Community Health System of Fresno has agreed to pay the U.S. government $31.5 million to settle allegations it gave physicians bonuses and extravagant gifts such as expensive wine, liquor, and cigars as incentives to use the medical network’s electronic health record system.

It is alleged that those gifts from the hospital system and its affiliate, Physician Network Advantage Inc., violated the False Claims Act, according to a Wednesday news release from the U.S. Attorney’s Office, Eastern District of California.

“We cannot allow medical decisions to be distorted by kickback schemes or efforts to buy physicians’ loyalty with lucrative side perks,” said acting U.S. Attorney Michele Beckwith. “This settlement demonstrates this office’s commitment to ensuring that patients’ best interests remain paramount.”

In a statement to the media, Roger Sturdevant, board chair of Community Health, said the network “embraced” the federal government’s 2009 directive to transition to electronic health records in order to “better support our patients through a robust, consistent, and secure electronic health records system.

“However, it is clear we needed stronger oversight measures to assure that both Community and our vendor partner maintained appropriate compliance at all times. While we are confident that physician referrals were driven by Community Health System’s position as a leading provider of hospital-based and specialty services, we recognize that even the appearance of inappropriate incentives must be addressed.”

Hospital Funds Paid for Expensive Wine, Liquor, Cigars, and Meals

Attorneys allege the hospital system gave physicians expensive wine, liquor, cigars and meals out of a custom-built lounge at the Physician Network Advantage headquarters known as “HQ2.” The U.S. Attorney’s Office said those gifts were funded by Community.

The settlement includes resolving allegations Community Health provided subsidies for electronic health record technology and equipment at private doctors’ offices in exchange for sending government health care patients to the hospital system.

Attorneys also allege Community paid bonuses to physicians for participating in clinical integration activities when, in fact, those bonuses were for referrals.

“Kickback arrangements aimed at improperly influencing medical decisions will remain a top investigative priority for our agency,” said acting special agent in charge, Robb R. Breeden, of the U.S. Department of Health and Human Services Office of Inspector General.

Community Health must take part in a five-year corporate integrity agreement with HHS-OIG that requires risk assessment and internal reviews to ensure legal compliance.