Explaining the civil suit brought against KRH

The civil complaint unsealed last week — in which a high-level financial executive at Kalispell Regional Healthcare alleges illegal kickbacks and physician overcompensation at the hospital — paints a picture of a hospital system blatantly disregarding federal guidelines for salaries and referrals to boost hospital profits.

Over the course of 91 pages, the whistleblower suit filed by Jon Mohatt, chief financial officer of Kalispell Regional’s Physician Network since April 2014, presents emails and figures from 2011 onwards to portray hospital executives as working knowingly out of line with federal statutes to create a “culture for physicians that emphasized referrals and minimized physician productivity because referrals were the driving source of major hospital profits.”

The complaint was filed under seal in U.S. District Court in Missoula in May 2017 under the False Claims Act, the government’s foremost avenue for recovering fraudulent claims through a whistleblower suit. Though the government has deferred formal involvement in the case, the complaint prompted an ongoing investigation on behalf of the U.S. Department of Justice and the Office of the Inspector General.

Mohatt’s claims against Kalispell Regional focus on two distinct, yet closely related, financial practices: compensating certain specialist physicians at rates far above the national average, and incentivizing referrals to the hospital by factoring their value and volume into those compensation rates. In such a kickback arrangement, the suit alleges, high salaries and bonuses would encourage physicians to refer more Medicare and Medicaid cases to the hospital — thus adding to its bottom line in “a scheme of mutual enrichment.”

The complaint presents a line of evidence focusing on Kalispell Regional executives — especially former CEO Velinda Stevens, who died in January 2017 — and their emphasis on tracking and rewarding physician referrals, as opposed to their productivity in medical procedures. In particular, Mohatt’s evidence hinges on the role of “contribution margins,” defined in the suit as the volume and value of referred procedures, tests and other services to Kalispell Regional Medical Center, per physician or physician group.

Using email excerpts, anecdotes and financial figures from 2011 onwards, Mohatt’s complaint portrays hospital executive leadership as overly focused on increasing referrals and unconcerned with issues of federal compliance.

The complaint alleges that Stevens “regularly requested and monitored reports that tracked the volume and value of referrals from all employed physicians” and that she requested these reports “for many years” from former cost accountant Chris Hassler.

“Hassler frequently provided Stevens with reports of hospital profits from referrals by employed physicians dating back to at least 2009.”

The first of these contribution reports was reportedly requested by Jack Bell, executive director of the Medical Practices Division, in a Feb. 21, 2011, email to accountant Chris Hassler and Perry Howell, Mohatt’s predecessor as chief financial officer of Kalispell Regional’s Physician Network. The email requested “surgical cases, gross revenue, net revenue, and contribution margins” for 10 surgeons over the period 2007 to 2011.

Over the next couple months, Hassler provided the data as requested, which included the number of referrals and their profit margins for fiscal years 2010 and 2011, for three surgeons. When, in May 2011, Hassler asked why data was requested on two particular surgeons, the suit quotes Howell as responding, “They are kinda [Stevens’] pets so she wants to prove they are doing well. Besides they are the surgical oncologists which are more expensive and should be bringing in more hospital revenue.”

Mohatt claims that this “pet” project was Stevens’ tracking of certain specialists’ contribution margins, because reimbursements for specialty procedures brought in significant revenues for the hospital.

Emails cited in the complaint suggest that this tracking continued for individual physicians — including neurosurgeons, cardiac surgeons, general surgeons and gastroenterologists — throughout 2011 and 2012.

An email from Hassler on Feb. 7, 2012, for example, references a data set by “Velinda request” which documented the contribution margins for every surgeon employed by Kalispell Regional in fiscal years 2011 and 2012, as of Dec. 2011.

In another example, the claim states that in September 2013, Hassler sent Howell an Excel spreadsheet with the referral profits from nine surgeons for the 12 months preceding June 2013.

According to the complaint, “Stevens used this Excel spreadsheet to monitor referrals and to determine physician compensation and physician bonuses.” Furthermore, it alleges that Stevens used the spreadsheet “to confirm that the scheme of paying high compensation to physicians without personal productivity requirements was profitable based on the value of hospital profits from referrals by the physicians.” If true, this would be in violation of the Stark Laws, a series of federal statutes delineating fair rates of compensation and barring incentivized referrals.

Furthermore, the complaint asserts that some physicians at Kalispell Regional were aware that referrals factored into their compensation — and were thus incentivized to increase that number.

The substantial profits from referrals, according to the complaint, allowed the hospital to afford physician compensation in the hundreds of thousands of dollars. In his role as CFO for the Physician Network, Mohatt “regularly saw financial reports and data demonstrating that multiple physician practices were generating major financial losses if profits from referrals to the hospital system were not considered.”

Moreover, in meetings to discuss financial losses for individual practices, Mohatt claims that “physicians would commonly focus on the value of their referrals to the hospital system.”

No physicians are quoted, but the suit states plainly that certain specialist physicians knew “that they were being overcompensated in relation to their production in the clinic where they practiced” and that “the hospital system was making major profits from their referrals and those referrals were financially justifying their salaries.”

At the same time, the complaint alleges that the cycle of referrals and excessive compensation also benefited the hospital financially. As evidence, the suit cites a Kalispell Regional Healthcare Physician Network business meeting in July 2016 that Mohatt attended, in which Stevens touted both increased referrals and revenues from several physician practices in Lake and Lincoln counties. She also presented figures that Kalispell Regional’s net revenue increased from $230.2 million in 2011 to $356.1 million in 2015 — evidence, the suit claims, that the alleged “illegal scheme” effectively raised the hospital’s bottom line.

MEANWHILE, the suit also contends that Mohatt repeatedly objected to the hospital’s compensation practices and emphasis on referrals, dating to shortly after his arrival as CFO of the Physician Network in April 2014. Mohatt raised concerns over the hospital’s compliance with Stark Laws following a professional conference in June of that year — concerns that “have been ignored,” the suit contends.

The following month, Mohatt advised the hospital’s executive leadership to develop a “common physician compensation policy.” Though the Kalispell Regional Board later adopted such a policy, the suit contends that it is “a token gesture for appearance, not actual compliance.”

The suit asserts that, in the two years leading up to his first lodging a legal complaint in September 2016, Mohatt repeatedly objected to several individual physicians’ salaries and the documentation to support them. For instance, in a November 2015 email, Mohatt noted that of 47 physicians with “director” titles, only three had proper documentation supporting compensation for their directorship role; the rest were “simply not compliant,” he wrote.

The suit also references several emails sent by Mohatt contesting physician pay in the summer of 2016, building up to the eventual lodging of the complaint in September of that year.

THE COMPLAINT wasn’t filed in Missoula’s U.S. District Court until May 1, 2017. Mohatt’s complaint, like others under the False Claims Act, was filed under seal, “which means that no one can talk about them except for the government and the [whistleblower’s] lawyers,” said Stephen Meagher, a San Francisco-based attorney who specializes in Stark Law whistleblower cases. “If you file it under seal, the government can investigate it without the defendants knowing.”

“A false claims case brought by a private citizen is filed under seal to give the government the opportunity to investigate and evaluate the claims before determining whether to engage in litigation,” said Robert Patten, former assistant attorney general for health-care fraud in Massachusetts and president of the nonprofit Taxpayers Against Fraud Education Fund. “Many matters remain under seal for a long period of time and are resolved through negotiation before the government formally notifies the court whether or not it will intervene.”

In this case, the government formally notified the court in September 2017 that it was deferring intervention on Mohatt’s complaint, pending an ongoing investigation.

That investigation continues, and is a process that can include more than just gathering evidence. “Many cases are resolved through settlement negotiations while the case is proceeding through discovery,” said Patten.

This appears to be the case for Kalispell Regional, which confirmed on Thursday that they have arrived at a “settlement in principle” — an informal framework for an agreement — and expect a settlement to be “finalized soon.”

Settling a case, rather than facing a potential years-long court battle, is not unusual, according to Meagher. “Most of these cases do settle because hospitals, if they don’t settle, can be kicked out of the Medicare program.

“They have an incentive to work with the government.”

Kalispell Regional has previously confirmed that the hospital has set aside $21.5 million in the event of a settlement. Reached for comment Thursday, communications director Mellody Sharpton reiterated that the hospital “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 healthcare to the communities we serve and maintain our reputation as a leading national health center.”

Reporter Adrian Horton can be reached at ahorton@dailyinterlake.com or at 758-4439.