Hospital expects settlement in civil suit

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Kalispell Regional Healthcare is expected to reach a settlement in the civil suit alleging illegal kickbacks and lucrative self-referrals that funded physician salaries far above fair market value. The 91-page civil complaint — filed last May under the False Claims Act, the main avenue for whistleblower suits on behalf of the government — prompted an ongoing federal investigation into whether or not the hospital knowingly defrauded the government in Medicare and Medicaid compensation.

Kalispell Regional Healthcare “has reached a settlement in principle in the case which we expect to be finalized soon,” said Director of Communications Mellody Sharpton in a statement Thursday afternoon. “KRH continues to dispute the allegations of misconduct in the recently unsealed legal complaint but strongly believes that a settlement allows our physicians and employees to move forward and focus on providing excellent care which benefits our community. KRH will continue to fulfill our commitment to providing high quality health care to the communities we serve and maintain our reputation as a leading national health center.”

A settlement in principle, though not legally binding, establishes the framework for an eventual settlement by contract. “I do not have an exact timeline” for the legal settlement, said Sharpton, “but we are hopeful for a quick resolution.”

According to court records, the suit was filed in September 2016 by Jon Mohatt, the chief financial officer for the Physician Network at Kalispell Regional Healthcare — currently the Flathead Valley’s largest employer, with over 4,000 employees. According to the complaint, Mohatt has overseen, since April 2014, the financials for Kalispell Regional’s Physician Network of over 220 medical providers and $100 million in net revenues for 46 practices.

Mohatt’s complaint alleged that executives at Kalispell Regional, under the stewardship of late CEO Velinda Stevens, knowingly compensated certain specialty physicians at rates inconsistent with the number of services they performed. Furthermore, the complaint portrayed a “scheme of mutual enrichment” spearheaded by hospital executives, in which the physicians’ salaries and bonuses were dictated by the value and volume of their referrals to the hospital, instead of their productivity.

The referral of cases covered by federal programs, such as Medicare or Medicaid, provided the hospital enough revenue to afford the steep physician compensation. But, according to the suit, it also violated federal Stark laws, which prohibit incentivized referrals and tying physician compensation rates to them.

These violations would render fraudulent some hospital reimbursements from federal programs. Thus, the complaint alleged that “Kalispell Regional has submitted and continues to submit false or fraudulent claims based on these referrals to obtain millions of dollars in Medicare, Medicaid, and TRICARE payments that they were not legally entitled to receive.”

A U.S. District court notice in September 2017 confirmed that the government was investigating the case, though it deferred on whether or not to intervene, pending the investigation’s conclusion.

That investigation is still ongoing. In June, Kalispell Regional Healthcare CEO Pamela Robertson confirmed that the hospital was required to set aside $21.5 million in advance of a potential settlement. Sharpton reiterated that figure on Thursday.

The prospective settlement comes at a critical juncture for Kalispell Regional, as a period of rapid growth wanes. The hospital system, which affiliated with Whitefish’s North Valley Hospital in 2015, is anticipating the completion of its $12.9 million Digestive Health Institute this fall and the $40 million Montana Children’s Center next spring.

The hospital’s investment in building leading regional facilities — and attracting the high-level specialists to fill them — has led some to view the complaint’s framework as short-sighted and incomplete. According to Dr. Nicholas Costrini, the director of the Digestive Health Institute from May 2015 until earlier this year, the high salaries of physicians named in the complaint derive from the scope of the directorship roles required to build a first-class specialty program in the Flathead Valley.

According to the complaint, Costrini received $589,046 in fiscal year 2016 for part-time work as a practicing gastroenterologist — compensation above the 90th percentile for gastroenterologists nationwide.

However, he said the salary “reflects my role as director and my administrative and clinical work.

“Most of it was getting the Digestive Health Institute designed and built, and it will pay exceeding dividends to the hospital, which certainly wouldn’t be reflected in a microscopic look at a calendar year.”

A statement released Thursday by Sharpton on behalf of Kalispell Regional echoes Costrini’s future-oriented outlook.

“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. Residents of Flathead County now have access to the best medical care right here in the Valley. 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.”

Reporter Adrian Horton can be reached at or at 758-4439.

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