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HHS Inspector General Daniel Levinson

Halifax to have internal monitoring as part of landmark $85M settlement

By Joe Carlson
Posted: March 11, 2014 - 5:45 pm ET

(Story updated at 5:50 p.m. ET.)

Florida's Halifax Health will pay what may be a record-breaking $85 million settlement and hire two compliance officials who will file regular reports with HHS as part of an out-of-court agreement that allows the hospital to avoid being banned from the Medicare program.

The Daytona Beach hospital was facing a total liability of $343 million for allegedly overpaying six medical oncologists and three neurosurgeons, according to the settlement of a whistle-blower lawsuit filed Monday in U.S. district court in Orlando.

The hospital's physician services director, Elin Baklid-Kunz, said the payments violated the Stark law ban on overly lucrative payments to Medicare physicians, triggering potential triple-damages under the False Claims Act.

Halifax officials always have maintained that the payments were valid and that the contracts were legally vetted by expert attorneys. Spokesman John Guthrie said the decision to settle on the eve of trial after five years of litigation was motivated by financial pressures at the tax-supported hospital. The trial was scheduled to begin March 3.

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“We believe we have a fiduciary responsibility to avoid the risks associated with trial and the potential for a lengthy appeals process,” a statement from Guthrie said (PDF).

The $85 million payment is considered the largest settlement ever under the Stark law, although experts say a jury verdict last year against Tuomey Healthcare System in Sumter, S.C., that reached $237 million may eventually be resolved through a post-trial settlement that could eclipse the Halifax total.

Prosecutors in the U.S. attorney's office in Orlando were pleased with their settlement figure. Not only does it recoup what the government considered its full losses, it also “is substantial enough to serve both the compensatory and punitive aspects of the False Claims Act, and it fairly reflects our litigation risk,” said a spokesman for U.S. Attorney A. Lee Bentley III.

Halifax has 10 days to pay the settlement, which experts say is the highest settlement ever for a Stark law case. After the money is paid, government lawyers will file a motion to dismiss the portion of the lawsuit that was resolved by the settlement. A second trial on related but separate allegations is slated for July.

The agreement filed Monday says hospital officials are not admitting to any fraud, but they do acknowledge that a federal judge decided on summary judgment in a pre-trial motion last fall that the agreement with some medical oncologists broke a law against paying doctors to refer patients for treatments.

“Patients deserve to know that recommendations are based on sound medical practice, not illegal financial relationships between providers,” HHS' Inspector General Daniel Levinson said in a statement.

Levinson's office will be enforcing a five-year corporate integrity agreement with Halifax that requires the system to hire a legal reviewer to monitor all agreements with doctors, as well as an additional compliance officer.

Both the reviewer and the new compliance officer will file regular reports with HHS. The inspector general's office agreed not to pursue actions to exclude the publicly supported hospital from Medicare as long as the requirements in the corporate-integrity agreement are honored.

Such agreements are a component in many settlements under the False Claims Act, said former federal prosecutor Matthew Curley, now a partner with Bass, Berry & Sims in Nashville.

“In exchange for not excluding providers from participation in Medicare, a CIA (corporate integrity agreement) will set forth very specific compliance and legal-related obligations that providers must follow, usually for a period of five years following the settlement,” he said.

However, Baklid-Kunz's lead attorney—Marlan Wilbanks of Wilbanks & Bridges in Atlanta—said the inclusion of the corporate integrity agreement reflected the magnitude of the allegations in the case.

“You don't pay $85 million when you did nothing wrong, and you certainly don't sign an integrity agreement with this level of intense scrutiny in it if you did nothing wrong,” Wilbanks said. “The fact that Halifax will have to be monitored by not one, but two independent compliance experts is representative of how bad the compliance problems are at Halifax.”

Wilbanks has a financial stake in whether the public perceives any wrongdoing at Halifax, because he and Baklid-Kunz have a second trial scheduled for this summer against Halifax for similar but separate allegations that the financial incentives at the heart of the $85 million case drove actual overuse of services, among other things. Wilbanks said more than $300 million in additional damages are possible against Halifax during the July trial.

Halifax officials rejected Baklid-Kunz's allegations that the payments at issue in the first case had any negative influence on the treatments at issue in the second case.

“It is vital our community understands that all the patient services involved in this case were medically necessary and billed at the appropriate rate,” Guthrie said.

Baklid-Kunz will receive a $20.8 million share of the $85 million settlement, though an undisclosed percentage of her money will pay for the four law firms that have worked on her behalf over the past five years.

Baklid-Kunz, a former compliance official at Halifax, recently passed her 20-year anniversary at the hospital. She remains a director of physician services today. “I don't know how long she will be there, but I do know that she wants to leave on her own terms,” Wilbanks said.

Follow Joe Carlson on Twitter: @MHJCarlson

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