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Unsealed court documents show Bozeman Health Deaconess Hospital paid $10 million to settle a federal lawsuit in November accusing the hospital’s radiology department of fraud.

The lawsuit, which was filed nearly three years ago in U.S. District Court in Butte, alleged the hospital made millions of dollars worth of fraudulent claims to government health care programs as part of an illegal kickback scheme to keep a monopoly on radiology services in Gallatin County. The lawsuit was dismissed Oct. 31, after a settlement was reached.

Despite the settlement, a hospital spokeswoman said Friday the defendants listed in the case deny all the allegations and any wrongdoing.

The details of the settlement were initially sealed. However, a copy of the agreement, obtained through a Freedom of Information Act request, was provided to the Chronicle.

According to the settlement, the hospital paid the United States $7.5 million. About $7.2 million of that money was to be doled out to the U.S., and $238,820 was to go to Montana.

Of that money, 28 percent of the pot was to go to Bozeman radiologists Frank Rembert and Michael Paradise, the two individuals who filed the lawsuit.

The agreement also ordered the hospital pay $2.5 million to Goetz, Baldwin & Geddes, the Bozeman firm representing Rembert and Paradise.

The suit, filed against Bozeman Deaconess Health Services, Bozeman Health Deaconess Hospital and Advanced Medical Imaging, was brought under the False Claims Act, which allows private individuals to file against federal contractors for fraud against the government.

The suit alleged that Bozeman Health Deaconess Hospital entered into a “sham” joint venture with a radiology group that allegedly was seeking to open its own outpatient imaging center that would have competed with the hospital.

The hospital was represented by Ian McIntosh and Mac Morris of the Crowley Fleck law firm of Bozeman and David Robbins and David Taylor of Perkins Coie LLP of Seattle. They argued that the radiology group was not considering opening its own independent outpatient imaging center and that allegations the hospital bribed the group to not open the center were “demonstrably false.”

According to the suit:

Bozeman Health Deaconess Hospital had an exclusive contract to provide radiology services with Intercity Radiology, a local radiology group that co-owns Advanced Medical Imaging with the hospital.

In 2002, Intercity Radiology considered opening an outpatient imaging center in Bozeman, which would have provided MRI, CT and ultrasound services.

The center would have offered lower prices, better office hours and faster service in a more convenient location, the suit claimed.

As a way to protect its monopoly, the suit claimed that the hospital convinced Intercity Radiology to abandon those plans and instead persuaded it to open a joint venture at the hospital.

That joint venture became Advanced Medical Imaging, with Bozeman Health Deaconess Hospital having a majority ownership at 77.5 percent and Intercity Radiology owning the rest.

The partnership with Intercity Radiology also included a non-competition clause, preventing employees from participating in any other outpatient imaging center.

Bozeman Health Deaconess Hospital then intended to refer all outpatients to Advanced Medical Imaging for MRI, CT, mammography, women’s diagnostic and exam scans. And for those referrals, the hospital wanted to be paid.

The suit alleged that during negotiations, Intercity Radiology’s attorneys voiced concerns that the hospital’s proposed patient referrals violated the federal Anti-Kickback Statute.

The hospital then offered to have Intercity Radiology pay less for patient referrals, the suit claimed, pushing forward with the arrangement despite being warned that it was illegal.

Hospital attorneys argued allegations that Intercity Radiology intended to open its own center and gave Bozeman Health a non-compete agreement as compensation in return for patient referrals were false.

In 2002, Intercity Radiology hired consultants to develop a business plan for a potential outpatient imaging center. However, two reports from the consultants that year showed that Intercity Radiology was interested in opening a joint venture with the hospital.

They also argue that Intercity Radiology already had agreed to a non-compete agreement with the hospital almost two years before forming Advanced Medical Imaging, and before any alleged bribe by the hospital.

The federal suit was the third lawsuit Rembert and Paradise, who were fired from Intercity Radiology in 2011, had filed against the hospital.

The first suit, filed in 2012 for wrongful termination, ended with both Rembert and Paradise receiving more than $850,000 and $817,000, respectively from Intercity Radiology. And a second suit, filed in 2013, was dismissed.

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Freddy Monares can be reached at fmonares@dailychronicle.com or 406-582-2630. Follow him on Twitter @TGIFreddy.

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