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The Kentuckiana Medical Center in Clarksville closed April 8. This week, management settled $3.6 million in civil damages for allegedly giving kickbacks to two doctors who referred the majority of patients to the center. 

CLARKSVILLE — Management companies overseeing a recently-closed Southern Indiana hospital have agreed to pay $3.6 million to settle a civil suit alleging false claims and illegal financial arrangements.

Rialto Capital Management, LLC, and its former affiliate, RL BB-IN KRE, LLC, oversaw the Kentuckiana Medical Center before it closed in April. On Monday, the entities agreed to a settlement with the U.S. government for allegedly giving extended loans, by declining to pursue collecting owed monies after bankruptcy, to several doctors who had high referral rates to the hospital, according to a news release.

The civil suit, filed in U.S. District Court Southern Indiana, alleged that the defendants had violated the Anti-Kickback Statute, the Stark Law and the False Claims Act for declining to collect on the loans from the doctors, even when they were due in full, for continued referrals to the hospital.

Court records show that Drs. Eli Hallal, Christodulos Stavens, Renato LaRocca and Jeffrey Campbell are physicians named in the lawsuit as defendants; all were among the top referring doctors at the hospital, had served on the hospital board and directed the Kentuckiana Medical Center Real Estate Investors, Inc. (KMCREI.)

Hallal, Stavens and Campbell are also listed as owing roughly $9 million to the Kentuckiana Medical Center management company following bankruptcy, which Rialto allegedly continually declined to pursue collection on. 

"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."

Court records show that in 2007, 30 physicians bought 49 percent of the hospital, which was slated to have 65 beds. When that plan fell short and the hospital ended up with space for only 35 beds, 10 of them operational, owners were forced into bankruptcy in 2010. This caused the landlord, KMCREI, to default on its $21.5 million loan.

When recovery from bankruptcy wasn't possible and new investors weren't found, it was decided Rialto would become the new hospital owner through an affiliate. A June 2014 plan from KMCREI to restructure the company included 20 percent of new membership interest going to four doctors, "in consideration of their ongoing commitment to the hospital and their importance to the feasibility of this plan and the [hospital] plan," according to court records.

One of the four rejected the plan, in part because it violated a law that states insiders and investors can't be given equity without new value being given by them.

At a bankruptcy hearing, counsel for the hospital stated that the "new value" given by the four physicians was that "these four docs provide 75 percent of the admissions to [the hospital] which in fact is then going to pay rent to KMCREI so the building doesn't get foreclosed on."

When that plan was challenged in bankruptcy court, Rialto then gave loans to two of the physicians and allegedly allowed non-payment on them for more than two years.

The Anti-Kickback Statute makes it a crime to knowingly pay or give benefits to cause a person to refer any person to or "...arrange for or recommend any good facility, service or item" covered under a federal health care program. The Stark Law prohibits hospitals from submitting Medicare claims from most physicians who have a "financial relationship" with the hospital.

"The Anti-Kickback Statute, Stark Law and False Claims Act were created to serve as tools for combating fraud, waste and abuse in federally-funded health care programs," U.S. Attorney for the Southern District Josh Minkler said in the release. "This recovery sends the message that health care providers must comply with applicable state and federal laws when billing the United States government for services, or they will face consequences."

The physician who had rejected KMCREI's plan and filed the false claims complaint in federal court will receive more than $600,000, in accordance with the "whistleblower" provision of the False Claims Act.

Aprile Rickert is the crime and courts reporter at the News and Tribune. Contact her via email at or by phone at 812-206-2115. Follow her on Twitter: @Aperoll27.