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Press Release

Kalispell Regional Healthcare System to Pay $24 Million to Settle False Claims Act Allegations

For Immediate Release
Office of Public Affairs

Montana-based Kalispell Regional Healthcare System (KRH) along with six subsidiaries and related entities – Kalispell  Regional Medical Center (KRMC), HealthCenter Northwest LLC (HealthCenter), Flathead Physicians Group LLC (Flathead), Northwest Horizons LLC (NH), Northwest Orthopedics & Sports Medicine LLC (NOSM), and Applied Health Services Inc. (AHS), (collectively, “KRH entities”) – have  agreed to pay $24 million to resolve allegations that they violated the False Claims Act by paying physicians more than fair market value, and by conspiring to enter into arrangements that improperly induced referrals, the Department of Justice announced today. 

“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.  “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 government alleged that the KRH entities had arrangements with referring physicians that violated the Medicare physician self-referral prohibition, commonly known as the Stark Law, and other arrangements that also violated the Anti-Kickback Statute.  The Stark Law prohibits a hospital from billing Medicare for certain services referred by physicians with whom the hospital has an improper compensation arrangement.  The Anti-Kickback Statute prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of items or services covered by Medicare, Medicaid, and other federally funded programs.  Both the Anti-Kickback Statute and the Stark Law are intended to ensure that a physician’s medical judgment is not compromised by improper financial incentives and is instead based only on the best interests of the patient. 

Between 2010 and 2018, the KRH entities allegedly violated the Stark Law by paying excessive full-time compensation to more than 60 physician specialists – many of whom worked far less than full-time.   Additionally, HealthCenter, Flathead, NH, NOSM, and AHS allegedly conspired to violate the Anti-Kickback Statute by paying excessive compensation to physicians employed by KRH, KRMC, and other KRH entities to induce referrals to HealthCenter, and by providing administrative services to HealthCenter at below fair market value to reduce expenses and increase profits distributed to physician investors at Flathead, an owner of HealthCenter, also to induce referrals to HealthCenter. 

“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, which is the largest False Claims Act recovery in the District of Montana, including members of the U.S. Department of Justice and U.S. Attorney’s Office, as well as agents with the Department of Health and Human Services-Office of Inspector General and the Federal Bureau of Investigation.”

“Our office will continue to focus our efforts on those who make improper payments to physicians for the purpose of inducing referrals in order to ensure the integrity of HHS programs,” said Steve Hanson, Special Agent in Charge, U.S. Department of Health and Human Services, Office of Inspector General, Office of Investigations, Kansas City Region.

The settlement resolves allegations originally brought in two lawsuits filed by Jon Mohatt, a former Chief Financial Officer for KRH’s Physicians Network, under the qui tam provisions of the False Claims Act, which allow private parties to bring suit on behalf of the government and to share in any recovery.  The whistleblower will receive $5,411,521 million as his share of the recovery in the two consolidated cases.

The case was handled by the U.S. Attorney’s Office for the District of Montana, the Justice Department’s Civil Division, and the U.S. Department of Health and Human Services Office of Inspector General and the Federal Bureau of Investigation. 

The lawsuits are captioned United States ex rel. Mohatt v. Kalispell Regional Healthcare System et al., Civ. No. 16-125 and United States ex rel. Mohatt v. HealthCenter NW, LLC et al., Civ. No. 18-80, and are consolidated under Civ No. 18-80.  The claims settled by this agreement are allegations only; there has been no determination of liability. 

Updated September 28, 2018

False Claims Act
Press Release Number: 18-1275