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On May 28, 2014, after months of negotiation, Ashland Hospital Corp. d/b/a King’s Daughters Medical Center (KDMC) agreed to pay the government $40.9 million to settle allegations by the Department of Justice (DOJ) that it had intentionally filed false claims with the Medicare and Kentucky Medicaid programs for the provision of unnecessary medical care, including cardiac diagnostic tests and coronary stent placements.1 KDMC also agreed to settle DOJ allegations that it violated the federal Stark Law by paying five of their employed cardiologists “unreasonably high” wages as an incentive to refer patients for cardiac procedures. Following the press release of its settlement with the DOJ, KDMC’s CEO, Kristie Whitlatch, announced that the hospital would not admit liability and made it clear that KDMC settled to avoid the expense of a prolonged litigation.

The Healthcare Fraud Prevention and Enforcement Action Team (HEAT) began its investigation of KDMC nearly three-years ago. HEAT is a joint task force between the Department of Health and Human Services (HHS) and the DOJ. This settlement is only one example of how preventing healthcare fraud, waste and abuse continues to enjoy unwavering support among multiple federal agencies.

Under the terms of its settlement with the DOJ, KDMC was required to enter into a Corporate Integrity Agreement with the Office of Inspector General of HHS that imposes significant requirements on the hospital. For instance, the Corporate Integrity Agreement sets forth numerous, ongoing compliance obligations that must be followed throughout the duration of the Corporate Integrity Agreement’s five-year term. Such compliance obligations include the creation of certain checks and balances among the hospital and its key personnel, like board members and physicians. The Corporate Integrity Agreement goes so far as to require KDMC to increase its monitoring and education of less influential staff, such as laboratory technicians. Finally, the Corporate Integrity Agreement mandates random, third-party review of invasive cardiac procedures performed at KDMC.

In addition to bearing costs associated with the terms of the settlement, which include paying the $40.9 million fine and complying with the burdensome terms of the Corporate Integrity Agreement, KDMC is also facing a reported 523 civil lawsuits from patients who allegedly received unnecessary care from Dr. Richard Paulus, one of the five cardiologists named in the settlement agreement. Dr. Paulus is facing possible criminal sanctions for performing allegedly unnecessary procedures.

The KDMC settlement is another reminder of the federal government’s increased crackdown on fraud, waste and abuse in the Medicare and Medicaid programs. It is critically important that providers take the time to develop and implement robust compliance and education programs to prevent government investigations and avoid fines and other costs associated with fraud, waste and abuse allegations.

*Thanks to summer associates Gabrielle Lee and Raul Mendoza for their contributions to this article.


1 The DOJ press release discussing the settlement can be found here.