Feds Settle $24M Whistleblower Suit Involving Alleged Kickbacks to Scores of Doctors

Megan Brooks

October 09, 2018

Kalispell Regional Healthcare (KRH), one of Montana's largest public hospital systems, along with six subsidiaries and related entities, has agreed to pay $24 million to settle allegations that it violated Medicare billing laws that ban paying physicians for referrals, the US Department of Justice (DOJ) has announced.

It's the largest false claims act recovery in Montana history and involved more than 60 physicians.

During the course of its 2-year investigation, the DOJ discovered that 63 physicians were allegedly involved in an illegal kickback scheme, a violation of the federal Anti-Kickback Statute, the False Claims Act, and the Stark Law, which prohibit physician self-referrals.

The physicians worked across multiple specialties, including cardiology and cardiovascular surgery, orthopedic surgery, general surgery, radiation oncology, gastroenterology, surgical oncology, neurosurgery, gynecology, and internal medicine.

According to the DOJ, between 2010 and 2018, the KRH entities — Kalispell Regional Medical Center (KRMC), HealthCenter Northwest (HealthCenter), Flathead Physicians Group (Flathead), Northwest Horizons (NH), Northwest Orthopedics & Sports Medicine (NOSM), and Applied Health Services (AHS) — allegedly provided excessive full-time compensation to the 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," the DOJ said in a news release.

Whistleblower Nets $5.4 Million

The settlement resolves allegations originally made in two whistleblower lawsuits filed by Jon Mohatt, a former chief financial officer for KRH's Physicians Network, under the qui tam provisions of the False Claims Act, which allow individuals to bring suit on behalf of the government and share in any recovery. He will receive $5,411,521 as his share of the recovery in the two consolidated cases.

"Financial arrangements that improperly compensate physicians who make referrals to a hospital drive up the cost of healthcare services for everyone," Assistant Attorney General Joseph Hunt for the DOJ's Civil Division, said in the release. 

"This settlement demonstrates the Department's determination to enforce federal laws aimed at preventing conflicts of interest between the financial interests of hospitals and physicians and the best interests of the patients they serve," said Hunt.

"Quality healthcare is a critical need of all Montanans, but paying extra to physicians to induce referrals improperly raises the cost of that healthcare and must stop," added US Attorney for the District of Montana Kurt Alme.

As part of the settlement, KRH and three of its affiliates must enter into a multi-year corporate oversight program with the US Department of Health and Human Services (HHS) Office of Inspector General.

"Our office will continue to focus our efforts on those who make improper payments to physicians for the purpose of inducing referrals in order to ensure the integrity of HHS programs," said Steve Hanson, HHS Special Agent in Charge, Office of Inspector General, Office of Investigations, Kansas City Region.

"This case shows that whistleblowers can have a significant impact by stepping forward in the best interests of patients and taxpayers," Bryan Vroon, an Atlanta-based attorney who served as lead counsel for Mohatt, said in a news release issued by his office.

"I admire Jon's courage and determination. He has great integrity and commitment to compliance with federal laws important to the Medicare program, Medicare patients, and American taxpayers," said Vroon.

The settlement will be paid over a 6-year period. KRH and its entities "deny the contentions of the federal government, the State of Montana, and the whistleblower. The claims settled by the Settlement Agreement are allegations only, and there has been no determination of liability by a court of law," according to a news release from Vroon's office.

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