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Community Health Pays $75M To End Whistleblower FCA Suit


A unit of Community Health Systems Inc. and three New Mexico hospitals will pay $75 million to end a long-running and contentious False Claims Act suit over whether the company tricked the government into matching donations it made, the U.S. Department of Justice said Monday.

Community Health Systems Professional Services Corp. will shell out the money to end litigation first launched in 2005, but it didn’t admit to the allegations, according to the Justice Department. CHS had been accused of making Medicaid-related donations that funded the state’s Medicaid reimbursement payments to the hospitals, court records show.

“Congress expressly intended that states and counties use their own money when seeking federal matching funds in order to encourage them to join the federal government in ensuring that Medicaid funds are spent on the needs of beneficiaries,” Acting Assistant Attorney General Joyce R. Branda said in a statement. “When private hospitals violate the rules against hospital donations funding the state share, that important protection of the Medicaid program is destroyed.”

CHS told investors in September that it had set aside a reserve of $75 million to cover the claims, a spokeswoman noted on Monday. The company and its affiliate hospitals deny the allegations in the suit, the spokeswoman said.

“The donations were entirely lawful and a matter of public record, and well known by the state and [Centers for Medicare and Medicaid Services],” the spokeswoman said. “This litigation only concerned the state’s funding of the Medicaid program and its reports to CMS. The appropriateness and quality of care provided to patients seen at the hospitals was not an issue in the case.” Tennessee-based CHS was hit with the suit in 2005 by whistleblower Robert C. Baker, who alleged it violated the False Claims Act by presenting fraudulent claims for federal matching Medicaid funds. The Justice Department joined the suit in support of Baker in 2009.

At issue in the case were donations that CHS' hospitals in New Mexico allegedly made to the county governments in which they resided. The county governments, in turn, helped fund the state’s portion of Medicaid reimbursement payments to CHS, the plaintiff claimed.

The suit alleged CHS tricked the federal government into matching its donations by claiming they were not related to Medicaid, when in fact they were.

The case had trudged through several long delays and was scheduled for trial on Tuesday, court records show. The court had sanctioned the government in 2012 for failing to safeguard documents that may have aided the hospital chain’s defense.

In September 2013, Judge Johnson upheld the recommendations by a magistrate judge to allow Skadden Arps Slate Meagher & Flom LLP to receive about $425,000 in legal fees from the government after the DOJ was hit with the sanctions.

And in May, U.S. District Judge William P. Johnson agreed to reconsider summary judgment on some of the whistleblower’s claims.

CHS, its Professional Services Corp., and the hospitals stipulated for dismissal in December, and the judge ordered the Feb. 3 hearing schedule vacated on Jan. 21.

The acute-care hospital giant agreed in August to pay $98.15 million to resolve seven other whistleblower lawsuits accusing it of overbilling government programs for inpatient services that should have been billed as outpatient or “observation” services,

Baker is represented by Phillips & Cohen LLP, Keker & Van Nest LLP, the Law Offices of James P. Lyle PC and the U.S. attorney's office.

CHS is represented by Skadden Arps Slate Meagher & Flom LLP, Rodey Dickason Sloan Akin & Robb PA, Madison & Mroz PA and Phil Brewer.

The case is USA ex rel. Robert C. Baker v. Community Health Systems Inc., case number 1:05-cv-00279, in the U.S. District Court for the District of New Mexico.