Sanford Health, South Dakota reach settlement for alleged Medicaid damages


PIERRE, S.D. (KCAU) — The State of South Dakota and Sanford Health reached a settlement, resolving a case involving Medicaid payments.

According to Attorney General Jason Ravnsborg, as part of the agreement, Sanford Health will pay $329,412.21 to South Dakota, fully reimbursing the state’s share of alleged Medicaid damages arising from Medicaid claims filed between January 1, 2010, through June 30, 2019.

The state’s agreement is related to a federal settlement agreement reached in October 2019, which resolved federal allegations against Sanford Health relating to the federal Anti-Kickback Statute.  Where the federal settlement agreement resolved federal Medicaid and other healthcare program damages, the state agreement resolves the state’s share of damages arising from the same conduct.

“Sanford Health cooperated fully with the State throughout this matter. In reaching this resolution, we are able to ensure that the South Dakota Medicaid program is made whole,” said Ravnsborg.

The October 2019 federal settlement resolved allegations that Sanford Health knew that one of its top neurosurgeons was improperly receiving kickbacks from his use of implantable devices distributed by his physician-owned distributorship (POD).  Sanford Health allegedly received warnings from the neurosurgeon’s physician colleagues and others about the alleged kickback scheme and was aware of the heightened compliance risks associated with PODs.  In addition, the neurosurgeon’s colleagues and others repeatedly warned Sanford Health that the neurosurgeon was performing medically unnecessary procedures involving the devices in which he had a substantial financial interest.  The United States alleged that, despite these repeated warnings, Sanford Health continued to employ the neurosurgeon, continued to allow him to profit from the devices he used in surgeries performed at Sanford Health, and continued to submit claims to federal healthcare programs for these surgeries, including procedures that were medically unnecessary. 

“Back in 2013, my agency warned that physician distributorships, such as in this case, are inherently suspect under the Anti-Kickback Statute. We will continue working with Medicaid Fraud Control Units in South Dakota and other States whenever Medicaid funds are threatened,” said Curt L. Muller, Special Agent in Charge for the Office of Inspector General of the U.S. Department of Health and Human Services. 

Sanford Health, Sanford Medical Center, and Sanford Clinic, of Sioux Falls, paid $20.25 million to resolve federal False Claims Act allegations that they knowingly submitted false claims to federal healthcare programs resulting from violations of the Anti-Kickback Statute and medically unnecessary spinal surgeries as part of the October 2019 federal settlement. The statute prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of items or services covered by Medicare, Medicaid, and other federally-funded programs.

The 2019 federal settlement agreement resolved allegations originally brought in a lawsuit filed by Carl Dustin Bechtold and Bryan Wellman, surgeons at Sanford Health, under the whistleblower, or qui tam, provision of the False Claims Act, which allows private parties to bring suit on behalf of the government and to share in any recovery.  The whistleblowers received $3.4 million of the October 2019 settlement proceeds.

The October 2019 federal settlement was the result of an investigation by the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the District of South Dakota, and HHS-OIG.  As part of the federal settlement, Sanford Health agreed to cooperate with the Department of Justice in litigation related to alleged co-defendants, and the hospital system has taken various remedial steps, including terminating the employment of the neurosurgeon in question and prohibiting all Sanford Health physicians from profiting from their use of medical devices at Sanford Health. 

Medicaid is a public insurance program that provides health coverage to low-income families and individuals, including children, parents, pregnant women, seniors, and people with disabilities; it is funded jointly by the federal government and the states.

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