HealthSouth Corp., Birmingham, Ala., which had portrayed itself as one of the rare post-acute care companies to escape the 1990s unscathed by a fraud settlement, last week agreed to pay $7.9 million to settle Medicare fraud allegations.
The settlement, announced last week by the U.S. attorney's office in Birmingham, stems from a civil whistleblower lawsuit filed in December 1997 by a former HealthSouth reimbursement specialist. The U.S. Justice Department joined the case in 2000.
The suit alleged that the nation's largest rehabilitation hospital chain overcharged Medicare and other federal health programs for equipment and supplies bought through GG Enterprises, a company owned by HealthSouth President and Chief Executive Officer Richard Scrushy and Scrushy's mother and brother.
According to the government, HealthSouth paid prices above GG Enterprises' costs, violating federal regulations governing sale and leaseback transactions with related businesses. Medicare requires related companies to bill providers for no more than the cost of products or services and no more than the price of comparable goods or services available elsewhere.
HealthSouth denied any wrongdoing. In a written statement, Scrushy said the company cooperated with the government investigation and is "pleased to put this behind us. While we devote significant resources to complying with all reimbursement regulations, the volume and complexity of those regulations make it inevitable that differences in interpretation and even errors may occur."
HealthSouth Senior Vice President Tadd McVay said the company had never acknowledged the fraud lawsuit or investigation in any of its public filings previous to last week's settlement.
"We considered it miscellaneous litigation not material in impact on our earnings," said McVay, who characterized the allegations as differences in accounting practices.
He said in its public filings HealthSouth did reveal its dealings with GG Enterprises and noted: "We are not doing business with GG Enterprises and have not since 1999."
Douglas Jones, the U.S. attorney in Birmingham, praised HealthSouth for cooperating with the investigation and changing its practices.
"HealthSouth helped facilitate the settlement by being very forthcoming," Jones said. "They provided us with materials and documents that helped us resolve some important issues, some without monetary settlement and some that favored the company. It was the kind of cooperation you hope to get and I think it served both the taxpayers and the company well."
HealthSouth spent $79.3 million from 1994 to 1999 for computers, phone systems, printers and copiers from GG Enterprises and certified on its Medicare cost reports that the sum paid did not exceed GG Enterprises' costs, when company officials knew otherwise, the government alleged. HealthSouth bought equipment from GG Enterprises as early as 1989. The cost reports in question were submitted from 1992 to 1997.
According to the government, Scrushy's brother Gerald, who also is HealthSouth's senior vice president of physical resources, and their mother, Grace, owned GG Enterprises.
"We never found any evidence of any other customers besides HealthSouth," said Birmingham attorney Stephen Echsner of the firm Levin, Papantonio, who represents the whistleblower in the case, Greg Madrid.
The Alabama Department of Corporations has no listing for GG Enterprises. Jones said none of the Scrushy family members will face individual civil or criminal charges relating to the allegations.
"This is the end of the story," Jones said. "We accomplished everything we wanted to through the settlement."
The settlement also resolves allegations that HealthSouth overbilled federal health programs for lease payments and costs of an abandoned computer system. The company is required to sign a five-year corporate integrity agreement requiring a series of cost reporting and billing reviews, specific training and education for reimbursement personnel and a few changes to HealthSouth's existing compliance program.
Madrid will receive nearly $1.5 million of the settlement. He left HealthSouth in 1996.
HealthSouth owns 96 rehabilitation hospitals and provides outpatient surgery and diagnostic imaging services at more than 1,900 locations in the U.S., Puerto Rico, the United Kingdom and Australia.