A common business practice of the 1990s came under government scrutiny last week as a Houston hospital became the first of what could be more than 30 hospitals to settle a Medicare cost-reporting fraud lawsuit, which also implicates a well-known reimbursement consulting firm.
On Feb. 27, the U.S. attorney in Los Angeles announced that Christus St. Joseph Hospital, a 424-bed Houston facility owned by Christus Health, Irving, Texas, will pay $1.56 million to resolve civil allegations that it knowingly failed to disclose a $794,000 overpayment on a Medicare cost report.
Christus St. Joseph settled without admitting legal wrongdoing. The hospital was one of several hundred that hired Healthcare Financial Advisors, Newport Beach, Calif., during the early and mid-1990s to reopen previously submitted Medicare cost reports.
HFA was the biggest and best-known of several industry "revenue recovery" experts that reviewed previously settled Medicare cost reports in hopes of obtaining additional reimbursement for hospitals and was paid based on the recoveries they made. HFA's clients included Tenet Healthcare Corp., Santa Barbara, Calif., and HCA, Nashville, among other national hospital chains.
The settlement shows the practice of hiring consultants to reopen cost reports on a contingency fee basis was suspect, because the contingency fee created incentives to pursue questionable recoveries, said Stephen Meagher, an attorney at Phillips & Cohen, San Francisco, who represents the whistleblower in the case.
"The law is that if you've received reimbursement to which you are not entitled, failing to disclose that is a felony," Meagher said. "HFA's records are a Rosetta stone to what providers knew."
Richard Clarke, president and chief executive officer of the 31,000-member Healthcare Financial Management Association, said the hospital practice of hiring revenue recovery experts to reopen cost reports was common in the early to mid-1990s.
"Receiving reimbursements at no cost to the hospital and paying from that found money was a fairly appealing business proposition to cash-strapped providers at the time," Clarke said. "Our position has been that charging on a contingency basis is not per se wrong and can even be a valid way to sell a product or service. The key is to make sure that the work of the company is adhering to the known laws. ... Both parties have the responsibility to be vigilant about the findings and must ensure that they are legitimate and valid."
The U.S. attorney's office in Los Angeles also is conducting a criminal investigation into HFA based on a 1998 civil whistleblower lawsuit filed by Mark Razin, a former Los Angeles-based analyst with HFA. The suit, filed in U.S. District Court in Los Angeles, is under seal.
The government intervened in the civil case two weeks ago, to date joining only allegations against Christus St. Joseph. "In the course of this investigation, we found evidence of an admission to (Christus St. Joseph's) cost-report consultant (HFA) that it had been overpaid on a specific issue," Assistant U.S. Attorney Wendy Weiss said in Los Angeles. Weiss said the hospital admitted, in a 1993 letter to HFA, to a 1988 Medicare cost-report overpayment.
"Christus St. Joseph learned of the government's concerns in November 2000. Hospital staff immediately began to work cooperatively with the U.S. attorney's office to promptly address and resolve the concerns," Christus St. Joseph Chief Executive Officer Sally Jeffcoat said in a written statement.