With Settlement Pending, Former Physician Defends KRH

Doctor disputes allegations of scheme, calls lawsuit an “insulting document”

By Tristan Scott
The 190,000-square-foot pediatric center at Kalispell Regional Healthcare. Courtesy Rendering

Facing an expensive settlement in a lawsuit that alleges physician overcompensation and fraud, Kalispell Regional Healthcare officials continue to dispute the allegations of misconduct, while current and former employees say the federal complaint portrays a scheme that simply didn’t exist.

Instead, they say former KRH President and CEO Velinda Stevens recruited high-level physicians who helped build the health-care network into a world-class, destination medical facility whose providers offered a degree of care that aligned with their salaries.

The allegations all stem from Stevens’ tenure, before Pamela Robertson took over in October. Stevens died in January 2017.

The complaint alleges numerous physicians were improperly compensated based on incentivized referrals, for which the KRH system profits, as opposed to their productivity or services rendered. The scheme has enriched senior executives and specialist physicians, while potentially negatively impacting patient care, the complaint alleges.

The goal of the money-for-referral scheme, the complaint alleges, was to increase the number of Medicare, Medicaid and other patients to KRH hospitals, labs, clinics, and specialists to increase revenues. The complaint says certain employees were then excessively compensated for their efforts to lock in patient referrals to KRH, which is Flathead County’s largest employer with more than 4,000 employees.

The recently unsealed amended complaint was filed in May 2017 by Jon Mohatt, the hospital’s physician network CFO, under the federal False Claims Act, considered the nation’s foremost whistleblower law. The case was first filed in September 2016, according to a docket report available on the U.S. District Court’s electronic case filing system.

One former KRH employee, Dr. Nicholas Costrini, who served as director of the Digestive Health Institute from May 2015 until earlier this year, said Stevens’ goal to grow KRH into a medical destination could not have been realized without the caliber of physicians she recruited — a recruitment campaign that cost money.

“The biggest fallacy here is the concept that Kalispell Regional Healthcare and its leader were engaged in a nefarious scheme that involves all of the physicians listed. That is a travesty and it’s unfortunate,” Costrini said. “It’s an insulting document. It’s essentially saying that Montana deserves second-class health care.”

According to the complaint, Costrini was compensated at a salary level that far outweighed his Work Relative Value Units, a common measure of physician productivity in the federal government’s Medicare reimbursement formula for services.

Costrini said his salary reflected his 35 years of experience and translated into his efforts to successfully “create a world-class institution that revolutionizes and brings into the 21st century the state of health care in Montana.” The complaint’s metric for measuring physician performance distorts KRH’s efforts to grow its facilities and build out its stable of specialty physicians and clinics, he said.

“The nature of bringing vision to reality is never included in the federal government’s paradigm of measuring performance,” Costrini said. “Kalispell Regional Healthcare is ethical, forward-thinking, honest, and devoted to patient care. When you’re building a world-class health care system, physicians’ salaries have to reflect that. Velinda Stevens made it abundantly clear that was her sole objective.”

KRH officials have confirmed they have reached a “settlement in principle” in the lawsuit, which still must be approved by the U.S. District Court. The hospital has booked a $21.5 million regulatory expense, including $1.5 million in legal fees, as a reserve this fiscal year.

Hospital management anticipates the actual payment will occur over six years in installments of approximately $3.3 million beginning in fiscal year 2019 and paid out from operating cash flow, according to a rating summary from Standard & Poor, which downgraded KRH’s long-term rating from A- to BBB based on fiscal year 2017 finances, a two-notch downgrade.

The report cited revenue bonds issued by the Montana Facility Finance Authority (MFFA), which last month recommended approval of up to $100 million in tax-exempt bonds to Kalispell Regional Medical Center.

According to a bond-issue loan summary by the MFFA, KRMC requested a $97.5 million, 30-year standalone bond to complete the Montana Children’s Medical Center and to refinance existing debt and continue to expand its reaches.

While an earlier financing request from KRH was delayed after it disclosed in the spring of 2017 that it was under investigation by the Office of Inspector General, “regarding its financial relationship with certain physicians,” that’s no longer a concern with the current financing request.

“While the investigation was active it was impossible to make a reasonable assessment of the risk of adverse ruling or the amount of penalties that could be incurred,” according to the MFFA summary.

After the bond issuance was delayed, the hospital received a $14 million line of credit from Glacier Bank. That line of credit was paid back within days of it being issued.

Adam Gill, executive director of the MFFA, said despite the S&P downgrade, KRMC’s outlook is stable and S&P is optimistic about the turn-around plan. He said KRMC’s strengths outweigh the board’s concerns, and the MFFA summary states, “KRMC holds a dominant market share with limited competition.”

“In addition, it is expanding its regional footprint and is developing service lines unique to Montana,” the summary states.

Gill said that while several steps remain before KRMC receives the financing, the MFFA board is confident in its ability to repay the loan.

“I would not place it in front of the MFFA board and the board would not approve it if we did not think the financing would work,” Gill said. “We have been around for 35 years and have issued nearly $3 billion in bonds and loans. We have had only one small default in our entire history. And that is because we are very careful about what we do and we approve only when we are confident it will work.”

Mellody Sharpton, communications director for KRH, said the hospital system offers a rarefied suite of services and a high level of care that is unique to this region. KRH is optimistic about its future and is committed to maintaining its reputation as a leading national health center, she said.

“The quality of care provided by Kalispell Regional Healthcare facilities has been recognized for its excellence repeatedly, especially in the last few years, due in large part to KRH’s recruitment of outstanding physicians, particularly specialists, from other parts of the country who are now part of the Flathead Valley community,” Sharpton wrote in an email. “This access has significantly reduced the burden on patients and families who often had no choice but to leave the Valley (or Montana) for specialist care.”

One of those patients is Barb Callaghan, 59, of Missoula, who in 2014 was diagnosed as having a rare tumor in her abdomen called a Gastrointestinal Stromal Tumor. When physicians determined she needed an endoscopic ultrasound, Callaghan was prepared to pack her bags and head to Salt Lake City or Seattle.

When a friend in Kalispell told her about a physician named Dr. Robert Yacavone in Kalispell who specializes in the procedure and offers the same service in the Flathead Valley, Callaghan made a call.

“It was Memorial Day weekend and I was on a bike trip, and on Sunday I got a call on my cell and it was Velinda Stevens,” Callaghan said. “She said she heard my story and was going to put me in touch with Dr. Yacavone.”

Within 10 days, Callaghan said she had an ultrasound and underwent surgery with Dr. David Sheldon, who launched the first surgical oncology practice in Montana in 2009.

“I would have had to go somewhere else,” Callaghan said. “Instead, I was able to stay in western Montana. I was able to stay close to home and receive excellent treatment from the specialists I needed.”

Both doctors are named in the complaint, and after hearing about the allegations against KRH, Callaghan said she was compelled to share her story.

“I think it’s pretty unique that a community the size of Kalispell can have that kind of treatment, and you have to pay for that,” she said. “I was really glad there was a physician in the state so I could be close to home.”

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