Quorum Health Group's $95.5 million tentative settlement with the U.S. Justice Department may have resolved the Brentwood, Tenn.-based company's role in two alleged cost-reporting fraud schemes.
But the 250 hospitals that Quorum owned or managed at the time of the alleged fraud may still be on the hook for up to $100 million in repayments and interest for overpayments received since 1985.
The Justice Department declined to comment on whether the Oct. 2 settlement releases from further financial liability the hospitals that its subsidiary, Quorum Health Resources, manages or formerly managed. Those hospitals allegedly benefited from more than $70 million in overpayments received from 1985 to 1995.
Quorum announced the tentative deal while in the throes of sale and merger talks (See story, this page). The settlement would resolve two civil whistleblower lawsuits alleging Medicare cost reimbursement fraud, but two other lawsuits against Quorum remain under seal. The company did not admit legal wrongdoing.
Quorum has agreed to pay $77.5 million to settle a 1993 lawsuit brought by James Alderson, 54, a former financial officer at 99-bed North Valley Hospital in Whitefish, Mont., managed by Quorum Health Resources.
Alderson alleged in his whistleblower suit that Quorum submitted fraudulent cost reports to the government that resulted in Medicare overpayments to the 250 hospitals that Quorum owns or manages.
Quorum will pay an additional $18 million to resolve another lawsuit brought by a still-unnamed former employee and whistleblower who alleged cost-reporting fraud at 215-bed Flowers Hospital in Dothan, Ala., which Quorum owns.
Quorum President and Chief Executive Officer James Dalton Jr. was unapologetic in a written statement, reflecting the stance he has taken all along the way.
"The management and board of directors of Quorum continue to believe that at all times the company and its employees have operated in a proper and ethical manner," he said.
The Justice Department sent out a short statement Oct. 2 acknowledging the tentative agreement but declined further comment.
Alderson, who contends that he was terminated in 1990 after refusing to create reserve cost reports, said he feels vindicated.
"(The settlement) proves two things: That I was right 10 years ago in refusing to do two cost reports, and I was right in turning the information over to the government," he said.
Alderson should receive between 15% and 25% of the recovery, or between $11.6 million and $19.4 million, said his attorney, Stephen Meagher of Phillips & Cohen.
Meagher's co-counsel, Peter Chatfield, also of Phillips & Cohen, said the lawsuit helped stamp out a cost-reporting game of cat-and-mouse with intermediaries that was growing widespread in the industry at the time.
Thomas Prince, professor of health industry management at Chicago's Northwestern University's Kellogg Graduate School of Management, said settlements like Quorum's help curb inappropriate activities. "If anything, fears of fraud and abuse scrutiny have scared chief financial officers into underreporting on cost reports," he said.
Sources knowledgeable about the Quorum talks said the settlement has not released the 250 Quorum-owned or -managed hospitals from further liability. HCFA can still compel them to repay overpayments with interest under Medicare administrative regulations, the legal sources said.
Although there is a statute of limitations preventing HCFA from reopening Medicare cost reports after three years, those rules don't apply when fraud is alleged. The big question is whether HCFA will collect the overpayments.
HCFA spokesman Craig Palosky said the agency cannot comment because the settlement is not final.
The hospitals may argue that with the Oct. 2 Quorum settlement, the government has already been repaid for the overpayments, said Dennis Barry, a healthcare attorney with Vinson & Elkins in Washington.
Health lawyer Lee Doty of the Philadelphia firm of Montgomery, McCracken, Walker & Rhoads said Quorum's settlement won't protect the hospitals, because hospitals share responsibility for the accuracy of their cost reports, even if outsiders prepare them.
"There is also a criminal statute that prohibits a hospital from holding onto money if it knows the money was ill-gotten gain," Doty said.
The Quorum settlement may impact the ongoing civil and criminal investigation of Nashville-based HCA-The Healthcare Co., Quorum's former parent, health lawyers said. Alderson sued both companies alleging the same cost reporting fraud.
In May HCA, then known as Columbia/HCA Healthcare Corp., announced a tentative settlement with the Justice Department for $745 million, but that did not address cost-reporting issues (May 22, p. 2).
The Medicare cost-reporting allegations facing HCA dwarf those settled by Quorum: HCA's involve more than 3,000 cost reports, while Quorum's involve fewer than 300.
HCA spokesman Jeffrey Prescott said that he didn't think Quorum's settlement will impact HCA's settlement efforts.
HCA is also on the hook for a portion of Quorum's $77.5 million bill as a result of a 1989 indemnification agreement it signed when it spun off Quorum. It is unclear how much HCA will contribute to the Quorum settlement, if anything.