The summer of 1993 was a hot one in Nashville.
That was when government subpoenas first started rolling in at three of the nation's largest for-profit hospital companies as part of a secret Medicare fraud investigation, recently unsealed court records show.
Two of those companies, Hospital Corporation of America and its spinoff, HealthTrust-The Hospital Company, have since become part of Columbia/HCA Healthcare Corp., the nation's largest for-profit hospital company. The third company was Quorum Health Group, another HCA spinoff.
The court records are part of a civil whistleblower lawsuit that accuses Columbia and Quorum of bilking Medicare over 14 years by making unallowable or inflated claims on their annual cost reports (Oct. 12, p. 4).
The suit alleges the companies prepared "reserve cost reports" for internal use and kept work papers that showed differences between the reserve reports and the ones filed with fiscal intermediaries, suggesting that the companies were padding their bills to the government.
The case file, nearly 800 pages of which was partially unsealed in U.S. District Court in Tampa, Fla., Oct. 14, traces the government's laborious five-year investigation into allegations leveled in 1993 by James Alderson, a former chief financial officer at a Montana hospital whose management was taken over by Quorum.
The newly public records also reveal:
The government has collected millions of pages of documents through more than 10 administrative subpoenas by HHS and at least six civil investigative demand letters from the Justice Department that were served on all three companies and three reimbursement officials.
The government occasionally used strong-arm tactics to wrest documents from the companies, including threatening enforcement actions on outstanding subpoenas.
It wasn't until after the merger with HCA that Columbia adopted that company's practice of preparing hospital cost reports and "reserve cost reports" in-house.
Prior to that, Columbia relied on outside accounting firms or consultants to work with a small Columbia staff on Medicare reimbursement, according to a July 1998 declaration signed by Marie O'Connell, a Justice Department attorney handling the case.
At deadline, Columbia spokesman Jeff Prescott said the company had been using reserve cost reports "for some time" but could not say for certain when the practice began.
A Quorum spokeswoman declined to comment for this story. In previous interviews Quorum officials have said they cooperated with the government's inquiry.
But court records paint a slightly different picture: Quorum's cooperation didn't always come voluntarily.
For example, after a 1993 meeting with government investigators, Quorum attorneys declined to turn over documents unless they were subpoenaed, according to court records.
Cooperation didn't always come easily for the other companies, either.
In February 1995, Columbia had trouble complying with a civil investigative demand for records because the personnel who would handle it were busy with the pending HealthTrust merger.
HealthTrust, for its part, "resisted" for more than a year in completing its response to a January 1995 demand for records, according to a June 1996 motion signed by O'Connell.
For Alderson, the government's Oct. 1 decision to finally intervene in the lawsuit was a relief.
"I knew that what I saw was wrong, and I knew that if people ever saw the documentation that I saw they would come to the same conclusion that I did," he said in an interview with MODERN HEALTHCARE.
Alderson's lawsuit was inspired in part by documents he obtained through his wrongful termination lawsuit, which he filed against Quorum in 1991. He alleged he was forced out of his job as chief financial officer when he would not subscribe to Quorum's practice of preparing reserve cost reports.
Alderson, who worked at North Valley Hospital since 1984, was on the job only two months after Quorum took over management of the 99-bed facility in Whitefish, Mont., in August 1990. He settled his wrongful termination lawsuit against Quorum in December 1993.
Since those first subpoenas in 1993, the companies have disclosed minimal information about the nature and scope of the government's investigation-details that are only now becoming clear.
Quorum has disclosed the existence of a federal inquiry in its filings with the Securities and Exchange Commission since 1994.
Columbia also disclosed that HHS' inspector general was requesting information about the company's procedures for preparing Medicare cost reports, according to its annual 10-K report filed with the SEC in 1995.
"Just receiving a subpoena may not be enough to trigger disclosure," said Robert Rupp, a securities attorney with Baker & Hostetler in Columbus, Ohio. "If you have reason to believe that you are the target or subject of an investigation, then you probably should disclose it."
However, a review of SEC records by Washington-based Infoline, commissioned by MODERN HEALTHCARE, did not uncover any such disclosure by HealthTrust from 1993 to 1995, when it merged with Columbia.
But court records indicate that HealthTrust disclosed the HHS subpoenas to Columbia before their merger.