Medicare Self-Report Could Delay Hospital's Bankruptcy Exit

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LOS ANGELES — A Medicare violation self-reported by a Northern California healthcare district could delay the district's efforts to exit bankruptcy, according to a Standard & Poor's report.

The Mendocino Coast Health Care District revealed that officials had self-reported a Stark violation of $11.5 million in June 2014 in a 49-page disclosure statement for its plan of adjustment filed in U.S. Bankruptcy Court on Dec. 15.

The main thrust of the U.S. Department of Health Services physician self-referral law, more commonly known as the Stark Law, is to prevent doctors from referring Medicare patients to family members or for medical services in which the physicians receive a kickback.

The billings were valid, but the health care district self-reported, because the physician contracts had expired, said Robert Dobbins, an S&P analyst. The Stark law can apply to issues of fraudulent or excess billing, but that doesn't appear to be the case here, Dobbins said.

If the entity doesn't have a contract with the physician — and the lapse covered an 18-month time span  the district could be faced with refunding the $11.5 million it billed for Medicare services, he said.

"The issues disclosed by the District, included missing or delayed signatures on agreements, continued performance under physician agreements after their stated expiration, and other technical issues," according to the bankruptcy court filing. "The district's internal investigation, moreover, revealed no benefit to physicians and no inappropriate costs to any governmental entity as a result of the self-disclosed technical violation."

How DHS chooses to handle the situation could impact how quickly the health care district emerges from bankruptcy, said Jen Hansen, an S&P analyst.

The district in Mendocino County, which runs a 25-bed hospital in Fort Bragg, filed its plan of adjustment on October 31, more than two years after it filed for Chapter 9 bankruptcy protection on Oct. 17, 2012.

It is slated to have the plan confirmation hearing, a precursor to exiting bankruptcy, on Feb. 6.

The plan includes a $20,000 payment for the Stark Law violations over a four-year period.

The Centers for Medicare & Medicaid Services, which handles such cases for DHS, declined to comment.

"To protect the integrity of confidential business information, CMS cannot comment on any specific parties or matters," Jack Cheevers a spokesman in the agency's San Francisco office said in an emailed response.

S&P affirmed the CCC long-term and underlying rating on the healthcare district's general obligation bonds and removed the ratings from negative credit watch in its Jan. 22 report. The outlook is stable.

The rating indicates the bonds are vulnerable and dependent upon favorable business, financial and economic conditions.

The healthcare district has made bond payments through the bankruptcy and doesn't plan to impair its general obligation or revenue bonds, according to bankruptcy filings. The S&P report applied to the GO bonds.

The district has $13 million of outstanding, insured revenue bond and general obligation debt, according to audited financial statements for fiscal 2013.

The district has more than 200 creditors and listed between $10 million and $50 million in potential liabilities in its bankruptcy petition.

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Healthcare industry Bankruptcy California
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