Non-profit Catholic health system Carondelet Health Network, which operates Carondelet St. Mary’s Hospital and Carondelet St. Joseph’s Hospital in Tucson, Arizona, will settle civil allegations that its hospitals improperly billed the government for inpatient rehabilitation services. The settlement amount, $35 million, is the largest ever False Claims Act recovery in that state, according to the Department of Justice (DOJ).

The allegedly improper billing of Medicare, the Federal Employees Health Benefit Program, and the Arizona Health Care Cost Containment System (Arizona’s Medicaid agency) occurred between April 7, 2004, and Dec. 31, 2011, and was brought to light by Jacqueline Bloink, identified online as a consultant. She filed a civil qui tam (whistleblower) suit against Carondelet in 2011 in the District Court in Tuscon, which the DOJ then joined. Under the terms of the settlement, Bloink will receive nearly $6 million of the settlement amount and Carondelet will cover her legal bills.

“This settlement shows OIG’s hard work to safeguard the taxpayer dollars,” said Glenn R. Ferry, special agent in charge for the Los Angeles region of the U.S. Department of Health and Human Services, Office of Inspector General (HHS OIG), in a press release.  “Health care fraud victimizes both patients and the American taxpayers, and we are dedicated to investigating and prosecuting these types of activities.”

According to the DOJ, Carondelet had disclosed to the government some inpatient rehabilitation overpayments and tendered a substantial repayment before the health system became aware of the government’s investigation into other reimbursements for inpatient rehabilitation services for patients that did not qualify for such care.  The DOJ said it “considered Carondelet’s efforts in this regard in reaching the settlement amount and the resolution of the case” — a hint that the government could have asked for an even higher settlement amount if it had thought Carondelet had been more willfully negligent in the false billing.

“As a leading healthcare provider in Southern Arizona, Carondelet is dedicated to enhancing the health and well-being of this community and this region,” said James Beckmann, Carondelet’s president and chief executive officer in a statement. “As a part of that promise, we hold ourselves accountable to the highest standards of integrity. I commend our leadership team who reviewed, audited and voluntarily disclosed our past billing discrepancies. We are proud of our proactive Corporate Responsibility Program and our ability to identify and resolve these issues that occurred some years ago.”

Carondelet is a subsidiary of Ascension. It recently signed an exclusive, non-binding Letter of Intent with a subsidiary of Tenet Healthcare Corporation (NYSE: THC) to create a joint venture with Dignity Health that would own and operate Carondelet. (Read the Health CXO report on the deal.)

The settlement agreement is available as a PDF here.