In extracting a record $84 million settlement for alleged Medicaid billing improprieties from a noted New York teaching hospital last week, the nation's largest Medicaid fraud-control unit walked the fine line between aggressive fraud fighting and the need to preserve the offending hospital's balance sheet.
"It certainly is a lot to pay back," said lawyer Philip Gassel with Epstein, Becker & Green in New York. "But it's very interesting that it was structured in such a way as to make it affordable."
New York Attorney General Eliot Spitzer, whose office scored last week's settlement with 666-bed Staten Island University Hospital, touted the pact as "creative" and "precedent-setting."
The deal features a 20-year payback schedule. The hospital will pay $4.5 million upfront and have $40.5 million withheld from its Medicaid payments through 2019. It also agreed to provide free care and services valued at "not less than" $1.95 million annually over 20 years, for a total of at least $39 million, and to hire an outside group to monitor the hospital's billings for five years.
Staten Island University Hospital said it has provided free care and services totaling more than $35 million since 1995.
Scott Brown, a spokesman for New York's top fraud fighter, said the $84 million settlement represents a dollar-for-dollar recovery of the alleged overbillings.
"We wanted to recover as much money as possible for the taxpayers without bankrupting the hospital and unduly harming the people of Staten Island who are served by the hospital," he said.
The 20-year repayment schedule is critical, said Wendy Herr, a finance expert with DeBrunner & Associates in Washington. Though investor-owned providers tend to settle alleged billing improprieties quickly to placate shareholders, not-for-profit hospitals prefer to buy time "to recover and do what they need to do to make the place viable."
The state began its investigation in January 1998 following an anonymous tip. After a nearly 20-month probe, the state alleged that the hospital improperly submitted 1.6 million claims to Medicaid for care given to recipients. Those claims resulted in overpayments of $84 million. The care, according to the state, was actually provided in the homes of residents and, therefore, was not reimbursable as a hospital outpatient expense. The services should have been reimbursed as individual therapy, a rate 10 times less than what the hospital billed.
In a written statement, hospital executives said billings complied with state Medicaid guidelines at the time. Patrick Clark, an outside spokesman for the hospital, said the payments will be absorbed within the hospital's existing rates. Staten Island University Hospital receives $150 million in Medicaid reimbursement annually.
"Our differences related to an interpretation of guidelines involving a complex billing methodology," said Rick Varone, the institution's president and chief executive officer.
Through a spokesman, Staten Island University Hospital executives declined to provide current audited financials.
But for the year ended 1996, it earned $7.8 million on revenues of nearly $365 million, according to a May 1998 bond document.
The settlement's sheer size underscores the seriousness of state Medicaid enforcers in rooting out payment abuses, intentional or not, observers said.
Barbara Zellner, counsel to the National Association of Medicaid Fraud Control Units in Washington, said it's the largest monetary settlement ever reached between a state and a provider.
"This is a good message to send," noted Philip Stern, a former special prosecutor of healthcare fraud in the New York attorney general's office. "It is my experience that most hospitals continue to be concerned about (healthcare fraud) but do not do a lot about it."
Federal prosecutors went a step further earlier this year, charging 228-bed Truman Medical Center in Kansas City, Mo., with defrauding the state's Medicaid program (May 31, p. 10). The U.S. Justice Department's action is the first federal lawsuit alleging that a hospital committed Medicaid fraud.