KENTUCKY HOSPITAL SETTLES ALLEGATIONS OF PERFORMING MEDICALLY UNNECESSARY CARDIAC PROCEDURES

FROM:  JUSTICE DEPARTMENT 
Wednesday, January 29, 2014
Kentucky Hospital Agrees to Pay Government $16.5 Million to Settle Allegations of Unnecessary Cardiac Procedures

Saint Joseph Health System Inc. has agreed to pay $16.5 million to resolve allegations that Saint Joseph Hospital violated the False Claims Act by submitting false claims to the Medicare and Kentucky Medicaid programs for a variety of medically unnecessary cardiac procedures, the Justice Department announced today.  Saint Joseph Health System operates numerous hospitals statewide, including Saint Joseph Hospital, which is based in London, Ky.

“Hospitals that place their financial interests above the well-being of their patients will be held accountable,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery. “ The Department of Justice will not tolerate those who abuse federal health care programs and put the beneficiaries of these programs at risk.”

The government alleged that doctors working at Saint Joseph Hospital performed numerous invasive cardiac procedures, including coronary stents, pacemakers, coronary artery bypass graft surgeries and diagnostic catheterizations, on Medicare and Medicaid patients who did not need them, and that the hospital was aware of these unnecessary procedures.  These doctors were affiliated with Cumberland Clinic which is a physician group that entered an exclusive arrangement with Saint Joseph Hospital in 2008 to provide cardiology services to the hospital’s patients.  Cumberland Clinic is owned by two London-based cardiologists, Satyabrata Chatterjee and Ashwini Anand.

The settlement also resolves allegations that Saint Joseph Hospital violated the federal Stark Law and Anti-Kickback Statute by entering into sham management agreements that financially benefitted Chatterjee and Anand as an inducement for Chatterjee and Anand to direct more Cumberland Clinic patients to the hospital.

Dr. Sandesh Patil, one of the Cumberland Clinic cardiologists working at the hospital, performed many of the medically unnecessary coronary stents.  Patil has since pleaded guilty to a federal health care fraud offense and has been sentenced to serve 30 months in prison.

“We all rely on health care providers to make treatment decisions based on clinical, not financial, considerations,” said U.S. Attorney for the Eastern District of Kentucky Kerry Harvey.  “The conduct alleged in this case violates that fundamental trust and squanders scarce public resources set aside for legitimate health care needs.  We will use every available tool to protect our federal health care programs and the patients who they serve.”

In connection with this settlement, Saint Joseph Hospital has agreed to enter into a Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General (HHS-OIG), which obligates the hospital to undertake substantial internal compliance reforms and to commit to a third-party review of its claims to federal health care programs for the next five years.

"Cases such as this threaten both the health of patients and the financial integrity of the Medicare and Medicaid programs," said Special Agent in Charge at the U.S. Department of Health and Human Services Office of Inspector General in Atlanta Derrick L. Jackson.  "This settlement is another example of the OIG’s commitment to protecting our beneficiaries and to recovering any money that has been improperly paid as a result of medically unnecessary procedures."

In addition to the settlement with Saint Joseph Health System, the government  announced its intervention in a lawsuit alleging False Claims Act violations by Chatterjee and Anand, who referred patients for and performed the unnecessary procedures and tests, and their practice group, Cumberland Clinic, as well the practice groups each of them owned before forming Cumberland Clinic.    

The government actions announced today stem in large part from a whistleblower complaint filed by three Lexington, Ky., cardiologists pursuant to the qui tam provisions of the False Claims Act, which permit private persons to bring a lawsuit on behalf of the government and to share in the proceeds of the suit.  The Act also permits the government to intervene in the lawsuit and take over the allegations as it has done in this case.  Drs. Michael Jones, Paula Hollingsworth and Michael Rukavina will receive a total of $2.46 million of the $16.5 million settlement with Saint Joseph Hospital.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by Attorney General Eric Holder and Secretary of Health and Human Services Kathleen Sebelius.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $17.1 billion through False Claims Act cases, with more than $12.2 billion of that amount recovered in cases involving fraud against federal health care programs.

The investigation was conducted by the FBI, HHS-OIG, the Kentucky Office of Attorney General, Medicaid Fraud and Abuse Control Unit, the Commercial Litigation Branch of the Department of Justice Civil Division and the U.S. Attorney’s Office for the Eastern District of Kentucky.  The claims settled by this agreement are allegations only, and there has been no determination of liability.

The lawsuit is captioned United States ex rel. Jones, Hollingsworth and Rukavina v. Saint Joseph Health System et al., no. 11-cv-81-GFVT (E.D.Ky.)

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged the operator of the largest hospital in Miami-Dade County with misleading investors about the extent of its deteriorating financial condition prior to an $83 million bond offering.

An SEC investigation found that the Public Health Trust, which is the governing authority for Jackson Health System, misstated present and future revenues due to breakdowns in a new billing system that inaccurately recorded revenue and patient accounts receivable.  The Public Health Trust projected a non-operating loss in the official statement accompanying the bond offering in August 2009, but reported a figure that was more than four times lower than what was ultimately reported at the end of the 2009 fiscal year.  The Public Health Trust also failed to properly account for an adverse arbitration award, and misrepresented that its financial statements were prepared according to U.S. Generally Accepted Accounting Principles (GAAP).

The Public Health Trust has agreed to settle the SEC’s charges.

“The Public Health Trust fell short in its obligation to maintain adequate accounting systems and controls that ensure truthful disclosures to investors about its financial condition,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “The Public Health Trust used stale numbers to calculate its revenue figures and lacked any reasonable basis for projecting losses that were far less than reality.”

Mark Zehner, Deputy Chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit, added, “Investors must be able to rely on the financial information accompanying municipal bond offerings.  We will continue to scrutinize financial statements provided to investors and pursue municipal issuers who aren’t providing accurate information to the public.”

According to the SEC’s order instituting settled administrative proceedings, the official statement accompanying the bond offering represented that the Public Health Trust (PHT) projected a $56 million non-operating loss for its fiscal year ending Sept. 30, 2009.  Several months after the bonds were sold, external auditors discovered problems with the PHT’s patient accounts receivable valuation.  This discovery required a large accounting adjustment to the reported net income, and the PHT ultimately reported a non-operating loss of $244 million for fiscal year 2009 – more than four times the projection made to bond investors.

The SEC’s order found that the PHT was aware of the rising level of patient accounts receivable and declining cash-on-hand prior to the bond offering, which caused concern among trustees and executive management.  They raised questions about the accounts receivable amounts and collection rates that were used to calculate the PHT’s revenue figures.  The $56 million non-operating loss amount included in the bond offering’s official statement was generated by the budget department using stale cash collection numbers amid the known problems with the new billing system.  The budget department was not updating its collection rates in a timely fashion due to a lack of adequate communication among departments.  Therefore, the PHT lacked a reasonable basis for its loss projection, and the official statement was materially misleading.

The SEC’s order also found that the PHT failed to properly account for a December 2008 arbitration award that negatively impacted patient accounts receivable in its 2008 audited financial statements that were attached to the bond offering’s official statement.  The arbitration award required the PHT to pay a third-party receivables company $3.9 million in cash, and transfer to the company $360 million face amount of existing accounts receivable and $250 million face amount of future accounts receivable.  The PHT failed to perform an analysis to determine the value of the replacement accounts receivable awarded to the third-party company.  The analysis is required under the relevant accounting standards in order to evaluate whether to accrue an expense related to the arbitration award or disclose the arbitration award in the notes to its financial statements.  Without the proper analysis, the PHT failed to accurately account for the arbitration award in the audited financial statements.

The SEC’s order directs the PHT to cease and desist from committing or causing any violations of Sections 17(a)(2) and (3) of the Securities Act of 1933.  The PHT neither admitted nor denied the SEC’s findings.  The Commission determined not to impose a monetary penalty due to the PHT’s current financial condition.  The Commission also considered the PHT’s cooperation with the investigation and the remedial measures undertaken.

The SEC’s investigation, which is continuing, has been conducted in the Miami office by members of the Municipal Securities and Public Pensions Unit, including Brian P. Knight, Sean M. O’Neill, and Fernando Torres under the supervision of Jason R. Berkowitz.  The investigation followed an examination conducted by Paul Anderson under the supervision of Nicholas A. Monaco and the oversight of John C. Mattimore.