By joining a civil whistleblower fraud lawsuit against healthcare accounting icon KPMG, the U.S. Justice Department last week sent a strong signal to industry bean counters that they may be held legally liable for the Medicare billing work they do for clients.
"It's something that's in the back of your mind," said Richard Donkle, director of financial consulting at Rural Wisconsin Health Cooperative in Sauk City, Wis., which represents 27 hospitals there; Donkle's role is to prepare and advise on Medicare cost reports.
"In the past we may have been fairly aggressive in advising hospitals on what to claim (on Medicare cost reports). Now you think about it a little more. If anything, there's a reluctance on the part of outside preparers to get involved because of liability concerns."
John Schilling, former HCA reimbursement supervisor, filed the lawsuit originally in 1998 in U.S. District Court in Tampa, Fla. It accuses KPMG's Florida office of helping five Florida hospitals falsify Medicare cost reports that they allegedly used to illegally inflate their payments from Medicare.
The government said the billing scheme took place during three years starting in 1990, when KPMG was KPMG Peat Marwick. The hospitals at the time were owned by Basic American Medical, which HCA-The Healthcare Co. (then called Columbia/HCA Healthcare Corp.) acquired in 1992.
The government said KPMG prepared reserve Medicare cost reports for the hospitals. The purpose of the reserve cost reports, the suit alleges, "was to set aside funds to repay the government in the event unallowable costs were eventually discovered."
"We vigorously deny that we engaged in any wrongdoing," said KPMG spokesman Robert Zeitlinger.
No trial date has been set.
To date, as part of an ongoing criminal Medicare fraud investigation of HCA, two executives were convicted of six counts of Medicare fraud and conspiracy in U.S. District Court in Tampa in July 1999. There was a hung jury on a third, who later signed a plea agreement to cooperate and avoid a second trial. A fourth executive was acquitted.
Three of the four were executives of the former Basic American.
In the original June 1997 criminal indictment against the Florida HCA executives, the Justice Department described two KPMG executives as co-conspirators in the case. During his courtroom testimony in May 1999, Schilling named the two as KPMG partners Robert Langston and Mark Nichols, neither of whom have been named in either civil or criminal lawsuits.
The Justice Department's announcement that it joined the lawsuit came less than one week after the General Accounting Office issued a six-page report that blasted HCFA for continuing to use KPMG as a federal contractor auditing Medicare cost reports, despite the accounting firm's connection with the HCA criminal fraud investigation. HCFA extended one-year contracts to KPMG annually. The report said HCFA knew or should have known that KPMG was alleged to have contributed to HCA's fraudulent billing actions.
Citing a lack of funds, HCFA stopped the program for both KPMG and four other accounting firms in September.
Schilling also filed a civil whistleblower fraud lawsuit against HCA in 1997. That suit also is pending in Tampa federal court. The Justice Department joined that suit as well.
"This is the first time the False Claims Act has been used against a major accounting firm for their knowledge and assistance of Medicare fraud," said Stephen Meagher, Schilling's attorney who is with the San Francisco law firm Phillips & Cohen.
Meagher estimated the alleged fraudulent overpayments to the five hospitals to be about $10 million between 1990 and 1992.
HCA spokesman Jeffrey Prescott said the cost reporting allegations are "the same old issues. This is between KPMG and the government."
The American Hospital Association is not surprised by the government's intervention, said Richard Wade, the AHA's senior vice president for communications.
"The federal government has been very aggressive on all aspects of these kinds of issues," Wade said.
Last year the AHA and the Healthcare Financial Management Association filed a brief in the case on behalf of KPMG and HCA, defending the practice of maintaining reserve cost reports.
"While the government intervention raises the stakes and the visibility of this case, we believe our original brief still (represents) a valid position," Wade said.
Richard Gundling, the HFMA's technical director, reiterated that position, saying the mere existence of a reserve cost report does not mean the filed report was incorrect or fraudulent.
"Because of generally accepted accounting principles, sometimes providers have to estimate the effects of potential adjustments, and this is done through the preparation of alternative cost reports," said Gundling. He added that increased government scrutiny of cost reports means accountants and auditors must be even more careful in their work.
KPMG's Zeitlinger said the GAO report paints a misleading and unfair picture of the company's limited involvement with HCA.
"Our role consisted of assisting (HCA) in the preparation of cost reports and reserve cost reports, which was a standard industry practice at the time," Zeitlinger said.
But Thomas Prince, a professor of health industry management, accounting and information at Evanston, Ill.-based Northwestern University, doesn't believe that the preparation of reserve cost reports is an accepted industry practice.
"It's not something we've taught is appropriate. And it was never an industry standard," said Prince, who is a consultant to both the AHA and the HFMA on a variety of issues.
"I don't think KPMG is the only big accounting firm advising hospitals in things like upcoding," said U.S. Rep. Fortney "Pete" Stark (D-Calif.). "This is the public's money. It's not just there to be dipped into. I'm pleased to see the suit go forward."