News & Features

KRH Settlement to Include Mandatory Compliance Program

Resolution of whistleblower lawsuits require Corporate Integrity Agreement

In addition to a monetary settlement between the Department of Justice and Kalispell Regional Healthcare, where physicians allegedly received illegal remuneration in exchange for patient referrals to in-house services, the hospital must also enter into a mandatory compliance program.

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 before the complaint is dismissed. The hospital has booked a $21.5 million regulatory expense, including $1.5 million in legal fees, as a reserve this fiscal year in light of the settlement.

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.

According to the lawsuit, KRH paid some of its physicians at above-market rates to influence referrals within the system, an alleged scheme that enriched senior executives and specialist physicians, while potentially negatively impacting patient care.

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.

KRH officials dispute the allegations of misconduct and say they are “very close” to reaching a final settlement.

In addition to the financial penalties, the settlement requires Kalispell Regional Healthcare to sign a Corporate Integrity Agreement (CIA) with the Office of Inspector General’s Department of Health and Human Services, which requires KRH to establish a compliance program. Among other stipulations, the agreement imposes new duties on staff to monitor, report and certify that its financial arrangements with physicians meet federal requirements surrounding health care programs like Medicare and Medicaid.

The Office of Inspector General (OIG) negotiates Corporate Integrity Agreements as part of the settlement, and providers or entities must agree to the obligations laid out in the document; in exchange, OIG agrees not to seek exclusion from participation in Medicare, Medicaid or other federal health care programs.

A comprehensive CIA typically lasts five years and includes requirements to hire a compliance officer or appoint a compliance committee; develop written standards and policies; implement an employee training program; retain an independent review organization; establish a confidential disclosure program; report overpayments, reportable events and ongoing investigations or legal proceedings; and provide an implementation report to the OIG on the status of the entity’s compliance activities.

James Alderson, a former chief financial officer at North Valley Hospital, was the whistleblower in a health-care fraud case perpetrated by Quorum Health Care, the company that managed North Valley for a period beginning in 1990, and which Alderson alleged created fraudulent cost reports.

The case came to a close in 2001, with Quorum paying back $85.7 million under the federal whistleblower law, including $20.6 million to Alderson. In addition to the monetary payout, Alderson said the hospital signed a corporate integrity agreement to ensure legal compliance, a requirement he said ensures justice.

“The financial side is going to be a relatively small part of the settlement,” Alderson, who now lives in California, said. “If they are going to follow the law and pay the doctors the way they are supposed to, that is going to represent a fundamental change in their business. These are very tough documents.”

Failure to comply with a CIA can result in financial penalties and potentially exclusion from federal health care programs.

“They’ve got to play by the rules going forward now,” Alderson said. “It’s not just pay the fine and go back to business as usual. Otherwise they could be excluded from Medicare. That’s the hammer the government has, and it’s a big hammer.”

Despite the OIG’s requirement of Corporate Integrity Agreements, Alderson said health care fraud remains widespread.

Sal Barbera, a health care services administration professor at Florida International University and a former whistleblower in a separate False Claims Act lawsuit filed against Tenet Healthcare Corp. in 1997, said Corporate Integrity Agreements are a standard requirement in settlements under the False Claims Act and violations of the Stark Statute.

“A Corporate Integrity Agreement will certainly be part of the settlement,” Barbera said. “And its requirements will be significant.”

The civil Stark Statute prohibits hospitals from billing Medicare for services rendered to patients by doctors with whom the hospital has a financial relationship, unless the financial relationship falls within specified exceptions.

According to the lawsuit, the overcompensation of specialist physicians and senior hospital executives led to more than $100 million in losses over a five-year period, which the complaint alleges was the hospital’s “primary strategy to achieve offsetting hospital profits from physicians’ referrals.”

The allegations all stem from former KRH President and CEO Velinda Stevens’ tenure, before Pamela Robertson took over in October. Stevens died in January 2017.

Under the False Claims Act, the whistleblower is entitled to a maximum of 25 percent and a minimum of 15 percent of any funds recovered by the government, if the government chooses to enter the case, as a result of the settlement. If the government opts out of entering the case, the whistleblower’s maximum award increases to 30 percent.

In September 2017, attorneys with the U.S. Department of Justice’s civil division filed a notice that the government was not intervening in the case against KRH “at this time” because its ongoing investigation was not yet complete.

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