Montana hospitals pay $24 million to settle whistleblower’s complaints

by Ben Vernia | October 16th, 2018

On September 28, the Department of Justice announced that Montana-based Kalispell Regional Healthcare System has agreed to pay $24 million to resolve civil allegations, brought in two qui tam complaints by the same whistleblower, that the company’s hospitals paid excessive rates to physicians and entered into improper agreements that induced referrals to the hospitals. According to DOJ’s press release:

Montana-based Kalispell Regional Healthcare System (KRH) along with six subsidiaries and related entities – Kalispell  Regional Medical Center (KRMC), HealthCenter Northwest LLC (HealthCenter), Flathead Physicians Group LLC (Flathead), Northwest Horizons LLC (NH), Northwest Orthopedics & Sports Medicine LLC (NOSM), and Applied Health Services Inc. (AHS), (collectively, “KRH entities”) – have  agreed to pay $24 million to resolve allegations that they violated the False Claims Act by paying physicians more than fair market value, and by conspiring to enter into arrangements that improperly induced referrals, the Department of Justice announced today.

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The government alleged that the KRH entities had arrangements with referring physicians that violated the Medicare physician self-referral prohibition, commonly known as the Stark Law, and other arrangements that also violated the Anti-Kickback Statute.  The Stark Law prohibits a hospital from billing Medicare for certain services referred by physicians with whom the hospital has an improper compensation arrangement.  The Anti-Kickback Statute prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of items or services covered by Medicare, Medicaid, and other federally funded programs.  Both the Anti-Kickback Statute and the Stark Law are intended to ensure that a physician’s medical judgment is not compromised by improper financial incentives and is instead based only on the best interests of the patient.

Between 2010 and 2018, the KRH entities allegedly violated the Stark Law by paying excessive full-time compensation to more than 60 physician specialists – many of whom worked far less than full-time.   Additionally, HealthCenter, Flathead, NH, NOSM, and AHS allegedly conspired to violate the Anti-Kickback Statute by paying excessive compensation to physicians employed by KRH, KRMC, and other KRH entities to induce referrals to HealthCenter, and by providing administrative services to HealthCenter at below fair market value to reduce expenses and increase profits distributed to physician investors at Flathead, an owner of HealthCenter, also to induce referrals to HealthCenter.

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According to DOJ, the whistleblower will receive $5,411,521 (a 23% relator’s share).

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