Chattanooga, Tenn.-based Erlanger Health System must defend against two False Claims Act lawsuits after a federal judge denied the system’s bids to dismiss the cases.
Here are 10 things to know:
1. Erlanger is facing two related False Claims Act cases. The health system is defending against a whistleblower lawsuit filed by former CFO J. Britton Tabor and former Chief Compliance Officer Alana Sullivan, as well as a separate lawsuit filed by the Justice Department.
2. The whistleblower case was filed first. Mr. Tabor and Ms. Sullivan filed their qui tam complaint in 2021, alleging Erlanger engaged in unlawful financial relationships with physicians.
3. The Justice Department intervened in 2024. The DOJ filed its own complaint in July 2024 after intervening in the whistleblower case, focusing on claims that Erlanger submitted false claims to federal healthcare programs.
4. The lawsuits center on alleged Stark law and Anti-Kickback Statute violations. Together, the cases allege Erlanger offered unlawful kickbacks, excessive compensation and other improper financial incentives to employed and non-employed physicians who referred patients to the system.
5. The whistleblowers’ amended complaint focuses on non-employed physicians. The whistleblower lawsuit was amended in 2024 to narrow its focus to allegedly improper financial relationships between Erlanger and physicians it did not employ.
6. The DOJ’s case focuses on employed physicians. The government alleges Erlanger billed Medicare and other federal healthcare programs for services referred by employed physicians whose compensation allegedly violated the Stark law by exceeding fair market value.
7. Federal judges denied Erlanger’s dismissal efforts in both cases. Federal Judge Curtis Collier of the U.S. District Court for the Eastern District of Tennessee denied Erlanger’s motion to dismiss the DOJ’s lawsuit Feb. 26 and denied its motion to dismiss the whistleblower lawsuit March 9.
8. The government alleges Erlanger’s physician growth strategy created legal risk. According to the DOJ complaint, Erlanger expanded its employed physician network after hiring a new CEO in 2013, aiming to capture more referrals and related hospital revenue. The complaint alleges the system structured compensation around downstream referral value rather than the fair market value of physicians’ personally performed services.
9. Prosecutors and relators say compliance safeguards were weakened. The complaint also alleges Erlanger dismantled or sidelined compliance controls that had been put in place after a prior 2005 settlement involving similar Stark law allegations. The government claims internal oversight eroded over time, leading to the elimination of the chief compliance officer role in 2019.
10. Potential financial exposure could be significant. According to a March 10 news release shared with Becker’s by whistleblower attorney Marlan Wilbanks, the whistleblowers and DOJ will now work in tandem to litigate the cases. While total alleged taxpayer losses will not be known until discovery is complete, the release said potential damages and penalties under the False Claims Act could exceed $100 million.
Erlanger said in a statement that the allegations are without merit and it will “vigorously defend its practices in the months ahead.”
“Erlanger is extremely comfortable with its physician compensation/contracting processes and, in every instance raised here, sets compensation based on amounts determined by outside consultants to be fair market value,” the statement said. “Erlanger paid physicians based on amounts that outside experts advised was fair market value. Erlanger did not pay for referrals.”
