Paracelsus Healthcare Corp., a Houston-based hospital chain, last week agreed to pay $7.3 million to resolve two whistleblower lawsuits alleging the company paid kickbacks to physicians for patient referrals and improperly billed Medicare.
Filed in late 1995 in federal court, the complaints by the government charged that Paracelsus paid kickbacks to two companies that managed psychiatric programs at Orange County Community Hospital, Buena Park, Calif., in exchange for patient referrals to the programs.
The hospital also improperly billed Medicare for the psychiatric programs run by the two companies, Pride Institute and Daybreak, the lawsuits contended. Neither company provides psychiatric management services to 55-bed Orange County Community anymore.
In addition, the whistleblowers accused Paracelsus of paying kickbacks to physicians at 65-bed Bellwood General Hospital in Bellflower, Calif., in exchange for patient referrals.
Consuelo Woodhead, the assistant U.S. attorney who handled the case for the government, said Bellwood was paying inflated "directorship fees" to physicians in several departments at the hospital.
Paracelsus agreed to implement a strict compliance program at the hospitals as part of its settlement. The company denied any wrongdoing in connection with the lawsuits.
"We settled to avoid the costs of litigation," said Deborah Frankovich, the company's senior vice president and treasurer. "We're glad to have it behind us."
Under the federal False Claims Act, the two whistleblowers, Alan Leavitt and Timothy Hill, will share a minimum reward of 15% to 25% of the total settlement, or $1.1 million to $1.8 million.
Leavitt was administrator and chief executive officer of Orange County Community from October 1992 to February 1994. Hill was administrator and CEO of Bellwood General from July 1994 to September 1994.
Paracelsus also said last week that it is cutting its work force by 5%, to 8,282, and will cut corporate employees' pay by 5% to help offset deteriorating reimbursement.
The company said it expects a $325,000 charge in the third quarter for the layoffs. Overall, the reductions, which take effect Oct. 1, are expected to reduce expenses by at least $20 million annually. Frankovich said that savings should cut operating expenses by 3% to 5% annually.
Frankovich said the layoffs will vary among all its facilities. Paracelsus owns or operates 24 hospitals and four skilled-nursing facilities in nine states.
Underlying Paracelsus' actions were a one-year payment freeze on Medicare inpatient rates, reductions in home health services and reimbursement, and lower payments by managed-care plans struggling to improve their own bottom line, the company said.
Although Frankovich blamed the Medicare payment freeze for the company's action, she couldn't provide a figure to quantify the effect on Paracelsus. She said all hospitals that treat Medicare patients are facing the same problem.
For fiscal 1997, about 43% of the company's business was from Medicare, and nearly 14% was from Medicaid. She expected little change in fiscal 1998 figures.