With minutes remaining before jury selection started, Halifax Health in Daytona Beach, Fla., announced a surprise $85 million settlement with prosecutors Monday that could resolve the first half of a nationally watched trial over whether the organization’s physician compensation deals violate Stark conflict-of-interest rules. The tentative settlement still needs finalizing and court approval.
Halifax—which includes a tax-assisted 582-bed hospital, two-campus Halifax Health Medical Center of Daytona Beach—had been preparing for a trial that involved the largest potential damages ever seen in a civil whistle-blower case against a single hospital. As much as a billion dollars was on the line. Halifax was about to become one of the few hospitals ever to go trial in such a case, following last year’s $237 million judgment against a South Carolina hospital on similar allegations of overpaying doctors.
Instead, Halifax is paying to settle the first half of its case out of court, which alleges that the hospital administration illegally compensated a group of nine neurologists and medical oncologists to refer Medicare patients to the hospital. Whistle-blower attorney Marlan Wilbanks of Wilbanks & Bridges in Atlanta said the parties agreed on a settlement-in-principle of $85 million. Neither hospital officials nor the Justice Department, which intervened as a plaintiff, would comment on the settlement amount.
U.S. District Judge Gregory Presnell gave the two sides until March 10 to formalize the settlement and submit it in writing to the court so that he can decide whether to approve it and dismiss the case. If the joint settlement agreement isn’t filed by the deadline, both sides should prepare for jury selection starting March 12, the judge said (PDF).
A spokeswoman for Halifax Health, Berit Hallberg, said the settlement would not include any admission of wrongdoing. “We still believe that we acted responsibly in our efforts to comply with the highly complex Stark law, but it is our fiduciary responsibility to avoid the risk associated with going to trial and the appeals,”she said. “We will not increase taxes to pay this settlement. The settlement will be paid over several years through belt-tightening and the potential delay of some capital expenses.”
The settlement would remove a huge potential liability from Halifax’s books.
Wilbanks said it’s not yet clear if the settlement will involve the departures of senior executives at Halifax or a corporate integrity agreement with the federal government. But he believes something beyond just a financial payment is probably warranted. “The circumstances would merit a corporate integrity agreement and some admission of wrongdoing with regard to the medical oncologists,” Wilbanks said, referring to a judge’s ruling last year that Halifax paid one group of oncologists in ways that violated federal laws.
The case was triggered when a former compliance officer who still works at the hospital in a different role, Elin Baklid-Kunz, filed a lawsuit in 2009 accusing Halifax administrators of paying doctors above-market rates and handing out bonuses to the most active doctors using the hospital’s share of Medicare funds. If proven true, both of those arrangements would violate the Stark law, and if done on purpose or with reckless disregard for the law, the payments would violate the False Claims Act and trigger triple damages amounting to hundreds of millions of dollars. Presnell has already ruled that some of the oncologists’ agreements violated Stark.
Paying doctors in ways that vary with the volume or value of the Medicare services is generally illegal because it can incentivize them to provide unneeded care or make decisions based on personal profit instead of patient need. The law contains about two-dozen exceptions, two of which Halifax claimed protected it from liability in this case. A jury was to decide.
In 2011, the Justice Department joined Baklid-Kunz in those allegations against the hospital. A spokesman for the U.S. attorney’s office in Orlando confirmed the tentative settlement, but declined to comment on the actual payment until it’s disclosed in court paperwork. Hospital officials and Kunz’s attorneys declined to comment Monday.
Even if the settlement is approved, Halifax and Baklid-Kunz are set to litigate a separate but related set of allegations in July that the Justice Department did not join. Baklid-Kunz said the hospital ignored clear signs that it billed Medicare for inpatient hospital care in cases where the medical need wasn’t documented. Hospital officials deny those allegations as well.