Sending a strong message that accountants and consultants can be held accountable for false Medicare cost reports filed by provider clients, the U.S. Justice Department last week announced the settlement of a civil fraud lawsuit against accounting giant KPMG.
KPMG, a Dutch company with U.S. headquarters in New York, agreed to pay $9 million to resolve allegations that it helped six hospitals owned by an HCA predecessor company, Basic American Medical, defraud Medicare and Medicaid by preparing and certifying false cost reports. KPMG allegedly falsified cost reports for 1990 and 1991 and submitted false claims based on those reports from 1990 to 1993.
The company did not admit guilt in the settlement, and no criminal charges were filed against it.
"We have agreed to settle to avoid the cost of litigation and put this decade-old matter behind us," KPMG spokesman Robert Zeitlinger said. "We vigorously deny that we engaged in any wrongdoing."
Richard Clarke, president and chief executive officer of the Westchester, Ill.-based Healthcare Financial Management Association, a membership organization for health finance professionals, said his members are concerned about the KPMG case and what Clarke characterized as a government practice of applying contemporary standards to transactions that occurred 10 years ago.
"But the good news is, these cases are getting settled, and the more cases are settled, the more these issues are clarified," said Clarke, whose organization filed a friend-of-the-court brief challenging the government's approach to cost-reporting fraud in a whistleblower suit against Brentwood, Tenn.-based Quorum Health Group.
That 1993 lawsuit alleged that Quorum and its hospitals prepared two sets of cost reports. One set was a reserve detailing actual costs. The other was padded with extra costs and submitted to fiscal intermediaries for payment. The government joined that suit in 1998.
The HFMA's brief argued that reserve cost reports are routine among hospitals and nothing is inherently fraudulent about failing to submit reserve work papers with Medicare cost reports. The HFMA, which was joined in filing the amicus briefs by the American Hospital Association, took no position on the case itself.
Five Basic American hospitals in Florida and one in Kentucky hired KPMG, formerly KPMG Peat Marwick, as a reimbursement consultant and to prepare cost reports. HCA acquired Basic American in 1992.
John Schilling, a former reimbursement supervisor for HCA's southwest Florida division, filed a civil lawsuit in 1998 against the accounting firm alleging cost-reporting fraud, and the Justice Department joined the suit in 2000. Schilling had sued HCA on the same grounds in 1996.
"I think this is a significant case that will impact the whole consulting industry. It's the first time a consultant has been held responsible for perpetuating cost-report fraud," Schilling said.
In a written statement, the Justice Department alleged that KPMG "knowingly made claims for repayment on behalf of its client hospitals that were false, exaggerated, or ineligible for payment and concealed errors from government auditors."
The settlement was filed on Oct. 23 in U.S. District Court in Tampa, Fla. The case against KPMG is not as important as it once would have been because Medicare cost reports are being phased out, said Thomas Prince, a management professor at Northwestern University, Evanston, Ill. Still, KPMG is the only Big Five accounting firm to have settled allegations of cost-reporting fraud.
Although the company received less than $200,000 for its work with the hospitals, under the settlement it will pay more than the government's full loss attributed to the alleged cost-reporting fraud, said Stephen Meagher, an attorney for Schilling. Meagher is a lawyer at Phillips & Cohen, San Francisco.
The alleged overpayments to the six hospitals amounted to $7 million. Schilling is expected to receive $1.8 million of the recovery.