DOJ’s Lawsuit Against Erlanger Health System Underscores Stark Law Risks in Physician Compensation Arrangements

• Erlanger paid physicians not only salaries but also sign-on bonuses, retention bonuses, program bonuses, excess call payments, and productivity bonuses that were a significant component of a physician’s total compensation and were paid despite concerns raised in internal and independent FMV analyses.
• Erlanger paid physicians significantly more than it was collecting for their professional services to capture their downstream referrals and benefit from the resulting downstream revenue.
• Erlanger utilized uncapped productivity bonuses that used higher per-wRVU rates for physician productivity bonuses as compared to the per-wRVU rates for physician base compensation.
• Erlanger relied on FMV analyses that were based on potential compensation under physician contracts rather than actual compensation paid, which was much higher, and relied on FMV analyses that omitted certain compensation components.

In March 2026, the United States District Court for the Eastern District of Tennessee denied Erlanger’s motion to dismiss, allowing the DOJ’s claims to proceed. Although the litigation remains ongoing, the case serves as a reminder that physician compensation arrangements should be periodically reviewed to ensure they remain commercially reasonable, consistent with FMV, and compliant with the Stark Law.