As the U.S. Justice Department's 9-year-old investigation into Medicare cost-reporting fraud at Nashville-based HCA chugs ahead on a dual legal track, the whistleblowers have brought in some big guns to get ready for court. Sources on both sides said the probe could climax in either one of the largest civil settlements ever or a humdinger of a trial.
The government's case is based on civil whistleblower lawsuits filed in 1993 by James Alderson, former chief financial officer of North Valley Hospital in Whitefish, Mont., then managed by Quorum Health Resources, and in 1996 by John Schilling, a reimbursement supervisor at several Florida hospitals operated by HCA's predecessor.
Those suits alleged a pattern of filing dual sets of Medicare cost reports that HCA employees were forbidden to share with fiscal intermediaries and government auditors. Those cost reports allegedly recorded thousands of unreimbursable items for which HCA predecessor hospitals received more than $450 million.
HCA already has paid $845 million to settle civil allegations of DRG upcoding, home health fraud and laboratory unbundling. The unresolved aspects of the investigation include allegations of kickbacks in exchange for physician referrals and Medicare cost-reporting fraud. HCA signed a corporate criminal plea agreement admitting to criminal violations of all of the civil conduct alleged in the settled lawsuits. As much as $1.5 billion could be at stake under the triple damages provision of the federal False Claims Act. But despite months of negotiations, HCA and the Justice Department have not resolved those civil allegations and no new settlement talks have been held since April 2001.
Although no trial date has yet been set, both sides have filed motions seeking information, and depositions begin this month in Nashville and other locations. Several current and former HCA officials are scheduled to be deposed, according to court documents filed in Washington. Company co-founder Thomas Frist, Jr., M.D., who retired this month; Jack Bovender, Jr., HCA's current chairman and chief executive officer; and former HCA Chairman Clayton McWhorter are among them. Also on the list are Richard Scott, the company's former CEO, and Samuel Greco, a former executive vice president of financial operations. The HCA criminal plea does not release any former executives from criminal prosecution. Plaintiff lawyers said they intend to depose David Vandewater, the company's former president and chief operating officer.
In November and December the whistleblowers hired four litigation law firms, including Boies, Schiller & Flexner, led by high-profile lawyer David Boies, who represented the Justice Department in the Microsoft antitrust trial and former Vice President Al Gore in the Florida vote recount case. The plaintiffs have a combined litigation team of more than 35 lawyers.
Last April Justice Department lawyers offered to settle the case with HCA for an amount rumored at $800 million to $1 billion, nearly double the alleged damages, health lawyers familiar with the case said. In response, Bovender told HCA shareholders at an annual meeting last year that the company and the government were still far apart on the value of the Medicare overpayments.
HCA spokesman Jeffrey Prescott said the company has a fair estimate of the damages for purposes of a settlement.
"We know what this case is worth," he said.
The investigation has exacted a financial toll from the company. In addition to paying $845 million plus $39 million in interest for the settlement, HCA's 2000 annual report showed it spent more than $224 million from 1998 to 2000 in legal, investigative and accounting fees.
Prescott confirmed that the company is preparing for a trial at the same time it hopes to settle, "because you never know which way things will go."