Owner of Bayfront Health St. Petersburg faces federal inquiry over funds for low-income patients

The corporate owner of Bayfront Health St. Petersburg could be facing a serious federal investigation related to its commitment to take care of St. Petersburg's poorest residents.

In its most recent filing with the U.S. Securities and Exchange Commission, Nashville-based Community Health Systems mentions that it received a "civil investigative demand" on Sept. 14 from the Department of Justice. The agency is requesting documents and information related to Bayfront Health's involvement in Florida's Low Income Pool program, which is used to reimburse hospitals for the cost of providing care to uninsured residents and is sometimes referred to as "charity care."

The CID, which is a subpoena, "seeks documentation related to donations made by the hospital to local public benefit entities," according to the SEC filing.

Community Health Systems is one of the nation's largest owners and operators of hospitals, with 137 of them in 21 states. It purchased Bayfront Health in 2014, and owns six other hospitals along the Gulf Coast, from Brooksville to Venice. Officials from the company and Bayfront Health declined to comment.

News of the potential investigation comes as the St. Petersburg City Council prepares to weigh in on another major development affecting Bayfront Health, the city's oldest and largest hospital.

A Monday vote is set on whether the nonprofit that owns a 20 percent stake in Bayfront Health should separate from the downtown hospital. The topic has been discussed for months among city officials, representatives of the hospital and the nonprofit, known as the Foundation for a Healthy St. Petersburg.

Leaders of the foundation say CHS has offered to pay $26.5 million for its share of ownership. That money would allow the foundation to expand its mission and make a larger impact in the community. But it's also a move that could lead to Bayfront Health being listed for sale again.

"This feels very slippery to me," City Council member Steve Kornell said during a committee meeting in October when the issue was discussed. "If you choose to sell, it certainly is in your best interest (to separate from the foundation), even if you say you don't have plans to sell now."

The council has the final say over the proposed transaction, as Bayfront Health is bound by a lease agreement with the city that requires the hospital to provide a certain level of charity care to St. Petersburg's poorest residents. The city still owns the land under the facility. The council's vote on Monday will determine whether the separation goes forward.

PREVIOUS COVERAGE: Charitable arm looks to separate from Bayfront Health. Could a sale of the hospital be next?

Randall Russell, the CEO and president of the Foundation for a Healthy St. Petersburg, said he didn't know anything about the DOJ's demand for more documentation, though he sits on Bayfront Health's board of directors. Ben Kirby, the spokesman for the city of St. Petersburg and the City Council, said he was not aware of it either. Council members did not respond to requests for comment.

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While it's unclear how serious the federal inquiry could become, lawyers say that civil investigative demands are used by U.S. attorneys to interrogate company officials and often lead to investigations related to the False Claims Act, which targets people or companies that aim to defraud government programs. Such cases are often brought to the DOJ by a whistleblower working inside an organization, and they frequently occur in the area of health care.

CHS is no stranger the False Claims Act, also known as the Lincoln Law. In 2014, the company agreed to pay $98.15 million to resolve multiple lawsuits alleging that it knowingly billed government health care programs like Medicare for services that should have been billed as outpatient or observation services, according to a DOJ press release.

The agency said that from 2005 to 2010, CHS engaged in a "deliberate corporate-driven scheme" to increase inpatient admissions of Medicare, Medicaid and the Department of Defense's Tricare program of patients 65 years or older who came to their hospitals seeking emergency care. The DOJ stated that those admissions were not medically necessary and that outpatient or observation services would have been just as effective and less costly.

One of the hospitals in the CHS chain had also improperly billed the Medicare program, which violated the Physician Self-Referral Law. Commonly known as the Stark Law, it prohibits doctors from referring a Medicare or Medicaid patient to another physician or health care system if they have a personal financial relationship with them.

"Charging the government for higher-cost inpatient services that patients do not need wastes the country's health care resources," the Assistant Attorney General, Stuart F. Delery with the DOJ's civil division, said at the time of the settlement. "In addition, providing physicians with financial incentives to refer patients compromises medical judgment and risks depriving patients of the most appropriate health care available. This department will continue its work to stop this type of abuse of the nation's health care resources and to ensure patients receive the most appropriate care."

CHS has struggled financially in recent years, posting heavy net losses quarter after quarter and has sold dozens of under-performing hospitals from its portfolio. The company's stock has also plummeted over the last three years.

In St. Petersburg, city officials instituted the need for the foundation in 2013 when the hospital was bought by another for-profit chain, Health Management Associates. Profits from the sale were used to seed the foundation, which was meant to carry out Bayfront's long-time mission. But HMA was quickly acquired by CHS, and the foundation drifted into the background.

Bayfront Health has reported that it provided $60 million in charity care in 2016, which includes Medicaid and other government-funded programs.

"Charity care consists of two components — patients that qualify for hospital-defined charity care and amounts written off for patients who qualify for the Pinellas County Health Program," Elena Paredes, a spokeswoman for Bayfront Health St. Peteresburg, said in an email. "(And) patients whose household income is equal to or below 200 percent of the federal poverty level guidelines qualify for our hospital's charity care program."

City Council members have been negotiating with the hospital on setting a specific dollar amount for charity care that Bayfront Health should hit each year as part of the foundation separation discussions.

Bayfront Health CEO John McLain said the hospital supports the deal with the foundation and doesn't believe it would affect the current lease.

If approved by the City Council, the split between the hospital and the foundation would eliminate about $1.5 million in costs the foundation incurs annually from its partial ownership of the hospital, in addition to sweetening the foundation's endowment by $26.5 million. It also would free up more time and resources for the foundation's staff, which would focus less on hospital administration work and more on programs it hopes to bring to southern Pinellas County.

CHS offered the foundation a price on May 5 and set a deadline of June 30 to close the deal. That set in motion an evaluation of the hospital's market value requested by the city. The evaluation took weeks, so CHS agreed to move the deadline to Sept. 30. That date was pushed back again to November because of Hurricane Irma.

Contact Justine Griffin at jgriffin@tampabay.com or (727) 893-8467. Follow @SunBizGriffin.