On May 14, 2025, Fresno Community Hospital and Medical Center d/b/a Community Health System (CHS) and its technology partner, Physicians Network Advantage, Inc. (PNA), agreed to pay $31.5 million and enter into a Corporate Integrity Agreement to settle allegations of violating the federal anti-kickback statute (AKS) and physician self-referral law (Stark Law) under the False Claims Act (FCA). The alleged conduct at issue revolved around CHS’s plan beginning in 2013 to assist local area physicians in their adoption of the electronic health records (EHR) platform used by CHS and its establishment of PNA to support that goal. For decades, the government has strongly promoted the adoption of interoperable EHR platforms by physician practices (e.g., Meaningful Use payments), given that EHR systems allow for better care coordination, increased efficiency, and improved patient experience. Moreover, as described in more detail below, the Department of Health and Human Services (HHS) adopted an AKS safe harbor and Stark Law exception that allowed certain entities, including hospitals, to donate EHR technology and services to physicians if certain conditions are satisfied. However, CHS’s and PNA’s alleged conduct exceeds what is permissible under the relevant safe harbor and exception.

Background

CHS operates a network of hospitals across Fresno County, California, delivering health care services to beneficiaries of federal health care programs. PNA, founded in 2010 with financial and operational support from CHS, focused on expanding EHR technology in physician offices. 

A relator – PNA’s former Controller – sued PNA and CHS along with another health system, health foundation, physician group, and individuals on behalf of the United States for alleged FCA, AKS, and Stark Law violations. The Settlement Agreement described the following conduct provided to induce referrals of business reimbursable by federal health care programs:

• PNA’s headquarters included a posh space known as “HQ2,” where health care providers received high-end hospitality—such as fine wine, liquor, cigars, and catered food. 
• CHS and PNA provided substantial financial subsidies and cost reductions for EHR services to a large physician practice, including deferring upfront costs. 
• CHS and PNA allegedly supplied grants to a large physician network to pay for EHR-related software and subsidize upfront cost-sharing amounts related to EHR items and services. 
• CHS purportedly issued grants to certain providers and medical practices before formal EHR contracts were in place.

The relator alleges to have discovered defendants’ kickbacks initially following a fire at PNA headquarters, which revealed a surplus of expensive wine that a defendant told relator was leftover from a holiday party. The relator, while serving as PNA’s Controller, began to dig further into PNA’s business expenses. The relator confronted PNA’s sole shareholder and officer, who allegedly refused to discontinue the illegal conduct, and the relator then resigned from his position as Controller. 

EHR Technology

As noted above, HHS recognizes the importance of supporting the adoption of EHR technology as evidenced by the AKS’s EHR safe harbor and the Stark Law's EHR exception. The EHR safe harbor and exception allow hospitals and health systems to provide interoperable EHR technology to physician practices under specific conditions, including structuring the arrangements to avoid improper inducements for referrals. 

While hospitals and health systems may offer EHR subsidies and cost reductions compliantly, CHS’s EHR subsidies and cost reductions purportedly failed to meet the AKS EHR safe harbor or Stark Law EHR exception because:

• The subsidies and cost reductions were allegedly provided in return for referrals of patients to CHS for services reimbursed by federal health care programs, violating both the AKS safe harbor and Stark Law exception, which prohibit any link between financial benefits and the volume or value of referrals.
• The arrangements allegedly included delayed collection of upfront cost-sharing for the EHR items or services, and the applicable Stark Law exception requires the physician practice to contribute 15% of the cost before receiving the EHR items or services. 
• The settlement does not indicate that the EHR donations were governed by written agreements that clearly specified the items/services, cost, and recipient contribution—requirements under both the AKS safe harbor and Stark Law exception.

Conclusion

This settlement is yet another example of the Department of Justice's continued focus on enforcing Stark Law and AKS violations by hospitals and health systems. For more context, see our analysis of 2024's key FCA settlements here.