Baptist Medical Center in Kansas City, Mo., last week agreed to pay a $17.5 million fine to settle charges that it paid kickbacks disguised as consulting fees to physicians in exchange for Medicare patient referrals.
The 315-bed not-for-profit hospital is only the fifth hospital or system to enter a kickback settlement with the federal government since the start of Medicare's prospective payment system in 1983, according to MODERN HEALTHCARE records.
As evidence of the gravity of Baptist's alleged wrongdoing, the hospital agreed not to contest the government's allegations.
The kickback provisions of the Medicare and Medicaid fraud-and-abuse statutes bar any form of remuneration to induce the referral of Medicare or Medicaid business. And claims submitted to the programs in connection with a kickback arrangement are fraudulent under the False Claims Act.
The U.S. Justice Department and HHS' inspector general's office accused Baptist of paying about $1.4 million in bribes to the now defunct Blue Valley Medical Group over 10 years and receiving about $42 million in Medicare reimbursements for treating Blue Valley's patients.
Baptist, part of the Health Midwest hospital system, will cooperate with the government in its continuing investigation of the alleged kickback conspiracy and any later prosecutions that may arise from the probe.
The settlement is the latest chapter in the long-running investigation of Blue Valley, which served as medical director for more than 200 nursing homes in Missouri and Kansas. Federal investigators have alleged the medical group solicited bribes from seven hospitals in Missouri and Kansas in exchange for patient referrals (June 23, p. 2).
One hospital, Bethany Medical Center in Kansas City, Kan., settled kickback allegations stemming from its alleged involvement in the conspiracy for $1.2 million last year.
Three other hospitals-St. Joseph Medical Center, Wichita, Kan.; Deaconess Hospital, St. Louis; and Alexian Brothers Hospital, St. Louis-are still under investigation.
Two of the seven hospitals turned down Blue Valley's solicitation.
But authorities allege that Baptist was the home base of the fraud scheme. They say Blue Valley and its principals, brothers Robert C. LaHue, D.O., and Ronald H. LaHue, D.O., established consulting agreements with Baptist paying them $75,000 a year that were really covers for kickbacks. The scheme started in 1985 and ran through 1994, the government said.
A Baptist employee, Thomas Eckard, was Blue Valley's administrative manager and tried to recruit other hospitals to participate in similar fraudulent "consulting agreements." Eckard pleaded guilty to soliciting a bribe and served five months in federal prison. The LaHues have been indicted on 63 counts and go on trial next April 14 in Kansas.
For the fiscal year ended Dec. 31, 1995, the last Medicare cost report available, Baptist had net patient revenues of $108.7 million and operating income of $5.3 million, according to American Hospital Directory, a Louisville, Ky.-based healthcare information company. The settlement thus represents more than three years of hospital profits.
Baptist spokesman Dean Davison said the hospital board "felt like this settlement was in the best interest of patients, employees, the community and the institution itself. This allows Baptist Medical Center and its people to get back to focusing on what they are there to do, which is to help (patients) feel better and get well."
This "global settlement," Davison said, concludes all civil and criminal matters for the hospital as an institution. The hospital was not indicted, nor will it be excluded from Medicare, but the settlement doesn't preclude the government from indicting individuals who worked at the hospital or were involved with the alleged fraud.
Two Health Midwest officials, Dan H. Anderson, Baptist's chief executive officer, and Dennis L. McClatchey, its former chief operating officer, left their jobs shortly before the LaHue brothers were indicted.
Anderson was terminated, and McClatchey was placed on a leave of absence.
Neither has been charged with any crime.
According to documents released by the U.S. attorney's office in Kansas City, Anderson and McClatchey had signed numerous agreements with the LaHues on behalf of the hospital.
As part of the settlement, Baptist also signed a "corporate integrity agreement" to reinforce compliance with Medicare laws for five years. The hospital must appoint a compliance officer and compliance committee and submit annual written reports. It also must hire a law firm or accounting firm to oversee Medicare and Medicaid billing practices. The hospital will set up a comprehensive employee training initiative and establish a confidential telephone hotline for people to report possible violations.
Staff physicians, too, must take three hours a year of training in proper "coding and submission of accurate bills for service rendered to Medicare or Medicaid patients."
HHS' inspector general's office may inspect Baptist's books and records or interview its employees at any time.
Baptist can't include the $17.5 million fine or expenses related to the investigation in claims submitted to Medicare for payment.
Donald R. Sloan, Baptist's board chairman, signed the agreement Sept. 11. The Justice Department announced it publicly Sept. 18.