Investor-owned hospital chain Community Health Systems and three affiliated New Mexico hospitals will pay the federal government $75 million to settle allegations that they made illegal donations to county governments to reap more federal dollars under a now-discontinued matching program. 

In the settlement agreement, CHS denies the allegations and that it engaged in any wrongful conduct. The agreement names CHS subsidiary Community Health Systems Professional Services Corporation, which manages more than 200 affiliated hospitals in 29 states.

"The donations were entirely lawful and a matter of public record, and well known by the state and CMS," the company said in a statement about the settlement.

The federal government alleged that CHS made improper donations to Chaves, Luna and San Miguel counties. The counties and state, the government said, used the donations to get federal matching Medicaid payments and funneled the proceeds back to the hospitals.

In New Mexico, hospitals in mostly rural communities received supplemental Medicaid funds under the state's now-discontinued Sole Community Provider program. Under that program, the federal government reimbursed New Mexico for about 75% of its healthcare spending.

Federal law, however, prohibited hospitals from supplying those matching funds in an effort to prevent possible abuse and to ensure states had incentive to keep Medicaid costs under control.

The government alleged that CHS collected three times as much in payments funded by the federal government as it gave to the counties in donations through the scheme.

CHS, however, says other hospitals made the same kind of payments and government officials signed off on the arrangement. "The use of hospital donations originated with and was approved by the state's Medicaid representatives and nearly every other private Sole Community Provider (SCP) hospital in New Mexico made similar donations," the company said in the statement. "Indeed, during the litigation the hospitals named in the suit and other private SCP hospitals continued to make public-record donations to counties and receive Medicaid sole community provider funding until the state modified the program in 2011."

A whistle-blower, former CHS revenue manager Robert Baker, made the original allegations in a complaint filed under the False Claims Act and will get $18.7 million from the settlement, the Justice Department said.

The three affiliated New Mexico hospitals involved in the case are: Eastern New Mexico Medical Center in Roswell; Mimbres Memorial Hospital and Nursing Home in Deming; and Alta Vista Regional Medical Center in Las Vegas.