cases aren’t the kickbacks, but rather every payment a federal or state health care plan made for a service performed based on a referral from one of the doctors receiving a kickback.

“Dr. DePace exhibited tremendous courage exposing a kickback scheme run by one of the largest, most-powerful hospitals and health systems in New Jersey,” Raspanti said in a statement. “Dr. DePace’s motivation throughout this case was to ensure that decisions on patient care are based solely on the medical needs of the patient, and not because of the kickbacks Cooper paid to the referring physicians.”

According to a letter sent to Cooper employees by President and CEO John P. Sheridan Jr., the CHIAB was disbanded in 2010. Sheridan said the creation of the board was reviewed by outside lawyers and that Cooper believed it met all regulatory requirements.

“This settlement underscores the difficult regulatory environment in which health care providers must operate,” Sheridan said in the email. “The rules are complex, the margin for error is small and the financial consequences of even well-intentioned actions can be substantial — regardless of the necessity and integrity of the underlying medical care.”

In a statement to the media, Sheridan said the hospital decided to settle, without admitting any wrongdoing, in order to avoid the cost of protracted litigation. Attorneys Michael Critchley Sr. and John M. Vazquez of Critchley, Kinum & Vazquez in Roseland, N.J., represented the hospital in the settlement.

According to the settlement agreement, the United States and New Jersey still reserve the right to claims against Cooper related to criminal or civil liability under tax codes, any criminal liability and any administrative liability. The agreement also provides that the amount of the settlement cannot be reduced as a result of payments withheld to Cooper by any Medicare or Medicaid carrier related to the conduct at issue.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI.