Federal Judge Denies Erlanger Hospital’s Attempts to Dismiss Major Fraud Lawsuits Filed

by the Government and Former Erlanger Chief Compliance Officer and Former Erlanger

Chief Financial Officer

 

Date: March 10, 2026

 

 

Yesterday the U.S. District Court for the Eastern District of Tennessee (Case No. 1:25-cv-155)

denied a Motion to Dismiss claims brought by Erlanger’s former Chief Compliance Officer and

former Chief Financial Officer against Erlanger Health System (“Erlanger”) (Court Docket no.s

(“Doc.”)  128 and 129). A similar denial of another Erlanger Motion to Dismiss occurred on

February 26th, 2026, related to allegations of improper conduct by Erlanger set forth in a

complaint filed by the U.S. Department of Justice in July 2024 on behalf of the U.S. taxpayers

(Doc. 126 and 127).

 

These setbacks for Erlanger mean that both the United States and the two whistleblowers can

move forward with their lawsuits against Erlanger.

 

“This order is a significant win for my clients and the taxpayers of the United States. We are now

going to push this case to trial as fast as possible. I have been handling cases in which Medicare

dollars are misappropriated for three decades, and the facts, documents and evidence that we will

present to the Court and a jury in this case against Erlanger are as strong as any healthcare fraud

case I’ve handled before,” said Atlanta attorney Marlan Wilbanks, who represents Alana Sullivan

and Britt Tabor (“Whistleblowers”). Ms. Sullivan is a former Chief Compliance Officer at

Erlanger, and Mr. Tabor was Chief Financial Officer at Erlanger for many years. In the Order

rejecting Erlanger’s attempt to get rid of the case, the District Court Judge referenced the

credibility of the Whistleblowers based on the high-level supervisory roles each held at Erlanger.

Their lawsuit was filed under the Federal False Claims Act, which is a law that was put into

place to recover money fraudulently taken from Government programs like Medicare and

Medicaid. Persons who bring information forward to protect the interests of the taxpayers who

fund those programs are routinely referred to as “whistleblowers.”

 

In its complaint, the Government alleges details of fraudulent schemes in which Erlanger paid

unlawful compensation to physicians who treated patients at Erlanger’s hospitals, in violation of

the False Claims Act. The federal law known as the “Stark Law” prohibits, among other things,

hospitals like Erlanger paying compensation to referring physicians based on the number of

patient procedures they do at the hospitals or the monetary value of those treatments to the

hospitals in terms of Government reimbursement. Hospitals bill the Government for each

procedure done on a Medicare or Medicaid beneficiary.

 

Erlanger is no stranger to being held accountable for violating the Stark Law, i.e., paying

excessive compensation to referring physicians. In 2010, Erlanger paid $40 million in a Stark

Law based False Claims Act case to settle Government allegations that Erlanger was illegally

paying excess compensation to referring doctors.

 

Hospital Emphasized Profits Over Compliance

 

The Whistleblowers allege that Erlanger implemented a plan to gain market share and increase

revenues by hiring away from competing hospitals doctors who could refer patients for

procedures at Erlanger. The Whistleblowers and Government contend that Erlanger was willing

to overpay doctors amounts far in excess of fair market value in order to capture the

“downstream revenue” from Erlanger billing the Government for more procedures from those

doctors. It is alleged that Erlanger executives plotted and calculated the amount of hospital fees

that would be collected by the hospital from inpatient and outpatient referrals from the doctors

involved in the fraudulent schemes. Hundreds of millions of dollars of Medicare dollars were

illegally paid to Erlanger according to the allegations brought forth by the Whistleblowers and

the Government. By way of example, in the Government’s complaint, the Government identified

over $27 million of Medicare dollars that were improperly paid to Erlanger for procedures done

on Medicare patients by just six doctors, as a sample from the much larger universe of physicians

who did so. The Government dollars paid to Erlanger for the universe of overpaid referring

doctors could raise the damages sought by the Government from Erlanger exponentially.

 

The fraud complaint filed by the Whistleblowers was amended in 2024 to focus their allegations

on allegedly improper financial relationships between Erlanger and physicians Erlanger did not

employ, such as surgeons employed by a surgical group named University Surgical Associates

(“University SA”), as well as other community physicians named in the amended complaint.

University SA is a large, independent surgery group based in Chattanooga. After years of

investigating, the Government is focusing its prosecution on Erlanger’s billing the Government

for procedures done at Erlanger by physicians employed by Erlanger to whom Erlanger paid

compensation in a way that violated the Stark Law.

 

Multiple Fraud Schemes

 

In the Whistleblowers’ complaint, a number of improper schemes and physician relationships are

highlighted and described by the Whistleblowers who were executive corporate insiders at

Erlanger. For example, the complaint contends that Erlanger provided “free employees” to a

number of specialists working with University SA doctors in order to induce referrals of patient

procedures to Erlanger. As alleged, these employees performed daily services for the doctors, but

their salaries and compensation were paid for by Erlanger. Another scheme pled is that Erlanger

paid and/or overpaid doctors for “call coverage” duties that the doctors did not in fact provide or

that were provided in ways that did not justify the compensation. As further pled, Erlanger

grossly overpaid University SA to manage Erlanger’s outpatient surgery center; Erlanger gave

key referring physicians low cost or free IT-services to induce referrals, and Erlanger routinely

paid excessive amounts for purported medical directorships even though there were insufficient

records and information to establish that the services were provided and/or paid to doctors who

provided no such services at all.

 

One unique form of fraud and abuse identified and described in the plaintiff’s complaint

involved allegations that the University of Tennessee College of Medicine (“UT COM”) was a

partner in a “pass-through” scheme that was put in place to reward doctors who were making

referrals to Erlanger hospitals. The Whistleblowers allege that Erlanger paid money to UT COM,

in very specific amounts with the understanding that those same specific amounts of money

would be passed through UT COM to key doctors working at University SA and elsewhere who

were purportedly performing supervisory services for residents. The complaint alleges that in

numerus cases the pass-through payments were not proper or justified, and that Tennessee

taxpayer dollars were being utilized as kickbacks to doctors in exchange for the doctors referring

patient procedures to Erlanger. Whistleblowers contend that the 3-way “pass-through” scheme

was made possible because there were key individuals who were in positions of influence at

Erlanger, UT COM and University SA, at the same time. This allegation is of great concern,

because it not only implicates the federal law prohibiting paying kickbacks for healthcare

services performed on Government healthcare beneficiaries (known as the Anti-kickback

Statute), but also involves paying University SA surgeons Tennessee State retirement benefits as

a reward for their referring patient procedures to Erlanger.

 

Executives Knew They Were Violating the Anit-Kickback Statute

 

At the heart of all of the improper conduct alleged in the complaints is Erlanger and its

executives concerted, intentional buying from doctors their patients’ procedures that Erlanger

could then bill to the Government. The Whistleblowers saw first-hand how Erlanger used

“contribution margin” reports to track the value to Erlanger of each doctor’s patient procedures

at Erlanger. Erlanger set the amount of the kickbacks it paid to referring doctors based on the

those specific valuations. Erlanger devoted substantial resources to buy and retain physician

referrals. Erlanger went so far as to develop a “leakage committee” that was put in place to

determine why doctors receiving money from Erlanger were occasionally sending their patient

procedures to other hospitals and facilities. Erlanger sought and obtained a major market share of

Government payments to hospitals in areas in which Erlanger had hospitals and acted

aggressively to buy, track and keep referrals from every doctor possible.

 

Because she tried to stop the conduct, Erlanger effectively stripped Whistleblower Sullivan of

her authority to effectively act as the chief compliance officer and then fired her under the

pretense of a ‘reduction in force.’ Despite her protestations that the conduct occurring at Erlanger

was violating the Anit-kickback Statute and the Stark Law, Whistleblowers contend that the

improper policies continued because Erlanger was focused on raising its revenues and was not

going to let compliance with the Stark Law or the Anti-kickback Statute get in the way of its

profiteering. Erlanger hired hundreds of doctors and garnered hundreds of millions of dollars of

taxpayer money through Medicare and Medicaid during the period of time described in the

Whistleblower complaint. Unfortunately, healthcare fraud can be very profitable for participating

entities if no one steps forward to report the truth in the way Ms. Sullivan and Mr. Tabor did in

this instance.

 

Patient Harm Concerns

 

Both the Whistleblowers and Government complaints raise concerns about patient safety in

addition to financial damage to the Government. Doctors should be compensated based on

quality and quantity of care to patients, not based on how much money a doctor makes for

Erlanger. The Whistleblowers allege that one cardiac surgeon was paid compensation that

exceeded fair market value by $1 million dollars. The incentive for overpaying this doctor was

that he brought in over $9 million dollars in revenue to Erlanger. This same surgeon has been the

subject of patient and physician complaints related to patient death rates, unnecessary cardiac

procedures and inferior patient care. It is the Whistleblowers’ position that when a hospital puts

profits over patient care, the consequences go far beyond the misuse of Medicare and Medicaid

dollars.

 

The Government Team and Whistleblowers Will Cooperate in Case Against Erlanger

 

The Whistleblowers and the Government will now work in tandem to litigate this case in the

Eastern District of Tennessee in Chattanooga. Until discovery is complete in this case, the exact

amount of taxpayer losses caused by Erlanger’s conduct set forth in the Whistleblower and

Government complaints cannot be known. However, under the damage calculations provided for

in the False Claims Act, the amount of damages and penalties that could potentially be recovered

substantially exceeds $100 million. In the event of a recovery for the taxpayers, the

Whistleblowers would be entitled to a statutorily determined percentage of the recovery.

All of the information in this press release is based on the pleadings and allegations in the

complaints filed by the Whistleblowers and Government.

 

For any questions related to the complaint or this important case, contact Whistleblower Attorney

Marlan Wilbanks, of the law firm Wilbanks and Gouinlock in Atlanta, Georgia. Mr. Wilbanks

email address is mbw@wilbanksgouinlock.com and his phone number is (404) 842-1075 or

(404) 786-4548.

 

Whistleblower Legal Team: The Whistleblowers in this case are represented by three

experienced law firms that specialize in handling False Claim Act cases. Marlan Wilbanks and

Susan Gouinlock of the Atlanta law firm of Wilbanks and Gouinlock, LLP; Scott Withrow from

the law firm of Withrow, McQuade and Olsen, LLP; and Chet Rabon of the Rabon Law Firm,

PLLC have joined forces to represent Ms. Sullivan and Mr. Tabor in the case against Erlanger.