Wahiawa General Hospital, which last week was accused of owing University of Hawaii-affiliated doctors $800,000 in back pay, said this week it withheld the payments because UH owes the hospital more than $1 million from an insurance fraud settlement.

Wahiawa General agreed to a $450,000 settlement last year for improperly billing the Medicare and Medicaid government health insurance programs and the military’s health care program known as TRICARE.

The U.S. Attorney’s office began an investigation after a doctor complained the hospital had billed the government for services by UH faculty doctors who didn’t provide the level of supervision required by federal law to residents in Wahiawa’s family medicine residency program from 2008 to 2011.

Wahiawa General settled the case in August 2013, though it did not admit liability, and has repaid the government programs, as well as legal fees and related costs totaling $1 million, said Don Olden, the hospital’s chief executive officer.

Olden says Wahiawa General got "thrown under the bus" as the billing agent for UH faculty physicians who were responsible for documenting their supervision of the residents, but failed to do so.

"We had to pay for everything. We were billing based on what they told us they did," Olden said. "When we reviewed the bills and documentation, we found out that adequate documentation did not occur. This cost us over $1 million out of pocket. It’s money we don’t have. That’s one of the things we’re arguing about. They owe us more than we owe them."

At the time of the investigation, Neal Palafox was the head of the UH family medicine residency program at Wahiawa General. Gov. Neil Abercrombie appointed Palafox director of the Health Department in late 2010 and shortly after asked him to withdraw his nomination, but the governor didn’t publicly explain why.

Palafox is still a UH faculty member working at Wahiawa General, but is no longer one of administrators of the program, Olden said. Palafox declined to comment for this story and referred questions to Tina Shelton, spokeswoman for the UH John A. Burns School of Medicine.

Shelton said its physicians weren’t at fault for the fraudulent billing since Wahiawa General runs the clinic and received the improper payments.

"Wahiawa was responsible. That’s why Wahiawa paid the settlement," Shelton said. "He (Olden) has been trying to get UH to pay the bill, but we didn’t do the wrongdoing."

The two sides appear to be in a deadlock with no resolution in sight.

The medical school said last week that the hospital owes $800,000 from payments not made over the past 10 months to its physician group — the University Clinical, Education & Research Associates, or UCERA — which oversees residents at Wahiawa General. The medical school is threatening to pull its family medicine residency program from Wahiawa General and the hospital’s outpatient clinic, Physicians Center at Mililani, after more than 20 years.

"We have a contract for physician services and it’s on that basis that we’re asking for that money," said Roy Magnusson, the CEO of UCERA. "It (the insurance fraud settlement) is an already resolved compliance issue that is really unrelated to our current situation."

Magnusson added, "It is very important to understand that it is the entity that submits the bill that must take responsibility for the accuracy of the bill."

UCERA is a nonprofit organization that was established largely to provide billing and other administrative services for UH physicians who have hospital and clinic practices.

To help Wahiawa General cut costs, UH said it is proposing to shift oversight of the residency program from the hospital to UCERA and bring in other health care organizations to share in educational expenses.

"We really shouldn’t be tying up family medical residency with that discussion," Magnusson said. "The proposal for a consortium model really alleviates the financial pressure on Wahiawa from the clinic and it preserves the residency program for the state."

Shelton said in an email: "We have had a long and productive relationship with Wahiawa General Hospital and we are very proud of our 111 family medicine residency graduates who are providing care all over the state of Hawaii. We’re working with a number of parties to help Wahiawa."