Medical patients have a reasonable expectation that when a doctor makes a referral to a specialist, the doctor has their wellbeing in mind. But according to a complaint filed in U.S. District Court, patients at a Montana hospital weren’t always given that respect. Instead, doctors made referrals in consideration of their own financial gain.
Per the complaint, Kalispell Regional Healthcare (KRH), a healthcare system based in Kalispell, Montana, was engaging in illegal behavior and defrauding the government through a complex scheme of kickbacks, incentivized referrals, and excessive doctor compensation.
It was all part of an alleged effort to gain Medicare, Medicaid, TRICARE, and other patients, and all of it was witnessed by Jon Mohatt, Kalispell’s Physician Network CFO, who filed a whistleblower lawsuit after years of watching KRH administration encourage this activity.
The latest complaint, which was filed in September 2017, was made public in late June 2018, and it appears that KRH will have to pay a whopping $21.5 million to the government.
KRH operates Kalispell Regional Medical Center, a 138-bed hospital, as well as North Valley Hospital; a skilled nursing facility; a medical fitness center; a 40-bed mental health and substance abuse facility; and the HealthCenter, a facility that offers surgery, rehab, imaging, women’s health, and pain management services.
Physicians and specialists in the KRH network practice in dozens of clinics throughout western Montana. With 4,000 employees, KRH is also the largest employer in Flathead County.
Clearly, KRH has a massive footprint in western MT, and it has a huge network of physicians it could have used in a referral scheme. In rural areas where healthcare is difficult to access, KRH providers may be the only doctors available. Even in larger cities, KRH could be the only option for certain types of care. When a doctor refers a patient to a KRH specialist, it could very well be the only choice they have.
Lawsuit Says Kalispell Doctors Got High Salaries for Little Work—and Some of it Was Paid by Taxpayers
According to the complaint, KRH doubled down on its position of influence and used referrals and kickbacks to profit, dating back as far as 2011.
Mohatt says in his lawsuit that certain specialists were compensated based on the number of referrals they generated, rather than by their productivity. Doctors were allegedly paid exorbitant amounts of money, far higher than the average salary, for disproportionately small amounts of work.
The lawsuit says this scheme was in direct violation of an anti-kickback statute, which bans hospitals and doctors from entering into financial arrangements, and the Stark statute, which prohibits health care companies from offering financial incentives to doctors for referring patients to specialists they can benefit from.
What’s more, many of the patients that were referred to specialists as part of this alleged kickback scheme were Medicare, Medicaid, and TRICARE recipients—and KRH ostensibly billed the federal government for the services it provided to these patients. Taxpayers unknowingly had their money wrapped up in KRH’s scheme.
In the healthcare industry, kickbacks are illegal because they increase physician salaries and healthcare costs while reducing the quality of patient care. The lawsuit claims that at KRH, the consequences of kickbacks were on full display, as doctors made insane amounts of money:
- One cardiologist made $392,000 a year for a part-time position, which equated to a full-time salary of $4.3 million.
- A neurosurgeon was paid $900,000 a year, but only provided $200,000 to $300,000 worth of services—way below average for a neurosurgeon.
- Other physicians allegedly received an additional $50,000 to $150,000 a year for being “directors,” even though there are no records that these physicians were required to perform extra duties.
- The lawsuit also alleges that KRH paid out retroactive bonuses and salary increases, a violation of federal law.
Alleged Kickback Scheme Caused a Decrease in Productivity and Patient Care
The sad thing about this alleged scheme? It didn’t work.
Apparently, paying out all those massive salaries and bonuses got KRH into some financial hot water. The lawsuit says the hospital lost $100 million over the course of five years.
In April 2018, before the lawsuit was made public, KRH made headlines for staff cuts and a projected $6 million loss, which it attributed to Medicaid cuts. Three executives also left their positions around this time: Karen Lee, Chief Nursing Officer; Charles Pearce, CFO of KRH; and Dr. Nicholas Costrini, program director of the newly developed Digestive Health Institute.
Mohatt, the whistleblower who initiated the lawsuit, warned KRH as far back as 2014 that it needed to implement an industry-standard compensation plan. The hospital board did develop a different plan, but KRH essentially ignored it and continued to pay physicians based on their referrals.
In addition to creating financial troubles, the lawsuit says this plan made productivity suffer.
Healthcare facilities that receive Medicaid dollars (virtually all facilities in the U.S.) typically use Work Relative Value Units to determine doctor productivity. The formula takes into account the amount of skill, time, and training required for a doctor to perform a service, and it’s the basis for almost all doctors’ compensation plans.
Although some doctors at KRH were paid this way, the Work Relative Value Units for the physicians who made outrageous salaries were completely skewed, per the lawsuit. It says that “personal productivity [was] generally minimal and commonly less than the lowest national percentiles.”
So, who thought this alleged scheme was a good idea?
According to the complaint, the plan was implemented by former KRH president and CEO Velinda Stevens, who was in charge when the alleged activities occurred. KRH is currently led by Pamela Robertson, who assumed the role of President in October 2017. Stevens didn’t get to see the outcome of the case; she died in January 2017, just months after the initial complaint was filed in September 2016.
Ultimately, this alleged referral scheme may have gotten KRH more Medicaid, Medicare, and TRICARE patients for a few years, but it couldn’t fool the government forever. KRH has effectively reached a $21.5 million settlement, which they will pay out over six years.
What’s interesting is that KRH employees past and present are still standing by the company.
Dr. Costrini, the digestive doctor who left his position just before the lawsuit was made public, says that Stevens was trying to make KRH a world-class medical destination with high-caliber doctors - and those doctors deserved every penny they were paid.
Whistleblower Mohatt, however, still stands by his lawsuit.
In a recent post on his LinkedIn account, he shared an article about the lawsuit and added, “I take solace in the fact that I will never let my integrity be compromised, no matter what is thrown my way. The truth will prevail.”
According to his profile, he left his position as CFO of the KRH Physician Network in July 2018.
KRH has not admitted any wrongdoing, but whether or not truth prevails, Mohatt’s bravery won’t have been for nothing. As a qui tam plaintiff in a False Claims Act lawsuit, he may be entitled to a percentage of the $21.5 million settlement once it’s approved by the court.
If you know of a hospital that’s wrapping up Medicare, Medicaid, or TRICARE dollars in a kickback scheme, you can help put an end to the fraud and perhaps earn a large cash reward for your trouble. Connect with us 888.742.7248 or ONLINE