Memorial Hospital officials have agreed to pay $1.3 million to the federal government to end a three-year investigation into alleged Stark violations going back to 2003. That's a far better deal than Erlanger Hospital got in 2005. Erlanger was socked then with a $40 million settlement cost - the largest civil penalty ever by a hospital at the time - over similar charges. One difference seems to be that Memorial got credit for "self-reporting" and correcting its alleged violations, though it did so only after the federal investigation had belatedly begun in 2009, according to the statement issued Thursday by U.S. District Attorney William C. Killian.

"Beginning as early as January 2003," the federal settlement agreement alleges, "Memorial entered into a series of financial arrangements with certain physicians and physician groups through which it provided financial benefits intended to induce physicians to refer patients to Memorial facilities. These arrangements violated federal laws known as the Ethics in Patients Referrals Act (or the 'Stark law') and the Anti-Kickback Statute and resulted in the submission of false claims to the Medicare system."

The settlement agreement announced Thursday notes that Memorial has denied "any intentional wrongdoing in agreeing to the settlement." It goes on to say that Memorial's decision to self-report and cooperate in the investigation of its alleged infractions of federal kickback laws reflects "an excellent example of how a health care provider can . . . avoid costly false claims litigation."

Memorial's statement denying wrongdoing while paying a penalty is a typical of such civil settlement agreements. The latter statement by the government noting Memorial's cooperation seems more a bait for other health providers to come clean than meritorious praise for Memorial. It was notably followed by the remark that federal justice and health department officials "welcome the opportunity" to work with providers to resolve fraudulent billing and "return money back to the Medicare Trust Fund."

That's a sensible approach, however. The Justice Department doesn't have enough personnel to launch lengthy investigations of every hospital; it would be far cheaper and infinitely more efficient to have offenders self-report and pay penalties.

Still, the larger questions pertaining to the Memorial settlement are twofold: Why did it take so long for the U.S. District Attorney, the Department of Justice and the Inspector General of the Department of Health and Human Services to launch a broader investigation into hospital/physician relationships here after it concluded the Erlanger settlement in 2005? And why didn't Memorial catch or correct the alleged Stark violations when they reportedly began in 2003?

It is well known that Erlanger and Memorial, among other hospitals, have battled for years over market share by building and offering specialty care and by seeking agreements with physicians to center their practices at one or the other hospitals. That competition prevails because it is physicians, not hospitals, that have patients. Luring physicians' groups to boost the number of paying patients is a routine hospital marketing strategy. It's the provision of below-cost office space, services and other perks that run afoul of the Stark law and anti-kickback statutes, especially with regard to Medicare charges.

Erlanger, Memorial and other area hospitals have surely learned the risks of improper inducements and the need for robust compliance protocols. The pity is that such market competition will continue to drive up the cost of medical care, rather than reduce it. Consolidation of the area's largest, ostensibly non-profit hospitals would reduce the needless duplication of specialty services and provide true cost savings.

Regrettably, this isn't likely to happen in the foreseeable future. Previous overtures to Memorial to consider consolidation have fallen flat. Though decidedly legal, Memorial's current goal, as part of a national chain of Catholic hospitals, is admittedly to secure better than its present 8 percent profit margin here. As its split with BlueCrossBlueShield over higher charges shows, driving up its charges and profit margins seems to be Memorial's priority concern.