Whistleblower played key role in case that Community Health Systems hospitals settle for $75 million

ALBUQUERQUE, NEW MEXICO, February 2, 2015 – A whistleblower lawsuit, brought by Phillips & Cohen LLP, settled today for $75 million with a subsidiary of Community Health Systems Inc. and three of its New Mexico hospitals.

The lawsuit alleged the hospitals donated funds to New Mexico counties as a way to improperly increase federal payments intended for indigent patient care.

“The government never would have found out about this alleged quid-pro-quo practice without Robert Baker’s help,” said Peter W. Chatfield, an attorney with the whistleblower law firm Phillips & Cohen LLP, which brought the whistleblower (“qui tam”) lawsuit on behalf of Baker. “For every dollar a CHS hospital donated to the county, it received an amount equivalent to the ‘donation’ plus $3 back in supplemental Medicaid payments – making it a very lucrative investment for CHS and its hospitals.”

The three hospitals named in the lawsuit, which the federal government joined in 2009, are Eastern New Mexico Medical Center in Roswell (Chaves County), New Mexico; Mimbres Memorial Hospital in Deming (Luna County), New Mexico; and Alta Vista Regional Hospital, in Las Vegas (San Miguel County), New Mexico.

The settlement – announced by the US Department of Justice today – also resolves claims against a CHS subsidiary, Community Health Systems Professional Services Corporation, relating to donations made by two other hospitals, Lea Regional Medical Center (Lea County) and Carlsbad Medical Center (Eddy County).

The Medicaid payments were made under a matching funds program between the state and the federal government, known in New Mexico as the Sole Community Provider Fund (SCPF) program. SCPF and similar programs in other states are designed to help hospitals cover the costs of providing care for indigent patients who can’t pay their medical bills.

The federal Medicaid Act prohibits federal funds from being used when a state or local government receives donations from healthcare providers that are related to the provider’s Medicaid reimbursement. This prohibition is intended to ensure that states and local governments have a financial stake in the system and monitor Medicaid expenditures to make sure the money is being spent wisely. In this case, the donations made by CHS hospitals greatly reduced – and often eliminated altogether – any cost to the state and local governments for rapidly escalating program payments to the hospitals.

“Without a financial interest, the county governments didn’t scrutinize whether the indigent payments hospitals sought bore any reasonable relationship to their costs of providing that care,” attorney Chatfield said. “As a result, the federal government vastly overpaid for the care those hospitals provided to indigent patients.”

The federal government pays at least 50 percent of the costs of state Medicaid programs, with the actual amount varying depending on the needs of each state. In New Mexico, the federal government’s legitimate share was about 75 percent of the total costs of Medicaid during the period when the alleged fraud was committed, from 2000 to 2011.

“It was not a matter of CHS making the donations out of the goodness of its heart,” said Stephen Hasegawa, a whistleblower attorney with Phillips & Cohen. “As we alleged in the case, CHS’s hospitals made payments to trigger much larger Medicaid payments back to the hospitals. Then they called it ‘charity’ to disguise that the real purpose was to get Medicaid money to which they were not entitled.”

The “qui tam” (whistleblower) complaint was filed under the False Claims Act in federal district court in Albuquerque in 2005 by Robert Baker, who worked in CHS’s revenue management department in Brentwood, Tennessee, for three years. It is a violation of the False Claims Act to knowingly cause others to seek payment from the government for fraudulent claims.

The complaint contained several examples of “donations” by CHS hospitals. For instance, Mimbres Memorial paid Luna County quarterly “donations” totaling $207,000 in 2004, which was the amount of the county’s contribution to the Sole Community Provider Fund. During that same period, Mimbres Memorial was paid a total of $822,000 in quarterly payments from the fund, which roughly equaled the amount of the “donation” plus three times the donation amount.

“Our client had concerns about the hospitals’ practices and the role he was directed to play on the accounting side, so he quit his job,” said Chatfield. “He spent a great deal of time the past nine years providing information and expertise to help the government in this case.”

The lawsuit was scheduled for trial in February, but that trial date was postponed when a tentative settlement was reached between CHS and the government.

Baker and his attorneys expressed appreciation for the diligent work of government attorneys and investigators on the case, including Department of Justice Trial Attorneys Robert McAuliffe and Elizabeth Rinaldo, assisted by attorney Martha Glover; Assistant US Attorney Howard Thomas; and Julie (Ford) Chappell, investigator at the US Attorney’s Office in New Mexico.

Keker & Van Nest and the Law Offices of James P. Lyle served as Phillips & Cohen’s co-counsel.

“The False Claims Act was intended to foster cooperation between the government and private attorneys to remedy fraud. This case was a model of how well that partnership can work,” said Hasegawa.

The False Claims Act encourages private citizens who know about fraud against the government to file a qui tam lawsuit to recover funds on the government’s behalf. The law rewards whistleblowers with 15 percent to 25 percent of the amount recovered if the government joins the case. The government will award Baker and his legal team $18.67 million, or approximately 24.9% of the government’s recovery.

Case citation: U S ex rel. Baker v. Community Health Systems, Inc., et al., No. CIV-05-00279 WJ/GBW (D.N.M.).

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