The business tactics of the country's largest hospital chain went on trial last week in U.S. District Court in Tampa, Fla., where four mid-level executives of Columbia/HCA Healthcare Corp. face Medicare fraud charges.
A jury of seven men and five women empaneled May 3 heard opening arguments the next day in the spacious, high-tech courtroom of U.S. Judge Susan Bucklew.
The trial is slated to last at least two months and may involve more than 60 witnesses.
The four defendants are Carl Lynn Dick, 54, of Orlando, Fla.; Jay Jarrell, 43, of Tampa; Michael Neeb, 36, of Jacksonville, Fla.; and Robert Whiteside, 48, of Brentwood, Tenn. They were first indicted in 1997 and are charged with claiming higher reimbursements than they were entitled to on the Medicare cost reports for 249-bed Fawcett Memorial Hospital in Port Charlotte, Fla.
The government alleges those false cost reports generated more than $2.7 million in Medicare overpayments to the hospital and overpayments that cost Florida's Medicaid program $184,000 and the federal Civilian Health and Medical Program of the Uniformed Services, or CHAMPUS, $32,000.
Assistant U.S. Attorney Robert Mosakowski charged the defendants with knowingly submitting and conspiring to submit false Medicare cost reports and obstructing and deceiving a federally authorized auditor investigating the cost reports.
Jarrell, CEO of Columbia's southwest Florida division; Neeb, chief financial officer of the company's northern Florida division; and Whiteside, director of Columbia's single-markets division, face seven counts of fraud, conspiracy and obstruction charges.
A superceding indictment brought last year expanded the charges and added Dick, CFO of Columbia's central Florida division, as a defendant. Dick faces a single charge.
Each count is punishable by up to five years in prison and a $250,000 fine. All are on paid leave from their posts.
The four, all of whom are certified public accountants, allegedly listed the interest on Fawcett hospital loans as 100% capital-related-meaning the loan was used for brick and mortar, and new equipment-when they knew the interest for some of the expenses should have been submitted under operating expenses. Medicare reimburses for interest on both types of expenses but pays a much higher rate for capital interest.
The case is nationally significant.
It is the first criminal fraud case stemming from a 3-year-old, wide-ranging FBI investigation into Columbia's billing practices. The company and its executives are the subjects of the investigation, which many believe will bring other indictments.
Columbia grabbed the healthcare industry's attention in the mid-1990s with its aggressive hospital acquisitions, its business arrangements with physicians and other providers, and its hardball competitive tactics.
Some view the trial as a referendum on the company's behavior as well as on the defendants' actions.
In addition, other providers are interested in the case's focus on executives' use of Medicare cost reports to maximize their reimbursement from the government.
Boston healthcare fraud lawyer Thomas Crane of Mintz, Levin, Cohn, Ferris, Glovski and Popeo, said, "Additional convictions for what are perceived to be common financial practices will surely weigh heavily on the minds of hospital executives."
Crane said if the government secures a conviction against the Columbia executives, it will significantly improve its negotiating position against the company.
He said many in the industry are speculating that there will be criminal pleas from other Columbia facilities.
"Prosecutors are increasingly attempting to drive a wedge in settlement discussions between corporations and their senior executives," said Crane, who previously worked for HHS' inspector general's office.
"The way you make cases is to work your way up the food chain, and the government is clearly doing that."
Crane said a Columbia acquittal wouldn't necessarily doom the still unfiled criminal cases pending against Columbia.
" U.S. attorneys are bastions of prosecutorial independence," he said. "The loss of this first case, if it happens, will have next to no influence on whether another case is brought. Each case will be weighed on its own merits."
In his opening argument, Mosakowski warned jurors: "You're going to learn more about Medicare cost reports than you ever wanted to know. I'm not going to sugarcoat it. It's going to be a long trial. And I can't always promise you it will be interesting."
The four executives were employed by Basic American Medical, an Indianapolis-based for-profit hospital chain with 21 facilities in Florida, Georgia and Kentucky. Columbia purchased Basic American, which owned Fawcett, in 1992.
Jarrell and Neeb remained with Columbia. Whiteside and Dick took other positions. The government alleges the fraudulent scheme began in the late 1980s and continued after Columbia took over.
After Mosakowski's opening statement, each of the four defendants' lawyers presented opening remarks, explaining how their clients could not have committed the crimes with which they are charged.
They also cast doubt on the government's main witnesses, former Basic American and Columbia reimbursement specialists Larry Bomar and William Steve Dudley, who received immunity from prosecution in exchange for their testimonies, and John Schilling, who filed a whistleblower lawsuit against Columbia in 1997.
The defense team attacked the prosecution's witnesses as deceitful, disloyal and dishonest men motivated by financial gain and desperation to save their skins.
They described the charges against their clients as misunderstandings, honest mistakes that should have been worked out amicably, but not crimes.
Jarrell's Tampa-based attorney Peter George said his client has always believed that Fawcett was entitled to a 100% capital reimbursement of interest paid on loans. "He believed it in 1986, and he believes it today."
George said that capital expenses for Fawcett, a former nursing home converted in the late 1970s into an acute-care hospital, accumulated as the hospital added services, such as an emergency room and a nuclear scanner. Jarrell believed the extent of the capital expenses warranted filing for 100% reimbursement, George said.
Washington-based lawyer David Geneson said that his client, Michael Neeb, "signed (the cost reports) with full trust that the contents were what they were supposed to be."
Whiteside's Jacksonville-based lawyer Charles Lembcke said there was no conspiracy to obstruct an auditor and Whiteside did not attempt to hide his actions.
Tampa-based lawyer William Jung, who is defending Dick, pointed out that his client is charged with only one of the 22 counts in the case-and wasn't even charged in the original 1997 indictment.
Prosecutors brought in witness Dudley to explain hospital reimbursements in plain English.
Dudley told Assistant U.S. Attorney Kathleen Haley how he prepared cost reports and submitted them for 100% capital reimbursement when he knew the hospital was entitled to only a split.
That difference meant $100,000 to $500,000 per year to the hospital.
Dudley said that Fawcett-indeed, all of Basic American-was strapped for cash in 1989.
"It was hard to find money for month-to-month expenses," he recalled.
Despite winning the hospital some more money from an earlier cost report, he said, Jarrell insisted that Fawcett deserved 100% capital reimbursement, instead of the 39% that the financial documents supported. Dudley said Jarrell's position was not consistent with Medicare regulations.
When asked why he didn't report his findings to the fiscal administrator, Dudley responded: "I felt if I'd informed the intermediary, I would have lost my job."