The federal crackdown on healthcare fraud netted $15.5 million last week in a settlement with New York University Medical Center, a major recipient of government research grants.
The settlement underscores the fact that one of the crackdown's favorite targets is teaching hospitals (See related story, p. 17).
In an amended complaint filed in federal court last week, the U.S. Attorney for New York contends NYU Medical Center knowingly submitted false information related to its "indirect" research costs, resulting in overpayments to the medical center.
NYU denied any intentional wrongdoing, saying it settled to avoid "the expense, distraction and uncertainty of what would likely have been a protracted litigation with the government."
The nearly 4-year-old civil case, unsealed last week, came as a surprise to many people in the medical research community and signaled another area of federal fraud scrutiny.
"This settlement demonstrates the government's strong resolve to combat abuses and overcharges by educational institutions and to ensure that no institution receive more than its fair share of limited federal research funds," said Mary Jo White, the U.S. Attorney for New York.
But some observers said the case is symptomatic of the federal government's confusing payment rules, not widespread and intentional fraud.
"I doubt if managers sit around the board room trying to figure out how to siphon another nickel out of a $10 million research grant," said Susan Raymond, director of policy programs for the New York Academy of Sciences, where her areas of focus include healthcare and biomedical science. "But I suspect you'll see more of this (kind of scrutiny), particularly as people begin to worry about the nickels."
The government's investigation of NYU stems from a whistleblower complaint brought by Emmanuel L. Roco, a former assistant manager of financial studies at the medical center. Roco will receive $1.5 million of the settlement proceeds.
NYU Medical Center operates two hospitals, a school of medicine and the Skirball Research Institute, a biomolecular research center. The medical center receives tens of millions of dollars each year in research grants.
Under federal financing and accounting rules, institutions that conduct goverment-sponsored research may be reimbursed for direct costs, such as researchers' salaries. The government also will pay for indirect costs, including depreciation and interest expenses, operation and maintenance costs, and library expenses.
But in a 29-page amended complaint filed in U.S. District Court last week, the government cited a list of tactics allegedly used by NYU Medical Center to inflate payments. It said, for example, that the medical center overstated departmental expenses by including dinner, social and food catering expenses.
"We clearly made some accounting and administrative mistakes with respect to certain cost items in the fiscal years 1982 to 1993, but they involved only a small number of the hundreds of transactions and calculations that went into formulating the medical center's indirect cost rates each year," NYU Medical Center said.
In fact, part of the $15.5 million payment settles the medical center's dispute with the federal government over how it interprets certain rules pertaining to donated faculty time.