Kalispell Regional Settles Whistleblower Suit for $24M

Unsealed terms reveal scope of government investigation alleging 63 physicians received illegal kickbacks

By Tristan Scott

Editor’s Note: This article has been updated to include comments made during an interview with Kalispell Regional Healthcare’s executive leadership.

Kalispell Regional Healthcare has agreed to pay $24 million to settle a whistleblower lawsuit with the Department of Justice, which during the course of its investigation alleged that 63 physicians were involved in an illegal kickback scheme to boost revenues and enrich themselves, a violation of the federal Anti-Kickback Statute, the False Claims Act and the Stark Law, which prohibit physician self-referrals.

It is the largest False Claims Act recovery in Montana history.

The staggering number of physicians involved in the allegations was revealed late Friday following a federal judge’s decision to unseal the terms of a resolution that lay bare an alleged system to compensate specialist physicians and executives at a rate that far exceeded market value, all while knowingly defrauding the federal government.

The scope of the alleged fraud exceeds what was earlier reported as the details of the case have been buried in sealed documents, a requisite component of whistleblower cases designed to protect workers who believe their employer is violating federal law.

In this case, the whistleblower is Jon Mohatt, who was employed as the hospital’s physician network chief financial officer when, in September 2016, he brought sweeping complaints of wrongdoing to investigators with the Offices of Inspector General in the U.S. Department of Health and Human Services and Department of Justice, launching a two-year investigation.

Mohatt was represented by lead counsel Bryan Vroon, an Atlanta-based attorney who specializes in such cases, including the landmark $70 million judgment against Broward Health.

“This case shows that whistleblowers can have a significant impact by stepping forward in the best interests of patients and taxpayers,” Vroon said. “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.”

The settlement resolves allegations originally brought in two lawsuits filed by Mohatt under the qui tam provisions of the False Claims Act, which allow private parties to bring suit on behalf of the government and to share in any recovery. Mohatt will receive $5,411,521 as his share of the recovery in the two consolidated cases.

The settlement will be paid over a six-year period.

The case was handled by the U.S. Attorney’s Office for the District of Montana, the Justice Department’s Civil Division, the U.S. Department of Health and Human Services’ Office of Inspector General and the Federal Bureau of Investigation.

“Financial arrangements that improperly compensate physicians who make referrals to a hospital drive up the cost of health care services for everyone,” Assistant Attorney General Joseph H. Hunt, with the Department of Justice’s Civil Division, said in a statement. “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.”

The six-count lawsuit centers on alleged violations of the Anti-Kickback Statute, a criminal law prohibiting financial arrangements between doctors and hospitals or other health-care providers or companies, and the civil Stark statute, a federal physician self-referral law designed to prevent financial incentives for physicians to steer patients to particular providers from whom they stand to reap benefits.

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.

In investigating Mohatt’s complaint, the government alleged that Kalispell Regional Hospital; Kalispell Regional Medical Center; HealthCenter Northwest, LLC; Flathead Physicians Group, LLC; Northwest Horizons, LLC; Northwest Orthopedics and Sports Medicine, LLC; and Applied Health Services, Inc., “knowingly submitted claims to Medicare for designated health services arising from referrals made by sixty-three physician specialists who received compensation pursuant to direct or indirect financial relationships with KRMC or [HealthCenter Northwest, LLC] … in violation of the Stark Law because the compensation took into account the volume or value of the physicians’ referrals to KRMC and HC and exceeded the fair market value of services the physicians actually performed, and in some instances was provided under an arrangement that was not commercially reasonable in the absence of the physicians’ referrals for designated health services and other business generated,” according to a government notice unsealed last week.

“Quality health care 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,” U.S. Attorney for the District of Montana Kurt Alme stated. “I would like to thank the team that worked hard to bring this to a quick and successful resolution, which is the largest False Claims Act recovery in the District of Montana, including members of the U.S. Department of Justice and U.S. Attorney’s Office, as well as agents with the Department of Health and Human Services-Office of Inspector General and the Federal Bureau of Investigation.”

An emailed statement from KRH President and CEO Pamela Robertson to hospital employees and reporters expressed relief and an eagerness to move forward. Earlier this month, Robertson announced she was resigning from her position for personal reasons, effective Nov. 30.

“For some time now, our organization has been dealing with allegations made by a former employee concerning the compensation of certain physicians,” according to her statement. “Today, I am pleased that we have finally resolved these allegations with the Department of Justice, as the case has been dismissed and the seal was lifted. While KRH continues to strongly disagree with the allegations, we are relieved to put this issue behind us.”

In finalizing the settlement, KRH will implement a Corporate Integrity Agreement (CIA), which is commonplace in such lawsuits. The agreement outlines the elements of the organization’s compliance program and processes for demonstrating adherence to those obligations.

“The CIA will be an additional tool to demonstrate our strong compliance surrounding providers who refer to KRH,” Robertson stated.

The settlement agreement includes a payment to the government of $24 million, of which KRH will be responsible for $21.2 million and the Flathead Physician Group (FPG), whose members are physician investors in The HealthCenter, will be responsible for $2.8 million.

“The Board of Trustees carefully considered the ongoing costs and distraction that litigation would impose upon the system, our employees, and the communities we serve,” Robertson’s statement continues. “We believe that a settlement allows our system to put this difficult matter behind us and allows our physicians and employees to move forward and focus on providing the excellent care that our community expects.  During the government’s review, the quality of care our physicians and staff provide was never questioned nor was overutilization an issue.”

The government alleged that between 2010 and 2018 numerous specialist physicians were paid excessive compensation while working far less than full time. The complaint also alleges that KRH entities conspired to violate the Anti-Kickback Statute by paying excessive compensation to physicians to induce referrals to HealthCenter, a joint venture of local physicians and Kalispell Regional Healthcare.

Physicians received the excessive compensation based on the incentivized referrals as opposed to their productivity or services rendered, a scheme that enriched senior executives and specialist physicians, the complaint alleges.

The goal of the money-for-referral scheme, according to the complaint, was to increase the number of Medicare, Medicaid and other patients to KRH hospitals, labs, clinics, and specialists to increase revenues. 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.

“At least since 2011, Kalispell Regional has engaged in a scheme to pay excessive compensation to certain employed physicians to reward or induce them to refer patients, including Medicare patients, to Kalispell Regional hospitals and clinics,” the complaint states.

Because the complaint was filed in 2016, the allegations stem from former KRH President and CEO Velinda Stevens’ tenure, before Robertson took over last October. Stevens died in January 2017.

Court documents state that Mohatt managed financial operations at KRH “for over 46 medical practices consisting of over 220 medical providers and $100 million in net revenues.”

In that capacity, he had first-hand knowledge of and access to the financial details and personnel inner-workings revealed in his lengthy, highly detailed complaint.

“Through his work and experience, Mohatt has direct, detailed, and personal knowledge that Kalispell Regional has violated Federal Stark and Anti-Kickback Laws as described in detail below,” the court documents state.

Prior to working at KRH, Mohatt served 15 years in the United States Air Force, which included serving as Air Force Medical Service Director of IT in Falls Church, Virginia; as Commander of the 937th Training Support Squadron in San Antonio, Texas; and as Commander of the 28th Medical Support Squadron at Ellsworth Air Force Base in South Dakota. His Air Force career was preceded by 11 years of service in the United States Army and in the Kansas Army National Guard.

Mohatt and his family will remain in the Flathead Valley where he has launched a new career as a real estate agent, according to his attorney.

The overcompensation of specialist physicians, who often work few hours, 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.”

According to Robertson, the competitive compensation doled out to physicians “attracts the caliber of talent to this area that we believe the people of northwest Montana deserve.”

Rick Robinson, a Washington, D.C.-based attorney who represented KRH throughout the government’s investigation, said the hospital’s goal to evolve into a regional medical destination could not have been achieved without recruiting high-caliber physicians, which costs money.

“The real question in this case is what do you have to pay a specialist doctor to get them to move to Kalispell, Montana,” Robinson said. “The hospital had a vision to bring nationally specialized care to the Flathead Valley. We contended with the government that the compensation was fair because you have to pay more to get these physicians to come to Montana. How do you determine a fair market value in a medical market like Montana? These doctors had opportunities to go to other places.”

Robinson said there is discussion on a national level about reforming the Stark Law in an effort to parse out disparities between offering high-level medical services in an urban area versus a more remote medical silo in northwest Montana.

“There is a lot of discussion about does the law go too far, are there things that should be done differently, particularly when it’s being applied in a rural setting,” Robinson said. “It is a strict liability statute, and the only issue in our case was whether we were exceeding the fair market value of these doctors. A lot of people suggest that this law is too inflexible.”

In one example of physician overcompensation described in Mohatt’s complaint, a neurosurgeon regularly received an annual compensation above $900,000 from 2014-2016, although collections for his services ranged from $207,442 to $374,124, either below or just above the national 10th percentile for neurosurgeons. The complaint states that he also ranked below the national 10th percentile for productivity metrics.

Another example points to an invasive cardiologist whose part-time compensation of $392,244 translated to a full-time equivalent compensation of $4.3 million, more than five times the national 90th percentile for invasive cardiologists.

The complaint also states that various physicians were paid extra for “director” services without any documentation or confirmation of any services performed. The additional director payments ranged from $50,000 to $150,000 per year.

Mohatt claims he repeatedly warned executives about the compensation system’s improprieties but was rebuffed.

William Gibson, the hospital’s general counsel, said the hospital commenced compensation studies and reviewed the employment contracts of physicians. Hospital officials firmly believed they were working within the bounds permitted under the law.

Moving forward, Gibson said the hospital will continue to review physicians’ employment arrangements to determine “what is best for the organization.”

For example, some physicians who don’t have a patient load to justify a full-time position may elect to reduce their hours and work on a part-time status.

“If they do that, there is a commensurate reduction in their pay,” Gibson said. “If not, they will have to show there is the business to justify full-time.”

In recent months, hospital officials have repeatedly pointed to the high level of care offered at KRH.

“We are immensely proud of our physicians and employees who are devoted to serving our patients and have helped health care in northwest Montana take a giant leap forward,” Robertson stated. “Our mission is and always has been to improve the health, comfort and lives of the people we serve. It saddens us that the complaint’s allegations implied otherwise and regret the toll that this matter has taken on our KRH family and our community. We are glad that this matter will finally be behind us, we’ve secured our bond financing, and we can focus on the future.”

Still, government investigators say they will continue to investigate alleged violations of the False Claims Act so that medical services are not compromised.

“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,” Steve Hanson, special agent with the U.S. Department of Health and Human Services, Office of Inspector General, Office of Investigations, stated.

As the hospital’s Board of Trustees continues its search to replace Robertson, the departing CEO acknowledged challenges at the hospital but expressed nothing but confidence in the organization’s future.

“The most important thing to remember here is the level of health care that is accessible to all of us. I hope that doesn’t get lost by anybody,” she said. “The future is bright and sunny. I am full of optimism.”