Northern Arizona Healthcare, Flagstaff Medical Center, and Health First Foundation – Northern Arizona Settle FCA Action for $4.5 Million

On August 29, 2022, Nathan C. Zipperian of Miller Shah LLP (www.millershah.com), counsel for Plaintiff-Relator, Gregory Kuzma (“Relator”) announced Northern Arizona Healthcare (“NAHC”), Flagstaff Medical Center (“FMC”), and Health First Foundation – Northern Arizona (formerly Northern Arizona Healthcare Foundation) (“NAHF”) (collectively, “Defendants”) agreed to pay a total of $4.5 million to settle a lawsuit alleging that a 2017 Medicaid Disproportionate Share Hospital (“DSH”) payment of approximately $4.775 million to FMC violated the federal False Claims Act, 31 U.S.C. §§ 3729–3733.

Nathan C. Zipperian from Miller Shah LLP (www.millershah.com) and David J. Caputo of Youman & Caputo LLC (youmancaputo.com) represented Relator in the action against Defendants.

Background

Defendants are major nonprofit corporations based in Arizona and are related parties within the meaning of federal health care program rules.  Relator was the Vice President and Chief Financial Officer of NAHC from 2004 to 2014.  Relator became aware of the unlawful scheme while working at an NAHC clinic.

The False Claim Act allows private citizens to file suits on behalf of the government (called “qui tam” or “whistleblowers” suits) against those who have defrauded the government.  Private citizens who successfully bring qui tam actions may receive a portion of the government’s recovery.

The complaint, filed in February 2018, alleged Defendants engaged in a fraudulent scheme to unlawfully obtain federal matching DSH funds provided under the Medicaid Pool 5 program.  The Pool 5 program is intended to help hospitals with a disproportionate share of uninsured patients provide services to those patients for which they would otherwise not be paid.

The federal and state governments jointly reimburse Arizona’s healthcare expenditures.  A local public entity can fund the state portion of a DHS Pool 5 payments through the Arizona Health Care Cost Containment System (“AHCCCS”).  Those funds are then matched by the federal government at approximately a 2:1 ratio, and AHCCCS pays both the public entity’s funds and the federal match to the hospital as a DSH Pool 5 Payment.  Under federal law, Arizona’s local  share of program payments must not include impermissible “donations” from healthcare providers.  These “non-bona fide donations” are prohibited to maintain the financial integrity of the Medicaid program.

The lawsuit claimed that the Defendants violated the federal prohibition on non-bona fide donations.  Specifically, Relator alleged that NAH, FMC, and NAHF promised to fund the construction of a new medical clinic building for the Williams Hospital District of Coconino County (“WHD”).  Accordingly, WHD transferred $2.2 million to AHCCCS, which then secured approximately $4.775 million in federal matching Medicaid dollars.  Consequently, AHCCCS made an approximately $6.675 million DSH Pool 5 payment to FMC.  FMC, through NAHF, gave $6 million to WHD, including the original $2.2 million and $3.8 million of the federal matching funds, leaving the remaining $975,000 for FMC or NAHF.

Although the government did not participate in the prosecution of the case, the United States Attorney’s Office for the District of Arizona, currently lead by United States Attorney Gary M. Restaino, provided invaluable assistance during the course of the litigation after the case was unsealed.  Mr. Zipperian and Mr. Caputo specifically thank current Executive Assistant United States Attorney Diana Varela and Assistant United States Attorney J. Cole Hernandez for their efforts and partnership in prosecuting this case.

The case caption is Gregory Kuzma v. Northern Arizona Healthcare Corporation et al., No.    18-CV-08040, filed in the District of Arizona.

The legal team at Miller Shah LLP has extensive experience representing FCA and qui tam matters.  If you have any questions regarding this subject or this post, please contact Nathan Zipperian (nczipperian@millershah.com) or Stephen Rutkowski (strutkowski@millershah.com).  The Firm can also be reached toll-free at (866) 540-5505.