Kalispell regional settles whistleblower suit for $24m – flathead beacon

Kalispell Regional Healthcare has agreed to pay $24 million to settle a whistleblower lawsuit with the Department of Justice, which during the course of its investigation alleged that 63 physicians were involved in an illegal kickback scheme to boost revenues and enrich themselves, a violation of the federal Anti-Kickback Statute, the False Claims Act and the Stark Law, which prohibit physician self-referrals.

The staggering number of physicians involved in the allegations was revealed late Friday following a federal judge’s decision to unseal the terms of a resolution that lay bare an alleged system to compensate specialist physicians and executives at a rate that far exceeded market value, all while knowingly defrauding the federal government.


In this case, the whistleblower is Jon Mohatt, who was employed as the hospital’s physician network chief financial officer when, in September 2016, he brought sweeping complaints of wrongdoing to investigators with the Offices of Inspector General in the U.S. Department of Health and Human Services and Department of Justice, launching a two-year investigation.

“Financial arrangements that improperly compensate physicians who make referrals to a hospital drive up the cost of health care services for everyone,” Assistant Attorney General Joseph H. Hunt, with the Department of Justice’s Civil Division, said in a statement. “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 six-count lawsuit centers on alleged violations of the Anti-Kickback Statute, a criminal law prohibiting financial arrangements between doctors and hospitals or other health-care providers or companies, and the civil Stark statute, a federal physician self-referral law designed to prevent financial incentives for physicians to steer patients to particular providers from whom they stand to reap benefits.

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.

In investigating Mohatt’s complaint, the government alleged that Kalispell Regional Hospital; Kalispell Regional Medical Center; HealthCenter Northwest, LLC; Flathead Physicians Group, LLC; Northwest Horizons, LLC; Northwest Orthopedics and Sports Medicine, LLC; and Applied Health Services, Inc., “knowingly submitted claims to Medicare for designated health services arising from referrals made by sixty-three physician specialists who received compensation pursuant to direct or indirect financial relationships with KRMC or [HealthCenter Northwest, LLC] … in violation of the Stark Law because the compensation took into account the volume or value of the physicians’ referrals to KRMC and HC and exceeded the fair market value of services the physicians actually performed, and in some instances was provided under an arrangement that was not commercially reasonable in the absence of the physicians’ referrals for designated health services and other business generated,” according to a government notice unsealed last week.

“Quality health care 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,” U.S. Attorney for the District of Montana Kurt Alme stated. “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.”

“For some time now, our organization has been dealing with allegations made by a former employee concerning the compensation of certain physicians,” according to her statement. “Today, I am pleased that we have finally resolved these allegations with the Department of Justice, as the case has been dismissed and the seal was lifted. While KRH continues to strongly disagree with the allegations, we are relieved to put this issue behind us.”

“The Board of Trustees carefully considered the ongoing costs and distraction that litigation would impose upon the system, our employees, and the communities we serve,” Robertson’s statement continues. “We believe that a settlement allows our system to put this difficult matter behind us and allows our physicians and employees to move forward and focus on providing the excellent care that our community expects. During the government’s review, the quality of care our physicians and staff provide was never questioned nor was overutilization an issue.”

The government alleged that between 2010 and 2018 numerous specialist physicians were paid excessive compensation while working far less than full time. The complaint also alleges that KRH entities conspired to violate the Anti-Kickback Statute by paying excessive compensation to physicians to induce referrals to HealthCenter, a joint venture of local physicians and Kalispell Regional Healthcare.

The goal of the money-for-referral scheme, according to the complaint, was to increase the number of Medicare, Medicaid and other patients to KRH hospitals, labs, clinics, and specialists to increase revenues. Certain employees were then excessively compensated for their efforts to lock in patient referrals to KRH, which is Flathead County’s largest employer with more than 4,000 employees.

Prior to working at KRH, Mohatt served 15 years in the United States Air Force, which included serving as Air Force Medical Service Director of IT in Falls Church, Virginia; as Commander of the 937th Training Support Squadron in San Antonio, Texas; and as Commander of the 28th Medical Support Squadron at Ellsworth Air Force Base in South Dakota. His Air Force career was preceded by 11 years of service in the United States Army and in the Kansas Army National Guard.

“The real question in this case is what do you have to pay a specialist doctor to get them to move to Kalispell, Montana,” Robinson said. “The hospital had a vision to bring nationally specialized care to the Flathead Valley. We contended with the government that the compensation was fair because you have to pay more to get these physicians to come to Montana. How do you determine a fair market value in a medical market like Montana? These doctors had opportunities to go to other places.”

“There is a lot of discussion about does the law go too far, are there things that should be done differently, particularly when it’s being applied in a rural setting,” Robinson said. “It is a strict liability statute, and the only issue in our case was whether we were exceeding the fair market value of these doctors. A lot of people suggest that this law is too inflexible.”

In one example of physician overcompensation described in Mohatt’s complaint, a neurosurgeon regularly received an annual compensation above $900,000 from 2014-2016, although collections for his services ranged from $207,442 to $374,124, either below or just above the national 10th percentile for neurosurgeons. The complaint states that he also ranked below the national 10th percentile for productivity metrics.

“We are immensely proud of our physicians and employees who are devoted to serving our patients and have helped health care in northwest Montana take a giant leap forward,” Robertson stated. “Our mission is and always has been to improve the health, comfort and lives of the people we serve. It saddens us that the complaint’s allegations implied otherwise and regret the toll that this matter has taken on our KRH family and our community. We are glad that this matter will finally be behind us, we’ve secured our bond financing, and we can focus on the future.”