Hospital settlement: Two sides maintain different verdicts

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The main entrance to Kalispell Regional Medical Center. (Matt Baldwin/Daily Inter Lake)

There’s a 91-page complaint, a seven-page notice of intervention and an eight-page dismissal. Twenty-two court orders and 16 motions — 58 unsealed documents in total, enough to stress even a seasoned office printer, though still just a portion of the text on the government’s investigation into Kalispell Regional Healthcare, which resulted in the largest False Claims Act settlement in Montana history. But despite a voluminous paper trail spanning two years, it remains unclear for those outside the case what, exactly, the investigation found.

Kalispell Regional Healthcare settled with the government for $24 million last week, ending the whistleblower suit by a former executive that launched a federal investigation into the hospital’s operations.

The dispute is officially settled, but the two sides still maintain different verdicts of the case.

While the complaint — filed in September 2016 and amended in May 2017 by Jon Mohatt, the former chief financial officer of the hospital’s Physician Network — sees a clear case of longstanding violations of established law, the hospital refutes claims of wrongdoing, and maintains that such an interpretation would be too narrow, based on a law out of step with hospitals building programs in rural areas.

“With the settlement, we are not admitting any wrongdoing, and we dispute the allegations in the complaint,” said William Gibson, the hospital’s general counsel and soon-to-be interim chief executive officer. He pointed to the final sentence of the Department of Justice’s press release on the settlement: “The claims settled by this agreement are allegations only; there has been no determination of liability.”

However, though the government did not reveal any findings, the fact that it intervened in part of the case indicates that it found some of the allegations had merit, according to Bryan Vroon, Mohatt’s attorney and a veteran of health-related False Claims Act cases. Mohatt, through his attorney, declined to speak on the record for this article.

The government filed their notice of intervention — meaning they chose to side with Mohatt on some matters — in Missoula’s District Court on Sept. 25. In that notice, the government “submitted their contention of violation” of federal statutes on physician compensation and referrals, said Vroon. “So that’s a matter of public record.

“I think they did find [violations] but I will defer to what they say exactly. They led the investigation and that’s what they contended to be true.”

In the Sept. 25 filing, the government stated that it intervened, or investigated, Mohatt’s allegations that Kalispell Regional “knowingly submitted or caused the submission of claims to Medicare for designated health services arising from referrals made by 63 physician specialists who received compensation pursuant to direct or indirect financial relationships with [Kalispell Regional Medical Center] or [the HealthCenter].”

The investigation probed these allegations — that Kalispell Regional improperly compensated physicians at rates far above national averages and incentivized the referral of Medicare patients since at least 2010, resulting in, according to the original complaint, a “scheme of mutual enrichment.”

The allegations hinged on violations of federal statutes on physician compensation and referrals, known as Stark Law, and the False Claims Act covering Medicare. The civil suit alleged that over the course of several years, Kalispell Regional paid 63 physicians, many of them specialists, at rates inconsistent with the number of patients they saw or the number of services provided. Furthermore, the complaint alleged that the hospital paid physicians based on their number of referrals, which generated significant revenue for the organization, thus incentivizing more referred cases.

If Kalispell Regional violated Stark Law — a series of complex measures that, in sum, prohibits compensation outside of what is determined to be “fair market value,” compensation that incentivizes referrals, or self-referring cases for one’s financial benefit — its Medicare collections would have been fraudulent, and in violation of the False Claims Act.

The hospital refutes any allegations of fraud but did not pursue litigation to fight them because “the expense associated with just fighting a case like this, and the distraction that it could be, can take a quite a toll on an organization,” said Gibson. “So most organizations opt to settle.

“There were no findings and the DOJ press release is specific that these are allegations only.”

Stark law governs physician compensation based on so-called “fair-market values,” which are determined by nationwide surveys on physician compensation and productivity, usually measured by the amount of patients one sees or the amount of time, training and intensity required by a procedure or service. Under a typical productivity pay scale, a hospital would compensate a physician who sees a few complex cases a day — in other words, a specialist — more than a physician who sees more, lower-intensity cases per day, such as a primary-care doctor.

Mohatt’s complaint alleged that Kalispell Regional paid many physicians, such as their primary-care staff, based on their productivity, but did not use the same calculation for 63 specialists. Rather, their compensation was tied to other factors, such as referrals, and not in line with an objective measure of productivity.

The hospital doesn’t dispute that it paid certain physicians based on more than their number of patients; rather, it contends that this measurement is restrictive, and using it to calculate fair market value doesn’t take into account the demands of hiring specialists to build a program in Montana.

To attract talent to an area with fewer patients than metropolitan areas, the hospital argues, compensation had to be based on more than just services provided.

For example, the complaint states that Dr. Nicholas Costrini, a gastroenterologist and former director of the new $12.9 million Digestive Health Institute, opened this month, was paid $589,046 for productivity that measured .62 of full-time employment over 11 months. Such compensation would, by standard calculations, far exceed the national 90th percentile.

Costrini previously told the Inter Lake that these numbers don’t capture the development work he was hired to do for the hospital — namely, to design, build and direct the Digestive Health Institute and to hire enough doctors to run it.

“As a director, my job was to get the word out that we’re building something that doesn’t exist in the state,” Costrini said. “Was I overpaid? Absolutely not. I built something that will bring the hospital revenue for the next 25 years.

“In a growth phase, I think it’s fair to have salaries outside the 95th percentile, since 95 percent of hospitals are not in that growth phase.”

Pamela Robertson, Kalispell Regional’s President and CEO, agreed that many of Kalispell Regional’s specialists spend significant time on outreach to build programs that serve communities beyond the Flathead, in line with the organization’s vision to “not just elevate health care for the Flathead Valley, but to elevate health care for Northwest Montana and beyond.”

Physician productivity under current Stark Law “doesn’t take into account future planning, it doesn’t take into account that when you start a program, you have to build a program. And it doesn’t take into account the geography in our communities,” she said.

Regardless, Vroon contends that the Stark law statutes are clear and do not exempt Kalispell Regional’s growth and development. “I don’t think the government investigation found that to be a viable dissent,” he said.

“Hospitals cannot pay their physician based on the volume or value of referrals as uniform national law. That’s well-known and recognized.

“I don’t think the government found that there’s some sort of exception for hospitals in Montana or some sort of exception for Kalispell Regional.”

Vroon, who according to his website has served as lead counsel in 72 whistleblower settlements involving false claims against federal health care programs, said that the number of physicians involved in this case and the scope of time is, in his experience, unusual.

“I’ve never heard of a Stark case that has that number of physicians,” he said.

Moving forward, hospital officials said they are eager to put this chapter behind them. Kalispell Regional will make regular compliance reports, as stipulated in the settlement’s corporate integrity agreement, and pay its $24 million fee over the course of five years. The hospital has already paid $7 million upfront, and will pay the rest in quarterly installments beginning on Oct. 1, 2019.

Gibson said the hospital already has a “robust” compliance program in place, but is currently in the hiring process for another compliance officer who will oversee the administrative duties of compliance — record-keeping and meeting reporting requirements — for the whole hospital system. Aside from that and increased staff-wide education on Stark Law, “we do not anticipate significant changes to our compliance program,” said Gibson.

Robertson will be leaving the organization on Nov. 30 after 14 months on the job. She previously cited personal reasons in her resignation announcement last month. She plans to relocate closer to her family in North Carolina, though the hospital has said that she will continue working with the board on several key initiatives, such as the development of the hospital’s long-term strategic plan.

Robertson’s work in an advisory capacity will be part voluntary, part compensated.

“My commitment is to do that for as much time and for as long as they need me,” she said.

Mohatt, meanwhile, received about $5 million — 22.8 percent of the government’s recovery, a “higher than average” sum that likely recognizes, according to Vroon, Mohatt’s “efforts and contributions to the investigation.”

Mohatt last week emailed the Daily Inter Lake to report he has joined the staff at Glacier Park Realty and has embarked on a new career in real estate.

Reporter Adrian Horton can be reached at 758-4439 or

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