Kalispell Regional Healthcare settles whistleblower suit for $24 million

Kalispell Regional Healthcare has reached a settlement with the federal government for $24 million, according to a Department of Justice announcement Friday and an email sent to Kalispell Regional staff from President and CEO Pam Robertson. Kalispell Regional will pay $21.1 million and the Flathead Physician Group, physician investors in The HealthCenter, will pay $2.8 million. The hospital had set aside $21.5 million in advance of a settlement, which, according to the Department of Justice, is the largest False Claims Act recovery in Montana.

According to the agreement, Kalispell Regional Healthcare and six associated entities — Kalispell Regional Medical Center, HealthCenter Northwest LLC, Flathead Physicians Group LLC, Northwest Horizons LLC, Northwest Orthopedics & Sports Medicine LLC, and Applied Health Services Inc. — will pay the government to resolve allegations of unreasonably high compensation for 63 physicians and compensation measures that improperly incentivized referrals.

The settlement ends a whistleblower complaint filed by Jon Mohatt, the former chief financial officer of the hospital’s Physician Network, in 2016. The suit alleged that the hospital knowingly violated federal anti-kickback statutes, known as Stark Law, and the False Claims Act by compensating physicians far above fair market rates and reaping financial benefits from a system of self-referrals dating back to at least 2011.

Mohatt will receive $5,411,521 as his share of the recovery in the cases, according to the U.S. Department of Justice.

“Financial arrangements that improperly compensate physicians who make referrals to a hospital drive up the cost of health care services for everyone,” said Assistant Attorney General Joseph H. Hunt for the Department of Justice’s Civil Division in Friday’s press release. “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 hospital has refuted charges of wrongdoing, including in Friday’s announcement. “While KRH continues to strongly disagree with the allegations, we are relieved to put this issue behind us,” said Robertson.

The settlement will also contain a Corporate Integrity Agreement with the federal government, which establishes guidelines for the hospital’s compliance program for federal statutes. The agreement “will be an additional tool to demonstrate our strong compliance surrounding providers who refer to KRH,” said Robertson.

“Quality healthcare 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,” said United States Attorney for the District of Montana Kurt Alme. “I would like to thank the team that worked hard to bring this to a quick and successful resolution,” he said, including members of the U.S. Department of Justice and U.S. Attorney’s Office, as agents with the Department of Health and Human Services-Office of Inspector General and the Federal Bureau of Investigation.

The hospital maintains that their “competitive compensation attracts the caliber of talent to this area that we believe the people of northwest Montana deserve,” according to Robertson, and that the physician investment policies at the HealthCenter complies with regulations.

However, the board weighed the cost and distraction of potential litigation, and judged that settling with the government offered the best chance to “move forward and focus on providing the excellent care that our community expects.”

The hospital “[regrets] the toll that this matter has taken on our KRH family and our community,” said Robertson. “We are glad that this matter will finally be behind us, we’ve secured our bond financing, and we can focus on the future.”