Rialto Capital Management and its Affiliate Enter $3.6 Million Settlement to Resolve False Claims Act Allegations

by Andrew Murray | June 6th, 2019

On June 3, 2019, the Department of Justice announced that Rialto Capital Management LLC and RL BB-IN KRE (Rialto’s former affiliate) agreed to pay $3.6 million to settle allegations of False Claims Act, Stark Law, and Anti-Kickback Statute violations. Kentuckiana Medical Center (a hospital owned by RL BB-IN KRE) and Rialto allegedly engaged in “illegal financial arrangements” with two providers who referred patients to the hospital. The Press Release States:

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The settlement resolves allegations that KMC, under the direction of Rialto, provided personal loans to two referring doctors and then repeatedly forbore from requiring repayment of those loans. The United States alleged that the hospital’s failure to collect on loans to key referral sources constituted a form of remuneration prohibited by both the AKS and the Stark Law. The AKS prohibits the provision of remuneration to induce the referral of services or items that are paid for by a federal health care program. The Stark Law restricts financial relationships that hospitals may enter into with physicians who refer patients to them. The False Claims Act prohibits the submission of claims to Medicare for items or services that are tainted by financial arrangements that violate the AKS or the Stark Law.

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Rialto, through RL BB, acquired KMC as part of KMC’s bankruptcy reorganization in 2013. As part of that reorganization, KMC and Rialto initially offered to award partial ownership in the hospital’s real estate to certain physicians who had been important referral sources for KMC, but those offers were challenged in the bankruptcy proceedings. Instead, Rialto approved personal loans from KMC to two of the hospital’s key referral sources, and Rialto and KMC then allegedly repeatedly forbore from requiring repayment of those loans for more than two years after each loan matured and became due in full.

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The Department of Justice announced that the whistleblower, a doctor, will receive $612,000 from the settlement (a 17% relator’s share).

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