Community Health sets aside $75M in ‘potential settlement agreement’ with feds, whistleblower

Community Health Network has socked away $75 million in a “potential settlement agreement” with the U.S. Justice Department and a former chief financial officer who filed a whistleblower suit nearly a decade ago.

The Indianapolis-based hospital system disclosed in a financial filing Oct. 26 that it had recorded an additional $50 million in reserves related to the lawsuit, on top of $25 million it had set aside several years ago.

And earlier this week, both sides told a federal magistrate they had reached an agreement in principle to settle much of the case, according to court filings.

If a settlement is reached, it could end a legal saga that has stretched out for more than nine years, involving nearly 700 filings in the federal court docket. A federal judge in 2021 threw out several motions by Community Health to dismiss the case.

Federal authorities say Community Health engaged in a long-running scheme to recruit physicians and pay them huge salaries and bonuses in return for giving referrals to the health system.

The alleged scheme, the government said, was brought to light with the help of Thomas Fischer, who served as Community Health’s chief financial officer from 2005 until he was terminated in 2013.

The Justice Department filed a False Claims Acts against Community Health in 2020, saying it knowingly submitted or caused submissions of false claims to Medicare from 2008 to at least 2017.

Fischer said he was fired in retaliation for repeatedly asking questions about the large salaries, which the health system continued to pay during a market downturn and cost-cutting initiative.

Community Health first disclosed its additional $50 million reserves in the matter on page seven of a financial report last week under the heading of “miscellaneous expense.” The two-sentence notation referred only to an undisclosed matter “related to the qui tam litigation further described in Note 11” of an earlier filing. That earlier filing spelled out the particulars of Fischer’s whistleblower suit.

On Monday, lawyers for Community Health held a conference call with a federal magistrate in Indianapolis overseeing the long-running lawsuit, according to a recent filing in federal court.

Both sides requested a stay in the case for 45 days, which Magistrate M. Kendra Klump granted. On Tuesday, she scheduled a settlement conference for Dec. 8.

“The United States and Defendants advised the Court that they have reached an agreement in principle to a significant portion of a potential settlement agreement, but additional terms remain to be negotiated,” according to Klump’s order.

A Community Health spokeswoman declined to comment on the status of the case, or to discuss the $75 million in reserves. “We have nothing to add beyond what is already included in the financial report,” spokeswoman Kris Kirschner wrote in an email to IBJ on Thursday.

Fischer, the whistleblower and former chief financial officer, declined this week to comment.

Community Health had earlier called the Justice Department’s complaint “meritless” and said it had cooperated with the investigation.

“We are confident that we have complied with the law and regulations that govern the way we pay our physicians for the services they provide to our patients and to the communities we serve—services such as teaching, research, providing education to patients and developing protocols to enhance are delivery,” Community Health said in a statement in 2020.

A trial had been set to start next year.