Ashland hospital agrees to pay $40.9 million to settle allegations of fraudulent billing

bestep@herald-leader.comMay 28, 2014 

Photo by Thinkstockphoto.com

King's Daughters Medical Center in Ashland has agreed to pay the government $40.9 million to settle allegations that it fraudulently billed federally funded health care programs for hundreds of unnecessary heart procedures.

The payment is thought to be the largest ever involving suspected health care fraud in the federal court's Eastern District of Kentucky, which covers 67 counties in the eastern half of the state.

"The conduct alleged in this matter is unacceptable, victimizing both taxpayers and patients," said U.S. Attorney Kerry B. Harvey. "Treatment decisions motivated by financial gain undermine public confidence in our health care system and threaten vital federal programs upon which so many of our citizens rely."

The alleged fraud covered by the settlement occurred between January 2006 and December 2011.

With the deal, Harvey's office this year has arranged to collect more than $75 million in cases in which providers stood accused of fraudulent billing to Medicare and Medicaid, according to a news release.

King's Daughters did not concede that it did anything wrong, though it agreed to internal reforms and to increased monitoring of its claims to federal health care programs for five years.

Officials at the hospital, which employs 3,500 people, made the "difficult decision" to settle the investigation rather than spend money defending allegations related to "old cases," the hospital said in a statement.

The hospital said that it has received top rankings for its cardiac care from independent panels.

Prosecutors contended that in order to pump up its bottom line, the hospital billed for stent operations and diagnostic catheterizations performed on patients who didn't need them.

The hospital either "knew, deliberately ignored or recklessly disregarded" the fact that heart doctors employed at the facility or subsidiaries were doing unnecessary procedures, the government contended. Doctors also allegedly falsified records to justify payments.

Federal law allows for triple damages in cases involving alleged false claims to government programs. The $40.9 million payment from King's Daughters is roughly twice what the hospital received from alleged improper billing, Harvey said.

"The level of funds involved in this matter is staggering," Perrye K. Turner, special agent in charge of the FBI in Kentucky, said in a statement. "This money has been stolen from the patients and taxpayers."

The government also argued that King's Daughters had improper relationships with five doctors. The hospital made unreasonably high payments to the five, and they in turn referred patients to the hospital, prosecutors alleged.

The doctors were Richard Paulus, for whom the hospital's heart center is named; Christopher Epling; Terence Ross; Zane Darnell; and Vaughn Payne.

The settlement announced Wednesday was a civil action, not a criminal prosecution.

However, King's Daughters agreed to cooperate with state and federal authorities in their "existing criminal and civil investigations of individual cardiologists employed or previously employed" by King's Daughters or subsidiaries, according to the settlement document.

Harvey said the case was not just about recouping alleged improper payments and trying to deter similar bad conduct, but also about making sure patients are not subjected to invasive, potentially risky procedures they don't need.

"That's really of great concern," Harvey said.

The allegations outlined in the settlement are similar to claims in pending state-court lawsuits that doctors at King's Daughters misrepresented the severity of patients' heart conditions in order to justify heart procedures on more than 500 patients.

A hospital spokesman disputed those claims at the time they were filed earlier this year.

Harvey said in an interview that the great majority of doctors and health care facilities are honest. The vast sums of money in the health care system tempt some to cross the line, however, and there is an "unacceptable" level of fraud in the system, Harvey said.

Harvey reorganized his office in 2010 to put greater focus on alleged fraud, including complex health care fraud cases.

The unit includes attorneys, an investigator and an auditor, and it works with other agencies such as the FBI, the federal Department of Health and Human Services, and the Kentucky Attorney General's Office.

Harvey said the work is bringing results. The settlement with King's Daughters was the third large agreement finalized this year.

In January, St. Joseph Health System agreed to pay $16.5 million to settle accusations that doctors at its hospital in London performed hundreds of unnecessary heart procedures to pad the bottom line.

One of the doctors named in the settlement, Sandesh R. Patil, pleaded guilty to lying about the severity of a patient's condition to make sure the government would pay for a heart procedure. He was sentenced to 30 months in prison.

The alleged improper conduct covered in the deal happened before St. Joseph Health Systems merged with Jewish Hospital and St. Mary's HealthCare in 2012 to form KentuckyOne Health, the largest health system in the state.

In another case, two doctors, their addiction-treatment business and a drug-testing lab in which they had an interest agreed to pay $15.75 million to settle allegations of billing health programs for unnecessary drug tests on clients.

That settlement named the lab, called PremierTox 2.0 LLC; the treatment business called SelfRefind, which has offices or clinics in Harrodsburg, Danville, Frankfort, Hazard, Middlesboro, Pikeville, Barbourville, Morehead and Carrollton; and its owners, Drs. Bryan Wood and Robin Peavler.

Harvey's office also worked out a deal for a $2 million payment from a Somerset doctor, N. Mullai; her clinic, called Hematology and Oncology PLLC; and her husband Natarajan Murugesan, the office manager.

Prosecutors alleged that Murugesan and the clinic obtained cancer-treatment drugs from other countries that were not approved by the U.S. Food and Drug Administration, which were used to treat patients. Murugesan and the business pleaded guilty to a federal misdemeanor charge but have not been sentenced.

Harvey said there are a number of other federal health care fraud investigations underway in Kentucky.

Bill Estep: (606) 678-4655. Twitter: @billestep1

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