WATERLOO - Covenant Medical Center has agreed to pay the U.S. government $4.5 million to settle allegations of health care fraud regarding the center's financial relationship with five doctors, the U.S. Attorney's office for the Northern District of Iowa announced today.

In its own relase, Covenant said "This settlement is not an admission of wrongdoing; Covenant believes the government did not produce any evidence that Covenant had engaged in wrongdoing or illegal conduct."

The settlement resolves allegations that Covenant submitted false claims to Medicare by engaging in financial relationships with five physicians in violation of the federal law. The government alleged that Covenant violated the law by paying commercially unreasonable compensation far above fair market value to five employed physicians who referred their patients to Covenant for treatment.

"These physicians were among the highest paid hospital-employed physicians not just in Iowa, but in the entire United States," the U.S. Attorney"s Office said in a release.

"This payment is the largest ever related to claims of health care fraud in the Northern District of Iowa," Dummermuth said.

In its statement, Covenant also said, "From the beginning of this inquiry, Covenant Medical Center fully cooperated with the government and provided extensive evidence to the government that the physician compensation was consistent with the approved compensation plan, was based on work personally performed by the physicians, and reflected their exceptionally high level of productivity.

"The government never disputed Covenant's assertion that the compensation paid to the employed physicians was based on work performed by these highly productive physicians," the statement continued.

"Covenant Medical Center made a business decision to settle to avoid the uncertainty of litigation, disruption, and high expense associated with protracted litigation with the government, despite our firm belief that Covenant's compensation to its physicians was reasonable and fell within fair market value. "

The doctors are not named in the release. The allegations of physician overcompensation surfaced in 2005. Cedar Valley Medical Specialists, a for-profit medical clinic, expressed concerns to the U.S. Senate Finance Committee, then chaired by U.S. Sen. Charles Grassley, as well as to the U.S. Department of the Treasury.

CVMS executives obtained Internal Revenue Service 990 forms which showed that for tax year 2002, nonprofit Covenant's five highest paid physicians made between $633.000 and $2.1 million a year - much greater than the highest paid physicians at Allen Hospital in Waterloo, whose compensation ranged between $230,000 and $360,000 according to IRS documents. It was also several times higher than physicians at hospitals in Des Moines, Cedar Rapids, University Hospitals and Clinics in Iowa City and the Mayo Clinic in Rochester, Minn.

Two of the top-paid Covenant physicians, orthopedic surgeons Drs. Gary Knudson and Richard Naylor, made $2.14 millino and $1 million in 2002, respectively. Gastro-intestinal specialist Dr. Victor Lawrinenko made $2.1 million.

Covenant officials said those doctors were specialists working in areas which had been understaffed, and pointed out their compensation was less in subsequent reports.