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Fla. system hit with sanctions for destroying files sought in lawsuit


By Joe Carlson
Posted: May 28, 2014 - 4:00 pm ET
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Florida's Halifax Health, embroiled in a high-profile whistle-blower lawsuit alleging $70 million in Medicare fraud, was hit with sanctions by a federal judge Tuesday for destroying patient files sought in the case. Punishment for what the judge called “reprehensible” behavior is likely to cost the hospital hundreds of thousands of dollars.

The Daytona Beach, Fla., health system agreed to pay the U.S. Justice Department $85 million last March to settle the first half of the case, which alleged the system illegally paid doctors to refer Medicare patients for treatment. A second phase of the trial alleging thousands of improper Medicare admissions is set for trial in July.

Settlement talks for the second phase of the case are ongoing between the hospital and Elin Baklid-Kunz, the whistleblower who still works at Halifax as physician services director. The Justice Department has declined to join the second phase, in which maximum damages tripled under the False Claims Act could surpass $300 million when all penalties are included.

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Full patient records are critical to determining whether the hospital was illegally admitting Medicare patients for expensive short-stay hospital care instead of treating them in cheaper outpatient settings. Halifax was ordered several times to turn over the records, which it should have retained under a Dec. 28, 2009, court order, according to a summary by U.S. Magistrate Judge Thomas Smith (PDF).

Instead, hospital lawyers delayed and then turned over incomplete and sometimes-illegible records, the judge concluded. Then in December 2013, Halifax lawyers admitted that the system in 2012 had destroyed all records covering short inpatient stays between 2002 and 2004, the years when many of the allegedly illegal inpatient admissions took place.

Asked to explain why records were destroyed three years after the court imposed a retention order, lawyers for the health system said they were deleted “in the regular course of business.” Although the hospital did have a policy for regular destruction of patient records, that policy was adopted after the files had already been deleted, Smith found.

“Halifax' conduct is reprehensible,” Smith wrote earlier this month. He recommended that U.S. District Judge Gregory Presnell, the Orlando judge overseeing the case, to order Halifax to pay Baklid-Kunz' attorneys fees expended in trying to get the records.

Presnell agreed, and on Tuesday ordered the whistleblower's attorneys to disclose their fees related to the blocked discovery requests so that Halifax can pay them.

“I believe our fees will be in the six figures,” said Baklid-Kunz' attorney, Marlan Wilbanks of Wilbanks & Bridges in Atlanta. “Halifax not only destroyed years of relevant patient records, they also failed to come clean and tell us the truth about what had happened. We had to go to great trouble and expense to finally get to the truth.”

A Halifax spokesman did not immediately respond to a request for comment about the case.

Since the outset of the litigation in 2009, Halifax has steadfastly maintained it did not overbill Medicare or illegally pay doctors to refer patients for care at the hospital.

Presnell ruled last year that the hospital did violate Medicare-referral laws in some of the cases pointed out by Baklid-Kunz, and the hospital paid the settlement in March without admitting wrongdoing for the remainder of the allegations in the first phase of the case. For the second phase of the trial this summer, the hospital says its short-stay inpatient admissions were legitimate, and active settlement talks are ongoing, court records say.

Baklid-Kunz says she warned Halifax of the violations while she was employed as the hospital's compliance director in 2008, as did other hospital officials. She was eventually transferred out of the compliance department and into her current job as physician services director.

Baklid-Kunz received roughly $13 million in the first settlement, and she stands to gain a larger share of any money paid in the second phase for her work bringing the allegations to light under the False Claims Act.

Follow Joe Carlson on Twitter: @MHJCarlson


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