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Whidbey General Hospital runs afoul of law

No serious consequences are foreseen

Whidbey General Hospital officials hired a Chicago law firm to help investigate and resolve instances in which the hospital may have broken a complicated federal law.

Joe Vessey, the hospital’s chief financial officer, said he’s aware of rumors that the hospital committed Medicaid fraud and may face penalties that could bankrupt the institution, but he said that’s a vast exaggeration. The truth, he said, isn’t so dramatic or cut-and-dry.

But officials are taking the difficult matter seriously. In fact, the issue was a factor in former hospital CEO Scott Rhine’s decision to resign, Vessey said.

The legal issue in question, Vessey explained, is called the Stark Law, which is actually three different provisions that went into effect at different times. The law is designed to limit or prevent doctors from referring Medicare or Medicaid patients to a hospital where they have a “financial interest,” which is considered a conflict of interest.

Vessey said hospital administrators realized that they may have violated the Stark Law in several “compensation arrangements with physicians” and started looking into the matter in-house.

“The investigation is a collaborative effort with the hospital and legal counsel, as well as the Office of the Inspector General,” he said.

He added that the hospital is not being investigated by the federal government or any outside entity, but administrators alerted the Inspector General about the possible non-compliance issue.

The hospital’s attorney in the matter, Steven Ortquist of Meade & Roach, outlined three possible problems with contracts in a Sept. 15, 2008, letter to the Inspector General.

The hospital contracts with internal medicine and family practice physicians to work at the hospital. In 2006, it redesigned its contract to reflect changes in the hospital’s program and to comply with changes in the Stark Law.

Hospital officials discovered last summer that the contracted doctors were being paid under the new contract, but not all the doctors had signed the new documents.

Also, the hospital has been paying extra to medical staff who take leadership roles, but there was no finalized contract that met the requirements of the Stark Law.

“The hospital’s failure to formalize medical staff leadership arrangements in written agreements appears to have been an oversight on the hospital’s part,” the letter states.

In addition, the hospital compensated physicians for call coverage without the existence of a written agreement.

“As part of its corrective action plan the hospital intends to conduct an appropriate review of its payments to physicians and other physician relationships to confirm that it has discovered and cured all instances of non-compliance with the Stark Law,” Ortquist wrote.

If it turns out the hospital did violate the Stark Law, Vessey said he is uncertain whether the hospital would face penalties. He doesn’t believe the rumor that the hospital could be bankrupted by the penalties.

“The federal government’s intention is not to put us out of business,” he said.

Once the internal investigation is completed, Vessey said the hospital’s board of directors will be updated. “We’re working to resolve this matter quickly,” he said.

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