Physician kickbacks alleged in suit

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Kalispell Regional Healthcare remains under federal investigation for improperly high physician compensation afforded through a system of kickbacks and referrals — allegations detailed in a 91-page civil complaint filed in U.S. District Court in Missoula in May 2017.

The whistleblower suit was filed by Jon Mohatt, the chief financial officer for the Physician Network at Kalispell Regional Healthcare since April 2014, the suit states. It claims that the hospital system violated federal anti-kickback statutes by “knowingly defrauding the federal government in connection with Medicare, Medicaid, TRICARE, and other Federal Healthcare Programs.” The suit also alleges that “since at least 2011, Kalispell Regional has engaged in a scheme to pay improper compensation to certain employed physicians and to reward or induce them to refer patients, including Medicare patients, to Kalispell Regional’s hospitals and clinics.”

The once-sealed civil complaint, reviewed by the Daily Inter Lake on Wednesday, adds details and figures to previous reports on a federal investigation into the hospital’s compensation and referral practices.

At the heart of the claim are alleged violations of Stark Law, which is a compilation of federal laws designed to curb anti-competitive behavior and overuse of health-care services by prohibiting physician self-referral. Stark Law was enacted, in part, to prevent the “overutilization” of medical services — in other words, ordering unnecessary or ancillary procedures in order to receive more reimbursement dollars from federal programs such as Medicare or Medicaid.

According to the complaint, Kalispell Regional Healthcare — under the direction of long-time CEO Velinda Stevens, who died in January 2017 — engaged in a “scheme of mutual enrichment” in which certain physicians were paid at rates far in excess of national averages or personal productivity, while the hospital profited from referrals made by those physicians.

According to the complaint, Kalispell Regional violated Stark Law for physician compensation in three major ways:

—Certain physicians were paid far above fair market rates, especially doctors working in several hospital-affiliated clinics or lucrative specialty practices, such as cardiology, orthopedic surgery, general surgery, vascular surgery, oncology surgery, gastroenterology, neurosurgery and radiation oncology.

—Physicians were paid at levels “not commercially reasonable” if revenue from referred procedures were discounted.

—Physician salaries were “determined and paid based on the volume and value of inpatient and outpatient referrals by such physicians to Kalispell Regional hospitals and clinics.”

The hospital’s selectively high compensation rates, the complaint continues, would have resulted in steep losses for the hospital were it not for the accompanying referrals. For example, according to the complaint, physician compensation at affiliated clinics generated losses of $15.9 million in fiscal year 2014, $18.8 million in 2015 and $22.8 million in 2016. Including clinic overhead costs, the “estimated losses exceed $100 million in the last five years.” Additionally, the complaint points to a serious discrepancy in physician compensation versus productivity. Over the course of fiscal years 2014 through 2016, a “subset” of physicians, not including primary-care doctors, allegedly “generated collections of $60.3 million. Yet Kalispell Regional paid such physicians $91.8 million.”

The complaint alleges that Kalispell Regional did not pay these physicians based on their personal productivity — the typical physician compensation model, known as “Work Relative Value Units,” which accounts for the time, skill and intensity of procedures provided by a given doctor. Instead, the suit alleges that “Kalispell Regional has paid such physicians based in part on the value and volume of their referrals to the hospital system.”

These referrals, which bring in federal dollars for each procedure, generated enough revenue to offset the costs of physician salaries far above the nationwide market value. Stark Law — named for Rep. Pete Stark, who introduced the initial bill — prohibits physician self-referrals as a means of generating revenue. However, more seriously, the complaint claims that Kalispell Regional executives based compensation and bonuses — sometimes retroactively — on the number of the referrals per physician or practice. This would create an environment in which physicians “are incentivized for overutilization of medical treatment.” In other words, to order additional procedures, tests or services which may or may not be necessary, based on the hospital’s expectation of referral revenue.

The hospital’s system, as the complaint spelled out, would thus “profit from increased referrals and the physicians [would be] highly paid despite minimal personal productivity” including part-time hours and little to no minimum work requirements.

The complaint hinges on the Federal False Claims Act, which prohibits false or fraudulent claims of payment or approval to the U.S. government. If Kalispell Regional is found to have knowingly reported self-referred procedures — illegal, under the Stark Law — to the federal government for payment through Medicaid or Medicare reimbursement, the hospital system could be liable for damages equivalent to or in excess of the amount of money paid by these federal health-care programs.

The complaint claims that since 2011, Kalispell Regional has claimed over $300 million from the federal government’s Medicare program, which reimburses medical providers for some care for elderly and disabled persons. The complaint also states that these Medicare reimbursements constitute about 24 percent of Kalispell Regional’s net revenues each fiscal year (April through March).

However, in a publicly available court notice from September 2017, the government announced it had not decided yet whether to pursue further action on the civil complaint, pending the results of the ongoing investigation of the hospital’s compensation and accounting practices.

Kalispell Regional CEO Pamela Robertson confirmed that investigation last month in a staff-wide email, which flatly denied claims of fraud. “We do not agree with the allegations and deny any wrongdoing. We have responded to the government’s requests for information and have cooperated fully with the investigation. We are hopeful for a quick resolution,” wrote Mellody Sharpton, Kalispell Regional’s director of communications and marketing.

Sharpton also confirmed then that Kalispell Regional was required to set aside $21.5 million in anticipation of a potential legal settlement, pending the investigation.

In an interview with the Daily Inter Lake that same week, Robertson expressed optimism on Kalispell Regional’s future as a sustainable, regional health-care system. “We have made significant investments, and those significant investments will pay a financial dividend in the future ... we are optimistic about the future of Kalispell Regional Healthcare, and we are committed to continuing to serve the Flathead Valley and the communities outside the valley that we currently serve,” she said.

Reached for comment Tuesday, Sharpton said that the hospital could not provide any information beyond last month’s memo, pending completion of the investigation. “We provided our statement to you and, unfortunately, that’s all we’re able to provide at this time.”

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

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