ASHLAND, Ky. — In what is being called the largest federal health care fraud settlement involving a hospital in the history of Kentucky’s eastern district, King’s Daughters Medical Center will pay more than $40 million to the U.S. government.

The payout resolves an investigation by the U.S. Department of Justice into allegations the Ashland-based hospital made millions of dollars by falsely billing state and federal health care programs for heart procedures that were performed on patients who didn’t medically need them.

“Hospitals that place their financial interests above the well-being of their patients will be held accountable,” said Assistant Attorney General Stuart F. Delery. “The Department of Justice will not tolerate those who abuse federal health care programs and put the beneficiaries of these programs at risk by providing medically unnecessary care.”

In March the medical center told its municipal bondholders that it had set aside $48.9 million for a potential settlement. Of that figure approximately $8 million was to go for legal fees.

In a letter on the hospital’s website Wednesday morning, new CEO Kristie Whitlatch announced the settlement agreement, but said it was not an admission of guilt by KDMC.

“Some people will interpret the settlement as an admission of guilt,” Whitlatch wrote. “It is not. Since this investigation began, we have adamantly denied the government’s claims. Indeed, the settlement agreement clearly states that it is not an admission of liability by King’s Daughters, which means we admit no wrongdoing.”

In a press release, hospital officials said the decision to settle was difficult but was made “rather than continue to drain valuable resources on government allegations related to old cases.”

KDMC had been under investigation by the DOJ since late 2011 for allegations of submitting false claims to the Medicare and Kentucky Medicaid programs for medically unnecessary coronary stents and diagnostic catheterizations and prohibited financial relationships with physicians referring patients to the hospital.

The government also alleged the physicians falsified medical records in order to justify these unnecessary procedures, which allegedly generated millions of dollars in Medicare and Kentucky Medicaid reimbursements for KDMC.

The settlement amount roughly doubles the amount of money KDMC received as a result of the alleged fraudulent billing for the unnecessary services.

“The conduct alleged in this matter is unacceptable, victimizing both taxpayers and patients,” said U.S. Attorney Kerry Harvey. “Treatment decisions motivated by financial gain undermine public confidence in our health care system and threaten vital federal programs upon which so many of our citizens rely. We will not relent in our efforts to protect the public from the sort of systematic misconduct alleged in this case.”

In connection with the settlement, KDMC has agreed to enter into a Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General (HHS-OIG), which obligates the hospital to undertake substantial internal compliance reforms and to commit to a third-party review of its claims to federal health care programs for the next five years.

“Medically unnecessary procedures can cause very serious health issues, wastes millions in tax payer dollars each year and undercuts the public’s trust in the medical professionalism the Medicare Trust Fund,” said Derrick L. Jackson, Special Agent in Charge at the HHS-OIG in the region covering Kentucky. “The OIG will continue to protect beneficiaries and hold health care providers accountable for improper claims.”

Kentucky will receive $1,018,380, which represents the state’s share of the recovered Medicaid funds. The Medicaid program is funded jointly by the federal and state governments.

Whitlatch said in her statement she is aware of the economic impact the medical center has on the community and since she took on the CEO position, the possibility of a settlement was in mind.

“I openly share this information with you because I recognize that part of my role as president/CEO is being a good community partner,” she wrote. “While I’ve received a warm welcome into my new role, I know I still have to earn your trust. As part of this, I am committed to transparency (good news and bad). I will keep you informed on our important business matters related to quality, value, corporate compliance, and business integrity. We will behave and conduct business openly and responsibly. I truly believe we can learn from tough times and rebuild to be a better, stronger, smarter organization.”