Hospital managers agree to $3.6M settlement in kickback suit

CLARKSVILLE, Ind. (AP) - The management companies overseeing a southern Indiana hospital that closed in April have agreed to pay $3.6 million to settle a lawsuit alleging false claims and illegal financial arrangements.

Rialto Capital Management, LLC, and its former associate, RL BB-IN KRE, LLC, agreed Monday to a settlement with the federal government, the News and Tribune reported.

The companies were accused of violating anti-kickback laws. The lawsuit alleges they provided loans to two doctors who had high referral rates to Kentuckiana Medical Center, then declined to collect on the doctors' loans in exchange for the continued referrals.

"When doctors refer patients for tests and medical procedures, they must do so based on their own professional judgment and the medical needs of their patients, not personal benefits," Assistant Attorney General Jody Hunt of the Department of Justice's Civil Division said in the release. "Illegal financial arrangements between health care providers undermine the integrity of our health care system, and we will continue to pursue those who engage in such conduct."

In 2007, 30 physicians purchased 49% of the hospital, which was scheduled to have 65 beds, according to court records. When that plan didn't work and the hospital had enough space for only 35 beds, 10 of them functional, owners were forced into bankruptcy in 2010. This led to the landlord, Kentucky Medical Center Real Estate Investors, Inc. (KMCREI), to default on its $21.5 million loan.

Rialto later became the new hospital owner through an affiliate after KMCREI failed to recover from bankruptcy or find new investors.

The hospital in Clarksville, just north of Louisville, Kentucky, struggled financially and subsequently closed in April after 10 years in operation.

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Information from: News and Tribune, Jeffersonville, Ind., http://www.newsandtribune.com