Kalispell Regional Healthcare Settles Whistleblower Case

Terms of resolution remain under seal but will soon be detailed publicly in federal court documents

By Tristan Scott
Kalispell Regional Medical Center. Beacon File Photo

Kalispell Regional Healthcare has reached a much-anticipated settlement with the Department of Justice in a whistleblower lawsuit alleging its physicians received illegal compensation in exchange for patient referrals to in-house services, according to a federal court order filed Wednesday.

The order, submitted by U.S. District Judge Donald Molloy, dismisses the case with prejudice — meaning it is permanently dismissed and cannot be brought back to court — and instructs government attorneys to show cause why the terms of the agreement should not be unsealed in their entirety.

Molloy ordered counsel to respond by 5 p.m. on Sept. 26.

Assistant U.S. Attorney Megan Dishong responded with a brief requesting that the court unseal the details of the settlement actions, with the exception of 12 pleadings related to the government’s decision on whether or not to intervene. The majority of those motions were requests for time extensions in a case that has dragged on for more than two years.

Molloy is expected to unseal the documents detailing the settlement soon.

The settlement is the latest chapter in a tumultuous saga for KRH, which has disputed the allegations detailed in a complaint filed by the hospital’s former physician network chief financial officer while enduring a federal investigation into allegations of widespread institutional fraud.

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 amended complaint was filed in May 2017 by Jon Mohatt, the hospital’s former physician network CFO, under the federal False Claims Act, considered the nation’s foremost whistleblower law, as well as the Stark Law, or anti-kickback statute. The case was first filed in September 2016.

KRH officials confirmed reaching a “settlement in principle” in the lawsuit, and have 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.

In addition to the financial penalties, the settlement requires Kalispell Regional Healthcare to submit to 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.

The lawsuit also comes on the heels of a titanic shift in KRH leadership, most recently with the departure of former President and Chief Executive Officer Pamela Robertson, who announced on Sept. 7 that she is leaving her position for personal reasons, effective Nov. 30. KRH said in a statement that the board of trustees will establish a search committee while General Counsel William Gibson and interim Chief Financial Officer Tracey Talley oversee hospital operations.

Robertson replaced Velinda Stevens, who had been president and CEO of KRH for nearly two decades before passing away in January 2017 after a prolonged battle with cancer. Robertson officially took over the position on Sept. 15, 2017, with all of the allegations occurring prior to her tenure.

In Robertson’s announcement that she’s stepping down, she acknowledged “major challenges” at the hospital, but said they are “well underway to being behind KRH” and that she has “extreme confidence in the organization’s future.”

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