Christus St. Vincent Regional Medical Center and its Texas-based parent company have agreed to pay more than $12 million to settle claims that the hospital inflated its revenues by improperly manipulating federal funding for an indigent care program.

A spokesman for the Santa Fe hospital said Friday no admission of illegal conduct was made in the agreement, which resolves a 2011 whistleblower complaint brought by Diana Stepan, a former public health official for Los Alamos County who died last year. Because the federal government investigated her complaint and joined the case, her estate will receive $2.4 million, about 18 percent of the settlement, an amount allowed under the False Claims Act.

“We have determined that continued expenditure of time and resources in defense of the allegations is not in the best interests of the Santa Fe community or the hospital,” hospital spokesman Arturo Delgado said in a statement. He added that medical services will not be affected by the $12.2 million settlement.

The lawsuit accused the hospital of a scheme involving the Sole Community Provider program, which used mostly federal Medicaid funds to reimburse hospitals for treating poor people. Under the program, which was phased out in 2014, the federal government provided about 75 percent of the money but required a matching share from state or county funds.

When Santa Fe County, which is responsible for health care services for its indigent population, was forced to reduce payments to the hospital beginning in 2001, the hospital assumed management of some programs, such as alcohol addiction treatment, and then offered the county financial contributions for use of county facilities.

The county then returned that money to the hospital as payments for services, which were reimbursed by Medicaid at a rate of about 75 cents on the dollar.

Peter Chatfield, a whistleblower attorney with Phillips & Cohen in Washington, D.C., which brought the case, said Stepan was well-versed in the complex world of Medicaid billing and recognized the fund transfers for what they were.

“Stepan came to realize that St. Vincent’s donations to Santa Fe County were sham transactions designed and implemented specifically to bilk the federal treasury,” Chatfield said in a statement. “She believed that rules should be followed and taxpayer funds protected.”

In its own statement, the U.S. Department of Justice said there are specific restrictions on what kinds of money can be used to leverage federal Medicaid dollars, and money from a private hospital is not permitted.

“Congress expressly intended states and counties use their own money when seeking federal matching funds,” said Chad A. Readler, with the Justice Department’s Civil Division. “Using local funds provides an incentive for the counties and states to, among other things, hold down costs rather than rely on non-bona fide donations by private providers.”

Christus St. Vincent spokesman Delgado said there were lots of discussions between Santa Fe County, the hospital and the Centers for Medicare and Medicaid Services about the payments, which Christus maintains were lawful.

“Legal counsel and opinion at the time determined that this funding was proper,” Delgado said. “It’s unfortunate that the federal government chose to re-characterize this approach.”

The Justice Department said the settlement includes no finding of liability on the part of the Santa Fe hospital and its parent company, Christus Health System, which is based in Irving, Texas.

The False Claims Act allows individuals to sue entities that are defrauding the government and recover funds on the government’s behalf, according to information provided by Phillips & Cohen. Whistleblowers are rewarded with 15 percent to 25 percent of the amount recovered when the government joins the case.

Contact Bruce Krasnow at brucek@sfnewmexican.com.

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