New Jersey's largest health care provider will pay $265 million to settle federal charges that it cheated Medicare out of more than half a billion dollars by inflating charges for seriously ill patients, prosecutors said Thursday.

The agreement between prosecutors and Saint Barnabas Health Care System, which operates nine hospitals and a behavioral treatment center in New Jersey, concerns a program Medicare provides to supplement its normal payments.

Prosecutors allege that between October 1995 and August 2003, Saint Barnabas hospitals deliberately inflated charges for inpatient and outpatient care under the Medicare program, the federal health care insurance program for people aged 65 and over, and for the disabled. It is designed to increase reimbursements to hospitals that care for people with medical complications.

As part of the settlement, under which Saint Barnabas did not admit wrongdoing, authorities said the hospital system must accept an outside monitor who will supervise its Medicare billings for the next six years.

In a statement, Michael Slusarz, vice president for public relations and marketing at Saint Barnabas, said the company cooperated with the government during the inquiry.

"This agreement will allow us to focus our energy and resources on our mission of providing the highest quality of care to our patients," he said. "We are pleased this matter is now behind us and look forward to continuing to serve the citizens of New Jersey."

Authorities said it is the first settlement involving Medicare's supplemental reimbursement program, but added that others are pending around the country.

"Saint Barnabas was a man who gave away all his worldly goods to follow a higher calling," said Les Wiser Jr., special agent in charge of the Newark FBI office. "If he were alive today, he would surely be ashamed at what has been done in his name."

First Assistant U.S. Attorney Ralph Marra Jr. said the hospital system "overreached" by padding bills submitted to the government.

The problem occurred when the hospitals started tacking on extra charges, such as the cost of nursing, housecleaning and other routine expenses, making a patient's treatment appear more costly than it actually was, authorities said.

"Saint Barnabas, in a very systematic way, gamed the system and exploited loopholes in the reimbursement system to obtain more money than they were entitled to," Marra said.

He added no hospital employee derived a personal financial benefit from the overpayments.

Government prosecutors said they became aware of the allegations in 2002 when three whistleblowers filed sealed lawsuits alleging that Saint Barnabas was overbilling Medicare.

Prosecutors would not say how the whistleblowers knew about what was going on, and said the amount of the settlement they would be entitled to under federal law has not yet been determined. But payments usually range from between 15 to 25 percent of the settlement, authorities said.

Although Marra said the amount of wrongful payments exceeded $500 million, the government took into account the corporation's ability to pay in calculating a settlement amount.

"As the largest health care organization in the state, we did not want to put them out of business," he said.

Marra said such activity is "not unique" to Saint Barnabas, but he would not say whether other hospitals in New Jersey are under investigation for similar overcharging.

The corporation operates Saint Barnabas Behavioral Health Center in Toms River and nine hospitals in the state: St. Barnabas in Livingston; Clara Maass, with campuses in Belleville and Kearny; Newark Beth Israel Medical Center; Children's Hospital in Newark; Union Hospital; Monmouth Medical Center in Long Branch; Kimball Medical Center in Lakewood; and Community Medical Center in Toms River.