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Community Health Systems Settles False Claims Act Case

According to the Justice Department, Community Health Systems Professional Services Corporation based in Franklin, Tennessee and three of its affiliated hospitals in New Mexico (collectively “CHS”) have agreed to settle False Claims Act allegations first raised in 2005. The affiliated hospitals are Eastern New Mexico Medical Center, Mimbres Memorial Hospital and Nursing Home, and Alta Vista Regional Medical Center.

The allegations stemmed from New Mexico’s now discontinued program, Sole Community Provider (“SCP”).  The SCP program supplemented Medicaid funds paid to hospitals in rural areas.  The federal government reimbursed approximately 75% of the state of New Mexico’s health care payments under the SCP program.  The state’s 25% share of SCP payments was required to be funded by the county or the state according to federal law.  Federal law prohibits private hospitals from funding a state’s Medicaid obligation so that the states have an incentive to curb increasing Medicaid costs.

The Corporate Crime Reporter reported that, in 2005, Robert Baker, a former revenue manager for CHS, filed a whistleblower complaint under the qui tam provisions of the False Claims Act against the CHS defendants and two other New Mexico hospitals, Carlsbad Medical Center and Lea Regional Medical Center.   In the Complaint, the whistleblower alleged that the hospitals made improper donations to Chaves, Luna, and San Miguel counties which were ultimately used to fund the state’s obligations under the SCP Program.   The government claimed that CHS concealed the true nature of the donations to avoid detection by authorities and resulted in CHS receiving federally funded SCP payments in an amount that was three times what CHS donated.

The federal government partially intervened in the whistleblower’s case against three of the five New Mexico hospitals.  The government did not intervene in the allegations against Carlsbad Medical Center and Lea Regional Medical Center; as such the whistleblower proceeded individually against those hospitals.  The Justice Department stated that the allegations against all of the hospitals have been resolved.  CHS has agreed to pay $75 million to settle the False Claims Act allegations.  The whistleblower will receive approximately $18.6 million of the settlement proceeds as his reward under the qui tam provisions of the False Claims Act.