Blue Cross and Blue Shield of Illinois last week pleaded guilty to eight counts of fraud, agreeing to pay a whopping $144 million in criminal and civil fines for lying to the government about its dismal performance as a Medicare claims processor.
The settlement with federal prosecutors is one of the largest ever in a healthcare fraud case and the largest any Medicare contractor has had to pay. It is also another reminder of the efficacy of the federal False Claims Act provision that pays whistleblowers 15% of such settlements.
The Illinois Blues also has voluntarily withdrawn from all Medicare contracts following the indictment of five current and former managers on charges of fraud and conspiracy. The managers are alleged to have concocted and executed the fraud scheme.
The Blues attempted to distance itself from the fraud scandal, painting the five managers as rogue employees in a company press release.
The statement referred to "the alleged misconduct of a group of employees in the (Chicago-based) company's Medicare Part B office in the southern Illinois town of Marion."
Blues' senior managers "did not authorize or have knowledge of the misconduct," the statement said.
However, the Blues pleaded guilty in a federal courtroom in East St. Louis, Ill., to one count each of conspiring to obstruct and of actual obstruction of a government audit of performance records.
The Blues also pleaded guilty to six counts of making false statements related to falsifying performance records.
The company will pay $4 million in criminal fines and $140 million in civil fines. The insurer said it can pay the settlement without raising premiums or threatening financial stability.
The settlement caused Standard & Poor's to place the debt of the Blues' parent company on CreditWatch with negative implications.
The Illinois Blues, operated by Health Care Service Corp., was one of the largest Medicare Part B carriers, processing claims for Medicare services in Illinois and Michigan.
Deputy U.S. Attorney General Eric Holder said the dishonesty of a contractor, hired by HCFA to ensure that providers don't defraud the government, endangers the credibility of the Medicare program.
The Illinois Blues won the Medicare Part B contract for Michigan in 1995 after Blue Cross and Blue Shield of Michigan paid a total of $51.6 million to settle charges that it falsified hospital audit records to keep its decades-old Medicare contract.
The 27-page indictment against the Illinois Blues, handed up by a grand jury July 8, charges the five managers with manipulating work samples and falsifying reports that HCFA used to judge the Blues' performance (July 13, p. 4).
W. Charles Grace, U.S. attorney for the southern district of Illinois, said the Blues had destroyed claims, paid all claims under $50 without any review of medical necessity or utilization and ignored checks on utilization that resulted in Medicare paying for unnecessary services.
Under the Blues' Medicare contracts, HCFA made incentive payments to the company if it processed claims with a low rate of error. From April 1984 to February 1996, HCFA paid at least $1.3 million in incentive payments to the plan, believing the company's performance was improving when it was faltering.
Those incentive payments translated into bonuses for the five managers, and the falsely deflated error rate meant renewal of the lucrative contracts for the Blues.
Indicted in the alleged scheme were Thomas Bartels, director for Medicare Part B operations until May 1996; Barbara Harrigan, senior manager outside of Medicare Part B operations; Bruce Davis, manager of Medicare Part B technical services; Barbara Hardcastle, sales representative; and Joan Davis, manager for claims and appeals.
Two others-Nancy Martin, a manager for provider certification, and Donald Heinle, manager of post-payment quality assurance-pleaded guilty to conspiracy and other charges in May.
The arraignments of Bartels, Harrigan, Bruce Davis, Hardcastle and Joan Davis have been set for July 30. Sentencing for Heinle is scheduled for Aug. 21, and sentencing for Martin for Sept. 3.
Each offense carries a maximum penalty of five years imprisonment or a fine of $250,000 or both, and up to three years' probation.
The indictment and corporate settlement follow a two-year investigation by the FBI, HHS' inspector general's office and the U.S. Postal Inspection Service.
The case was brought to the attention of federal investigators by a whistleblower who filed a False Claims Act complaint in March 1995 in U.S. District Court in Benton, Ill.
The whistleblower, Evelyn Knoob, stands to receive at least $21 million for her role in the case. Knoob, an 11-year Blues employee, was supervisor of the Marion office mail room until 1994.
-With Jonathan Gardner