The country’s ninth-largest health system has agreed to pay nearly $70 million to the state of Florida to settle allegations of fraud by engaging in “improper financial relationships” with doctors under laws prohibiting kickbacks in return for patient referrals.

The North Broward Hospital District, doing business as Broward Health, was named in a whistleblower lawsuit filed in April 2010 by Dr. Michael Reilly.

Dr. Reilly, a private practice orthopedic surgeon, rejected an employment deal with Broward Health after his lawyer told him it was illegal, he said. His whistleblower complaint was unsealed last month.

According to the whistleblower lawsuit, the health system was allegedly compensating physicians for more than their services were worth, at levels causing major net operating losses, and at levels  determined based on volume of referrals by the physicians, according to an amended complaint.

The lawsuit details several instances of overcompensation for different physicians employed by the system.

In one case, the alleged overcompensation from the Hematology/Oncology Practice operations resulted in a net loss of $1.35 million mid-way through fiscal 2011, according to the whistleblower lawsuit. The Orthopedics group generated a net loss of $2.48 million mid-way through the same year.

Overall, due to excessive physician compensation, more than $20 million in losses were projected for fiscal 2011.

The system carefully tracked the return on its investment of its doctors, recording the value of referrals and pressuring them to increase volume if they lagged, the whistleblower lawsuit said.

Giving doctors incentives to generate medical revenue is widely deemed unethical because it tempts them to order unneeded treatment or send patients to lower-quality providers. Physicians with a financial interest in a medical facility tend to prescribe more procedures than those who don’t, studies show.

Although Broward Health paid an enormous sum to settle allegations, it did not admit wrongdoing. Dr. Reilly will receive $12 million from the whistleblower settlement.

What is a Whistleblower Lawsuit?

In a whistleblower lawsuit, an individual with knowledge of an organization’s activities provides information about fraud, corruption or other illegal activity. Whistleblowers are often employees, former employees and others who have access to company documents and internal information.

According to the qui tam provisions of the False Claims Act, if the government recovers money because of information a whistleblower provides, he or she will receive a portion of the funds. Typically, the whistleblower receives 20 percent to 30 percent of the amount recovered. In many states, similar qui tam laws reward those who blow the whistle on fraud against the state government.

In general, whistleblower and qui tam lawsuits are filed individually by each plaintiff and are not class actions.