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SACRAMENTO – The largest Catholic hospital system in the Western states has settled allegations that 13 of its hospitals made false Medicare claims. It agreed to pay the federal government $8.5 million to settle the whistle blower lawsuit, officials said Friday. 

It’s the second set of similar allegations against San Francisco-based Catholic Healthcare West and its affiliate Mercy Healthcare Sacramento, and the second settlement in little more than a year. 

Each time, the system admitted no wrongdoing. 

The hospital system agreed to pay $10.25 million a year ago to settle a whistle blower complaint that it inflated reimbursement claims at two clinics, Woodland Clinic Medical Group and MedClinic of Sacramento. 

Friday’s settlement concerns allegations that the system and its hospitals knowingly defrauded Medicare and other federal health insurance programs by filing false cost reports to obtain millions of dollars for costs which were inflated or not allowable. 

The hospitals kept two sets of books, federal prosecutors alleged: one for government auditors, and a second hidden set that showed the inflated and unallowable costs. The hospitals set up hidden reserve funds to repay the government if the overpayments were discovered, prosecutors said. 

William J. Hunt, the system’s vice president for operations, blamed the dispute on “complicated matters of accounting and reimbursement.” 

He said the cost reports “are governed by thousands of pages of highly technical, often confusing and ever-changing regulations. We believe we interpreted those regulations fairly and reasonably...and any errors were inadvertent.” 

He said the system cooperated in the investigation, is satisfied with the settlement, and is “pleased to put this matter behind us.” 

The federal government intervened in complaints involving four hospitals in the Sacramento area: Mercy General, Mercy San Juan, Mercy American River, and Mercy Hospital of Folsom. 

Friday’s settlement also ends claims by whistle blower Joseph A. Kimball involving nine other Mercy hospitals: Mercy Medical Center Redding; Mercy Hospital of Mount Shasta; St. Mary’s Medical Center in San Francisco; Dominican Hospital Santa Cruz; Mercy Hospital Bakersfield; St. John’s Regional Medical Center in Oxnard; Saint Rose Dominican Hospital in Henderson, Nev.; St. Joseph’s Hospital and Medical Center in Phoenix, Ariz.; Mercy Hospital and Medical Center in San Diego. 

Kimball worked for Mercy Healthcare Sacramento as an accountant since 1984. He received more than $1.9 million under the settlement. The whistle blower in the first case, George Baca, also received nearly $2 million. 

Besides the repayments, the system entered into a “corporate integrity agreement” with the U.S. Department of Health and Human Services’ inspector general, designed to prevent future fraud.