Handing a legal setback to the nation's largest hospital chain and sending a warning to any hospital doing business with Medicare,
a federal jury late Friday convicted two midlevel Columbia/HCA Healthcare Corp. executives of criminal Medicare fraud.
The 12-member jury in U.S. District Court in Tampa, Fla., acquitted a third Columbia executive on similar charges and could not reach a verdict on the fourth defendant in the case.
Reaction from the healthcare industry was swift and generally unsympathetic, perhaps a reflection of the hardball competitive tactics that made Nashville-based Columbia an often dreaded force in the mid-1990s.
Jonathan Lord, M.D., chief operating officer at the American Hospital Association, said: "Cases like these point out the need that all hospitals must have effective compliance programs in place."
Richard Clarke, president and chief executive officer at the Healthcare Financial Management Association, said the convictions send a clear and tough message to hospital executives about their personal criminal and civil exposure.
"Hospital executives are going to look more carefully to see if their cost reports are incorrect," Clarke said.
Jeff Prescott, spokesman for Columbia, said the verdicts dealt with one complex Medicare expense issue at one hospital. Beyond that, he declined to speculate on the broader significance of the verdicts.
"We are pleased for the acquittal and the mistrial," he said. "Obviously we're disappointed for the others, and obviously our sympathies go out to them and their families."
It is too early to predict the impact of the verdicts on Columbia hospitals and their business practices, Prescott said.
Convicted were Jay Jarrell, 43, CEO at Columbia's southwest Florida division, and Robert Whiteside, 48, who headed Columbia's single-markets division.
The jury acquitted Michael Neeb, 35, chief financial officer at Columbia's Jacksonville, Fla., division. It couldn't reach a verdict on Carl Lynn Dick, 54, CFO at Columbia's Orlando, Fla., division.
A decision on Dick's retrial will be addressed this week, said Robert Mosakowski, the assistant U.S. attorney who prosecuted the case along with Assistant U.S. Attorneys Kathleen Haley and Anthony Peluso.
Calling it a milestone case, Charles Wilson, the U.S. attorney for Tampa, Fla., described the verdict as a victory for the government.
"We are pleased with the results achieved in his case," Wilson said. "The verdicts will have widespread implications for how healthcare providers will do business with the government."
The government accused the four of conspiring to file false Medicare cost reports, resulting in more than $3 million of overpayments from Medicare to Fawcett Memorial Hospital in Port Charlotte, Fla. They allegedly billed Medicare for 100% interest deductions on capital loans when they were only entitled to 39% deductions, resulting in annual overpayments from Medicare of nearly $500,000, the government said.
The defendants had argued in court that their claims were accurate and that any dispute with the government was the result of overly complex Medicare billing regulations, not any attempt to deliberately defraud the government.
Columbia owns 249-bed Fawcett Memorial by virtue of its 1992 acquisition of Basic American Medical, an Indianapolis-based hospital chain, where the four defendants were originally employed.
A federal grand jury in June 1997 indicted Jarrell, Neeb and Whiteside with five counts of Medicare fraud, falsifying Medicare cost reports and conspiracy. One year later a superseding indictment added two more counts of conspiracy and obstructing an auditor, and added Dick as the fourth defendant, charging him with a single count of conspiracy to defraud Medicare.
Each count is punishable by a maximum prison term of five years and $250,000 in fines. Sentencing is set for Oct. 15.
The jury found both Jarrell and Whiteside guilty of six of the seven counts against them.
Jury selection in the criminal trial began May 3, and the opening arguments began the next day. More than 40 witnesses were called to testify during the 2-month-long trial.
The Tampa case was the first criminal trial resulting from a federal investigation of Columbia and its executives that began in 1996. A series of 1997 FBI raids on Columbia facilities in six states have produced no other criminal charges but hastened the departure of Columbia founders Richard Scott and David Vandewater a few months later.
Columbia also faces a number of civil whistleblower fraud lawsuits under the federal False Claims Act, seven of which have been unsealed and made public. One of the those was filed by the government's star witness in the criminal trial, John Schilling, a former reimbursement supervisor for the company.
Columbia has publicly expressed an interest in consolidating the suits into a global settlement agreement, and proposed amounts are rumored as high as $1 billion.
With Deanna Bellandi
and Barbara Kirchheimer