Marlan Wilbanks said the defendant medical center settled this on the courthouse steps. (John Disney/Daily Report)
A Florida medical center has agreed to pay $85 million to the federal government to settle a whistleblower case brought by a client of an Atlanta law firm.
Halifax Hospital Medical Center and its subsidiary Halifax Staffing Inc. settled part of the five-year-old case with the U.S. Justice Department on Monday, according to court records filed in the Middle District of Florida in Orlando.
Whistleblower Elin Baklid-Kunz will receive nearly 25 percent of that settlement—about $20 million—under provisions of the federal False Claims Act, said her attorney, Marlan Wilbanks of Atlanta’s Wilbanks & Bridges. Wilbanks’ co-counsel is , L. Lin Wood of Wood, Hernacki & Evans.
The 150-year-old False Claims Act encourages private citizens who are aware of fraud against the federal government to bring that information forward in the form of a civil action against those suspected of fraud. In a winning suit, a private citizen—often referred to as a relator or whistleblower—may claim as much as 25 percent of the funds recovered for the government from a judgment or settlement.
“They settled this on the courthouse steps,” Wilbanks told the Daily Report. “The jury had already been summoned and was about to be struck” when Halifax announced March 3 that it would settle rather than go to trial, the lawyer said.
Wilbanks said that whistleblowers collect, on average, about 16.5 percent of funds the federal government reclaims in whistleblower cases. Kunz’s payout, he said, “represents more than twice the largest previous settlement in the history of a Stark Act case.”
The Stark Act bars a medical center from submitting claims to Medicare and Medicaid for health care services referred by a physician with whom the medical center has a financial relationship and who would gain excess benefit either directly or indirectly from that referral. There are exceptions included in the law, but it specifically bans fees or wages that are based on the value or volume of medical referrals.
Wood said that Kunz’s “significant contributions … were recognized by the United States in awarding her a 24.5 percent relator’s fee where the statutory cap is 25 percent.”
Wilbanks and Wood said the case isn’t over yet. The lawyers said they are permitted by the False Claims Act and by the settlement agreement to seek more than $10 million in legal fees and costs from Halifax for litigating the Stark Act violations in the case, although Wilbanks said the firm will also be paid a contingency fee out of Kunz’s award.
Halifax’s agreement with the U.S. Justice Department settled only fraud claims that Halifax violated the Stark Act by paying kickbacks to physicians for patient referrals based on the profits the hospital generated for those referred patients’ treatment.
Wilbanks said he and Wood are continuing to litigate against Halifax over allegations that the hospital fraudulently boosted revenues at the expense of federal Medicare and Medicaid programs by admitting patients for short stays of one to two days when there was no medical necessity to do so, Wilbanks said.
The second phase of the Halifax case kicks off in July with a jury trial, and Wood said he and Wilbanks will seek between $80 million to $240 million on claims that Halifax committed fraud “with respect to improper admissions of short-stay patients.
“I do not believe the general public fully understands and appreciates the important role in our system played by whistleblowers such as Elin Kunz,” Wood added. “The public should look beyond her share of the recovery and consider the high price she has paid for having the courage to speak the truth. … She has suffered isolation, retaliation, ridicule and scorn almost every day for five years from Halifax executives and co-employees. Her career in compliance, a job she loves, has essentially been lost to her forever. But her courage has recovered over $60 million for the U.S. treasury with more to come. She is, by any definition, a hero.”
In announcing the settlement on Tuesday, U.S. Attorney A. Lee Bentley III of the Middle District of Florida said in a written statement, “Medical service providers should be motivated, first and foremost, by what is best for their patients, not their pocketbooks.”
Halifax General Counsel David Davidson was not available for comment. Halifax also was represented by a team of lawyers from Carlton Fields Jorden Burt in Tampa and the Washington and Miami offices of McDermott, Will & Emery.
The settlement agreement includes an admission by the medical center that it violated the Stark Act by paying incentive bonuses to six oncologists employed by Halifax Staffing, a hospital subsidiary, that were based on the fees generated by prescribed drugs and outpatient and physician services.
Federal prosecutors said that Halifax also paid three hospital neurosurgeons more than the fair market value of their work, which was then billed to Medicare and Medicaid, in violation of federal law.
Assistant Attorney General Stuart Delery of the DOJ’s civil rights division said in a written statement: “Financial arrangements that compensate physicians for referrals encourage physicians to make decisions based on financial gain rather than patient needs. The Department of Justice is committed to preventing illegal financial relationships that undermine the integrity of our public health programs.”
Inspector General Daniel Levinson of the U.S. Department of Health and Human Services said that as part of the settlement, Halifax will also be required to hire a legal reviewer and a compliance expert—both of whom will submit regular reports to the inspector general—to assist the hospital board in fulfilling its oversight obligations.
Wilbanks first sued Halifax on behalf of Kunz, who has worked for Halifax for 20 years, in 2009. The lawyer said that Kunz—while a contract compliance officer and then as director of physician services at Halifax Staffing—uncovered evidence of multiple fraud schemes.
The 678-bed hospital, as the official medical care system of the Daytona International Speedway, provides medical services to visitors, crews and drivers during the annual Daytona 500. When NASCAR driver Dale Earnhardt was injured in a 2001 crash, he was taken to Halifax, where he died from his injuries.
Wilbanks said Kunz discovered that fraud allegations had been brought to the attention of the compliance department prior to her tenure but had been largely ignored.
“The finance people at the hospital dominated the compliance side,” he said. “If changes in practices would result in lower revenue, compliance became a toothless tiger.”
Wilbanks said that the revenue-generating practices that Kunz found most offensive were ones that involved patient safety. The lawyer said that Kunz discovered that there was no medical necessity for 90 percent of the spinal fusions performed by one of the hospital’s neurosurgeons.
In addition, Wilbanks said that the neurosurgeon was using non-physician staff to perform his hospital rounds but billing Medicare and Medicaid for far more costly surgeon’s services.
Although other neurosurgeons had complained, Wilbanks said, the hospital “didn’t dock his salary, didn’t fire him, didn’t warn patients. … It didn’t do anything except keep paying him $2 million a year.”
Wilbanks said that Kunz wrote to all of Halifax’s top executives notifying them that the hospital was violating the Stark law by giving some physicians incentive pay based on a piece of the profits they generated through patient referrals and patient services.
Despite Kunz’s warning, when the hospital sought legal advice after one staff oncologist insisted on being paid a percentage of the business he generated, a hospital attorney told the hospital to go ahead and pay up, Wilbanks said.
“Their own lawyer not only told them they were violating the Stark Act, he told them they could go ahead and pay the tainted compensation,” he added.
Wilbanks said the July trial against Halifax will focus on Kunz’s allegations that the hospital was defrauding Medicare and Medicaid by admitting patients to the hospital when there was no sound medical reason to do so. The lawyer said there are more than a dozen internal studies showing Halifax was gaming the financial reimbursement system “by putting people in the hospital every day who were not sick enough to be in the hospital.”
The admissions, usually for an overnight stay, allowed the hospital to bill under diagnostic codes that permitted a three- or four-day stay, Wilbanks said. The hospital, he said, would bill for that period even though a room had been vacated after 24 hours. The practice, he said, essentially allowed the hospital to double-bill for the same rooms.
The case is U.S. ex rel. Kunz v. Halifax Hospital, No.l 6:09-cv-1002, M.D. Fla.
This story has been changed to reflect the following correction: Wilbanks’ partner, L. Lin Wood, is co-counsel in the case, was corrected to now read Wilbanks’ co-counsel is L. Lin Wood of Wood, Hernacki & Evans.