On March 7, Catherine Baker pleaded guilty to one count of mail fraud in federal court in Philadelphia and remains free on a $50,000 bond pending a June 4 sentencing hearing. She faces a prison term of 12 to 18 months.
If Baker, 36, goes to jail, she'll join the growing number of healthcare executives who are spending time behind bars either for stealing their institutions' money or involving their institutions in some illegal money-making scheme. Other executives have been charged or indicted, and untold numbers are being investigated.
Baker, a former business administrator at the University of Pennsylvania Medical Center's orthopedic surgery department, embezzled $271,064 from the hospital through 25 checks she drew from two hospital accounts from 1999 to February 2001, when she resigned from the medical center. She agreed to forfeit assets she acquired as a result of the theft, including $219,442 in cash, a 1997 Cadillac and several pieces of jewelry.
Since the Enron scandal, lawmakers and the public are wringing their hands over how to punish white-collar crime by corporate executives. If they want to find out how it's done, all they have to do is look at the healthcare industry, which has been cracking down on white-collar crime for the past five years.
Driving the crackdown is a confluence of factors, including escalating whistleblower lawsuits, a decade-long effort to halt Medicare and Medicaid fraud, and new prison-sentencing guidelines.
Those efforts were bolstered by tougher federal laws that expanded resources for federal fraud fighters from the U.S. Department of Justice, U.S. attorneys' offices and the FBI. Former U.S. Attorney General Janet Reno set combating healthcare fraud as her No. 2 priority after the war on drugs. The Health Insurance Portability and Accountability Act of 1996 and the Balanced Budget Act of 1997 dramatically increased funding, manpower and training for those agencies. Healthcare fraud task forces since organized within U.S. attorney offices marshal resources from several formerly rival investigative agencies to better fight fraud.
Crooked healthcare executives have become the unlucky targets of those efforts. They are being held criminally accountable for shady business dealings and corrupt practices that previously may have resulted in quiet dismissals.
Scott Becker, a healthcare lawyer with the Chicago office of Ross & Hardies, recalled that 10 years ago few expected executives to go to prison for healthcare crimes.
"The perception was that you paid a big-dollar settlement, got probation, avoided exclusion (from Medicare and Medicaid) and nobody went to jail. White-collar criminals were treated differently than blue-collar offenders then," Becker said. "The government saw that this wasn't an appropriate message to send."
Now crooked healthcare executives, such as Dan Anderson who was convicted in 1999 of paying kickbacks for patient referrals after a highly publicized trial in U.S. District Court in Kansas City, Kan., are receiving lengthy prison sentences rather than probation.
That's partly because the federal government has a new tool to deter and combat fraud: tougher sentencing guidelines. They went into effect November 2001 and automatically increase prison sentences for some crimes.
Gail Zweig, assistant U.S. attorney in Camden, N.J., said the old sentencing guidelines offered judges more discretion in sentencing, allowing them in some cases to sentence nonviolent white-collar criminals to a slap on the wrist.
But Zweig said the revised guidelines now require prison time for some healthcare-related crimes. Those cases are only now winding through the judicial system.
"That's why we're seeing more people going to jail in the last five years," she said.
Richard Wade, American Hospital Association spokesman, said another reason more hospital executives are wearing orange jumpsuits is attributable to a change in public perception about hospitals.
Wade said that when costs rose dramatically in the 1980s and 1990s, and financial disciplines and modern business practices were introduced to the gentlemanly world of not-for-profit hospitals, the public ceased to regard hospitals as charitable institutions. "That image has faded because of the taking on of corporate language and appearances, and the cutthroat, competitive environment hospitals operate in," Wade said.
Still, the vast majority of hospital and healthcare executives dealt with the same financial and ethical pressures and handled them ethically and legally, Wade said.
"These cases constitute only a handful out of the universe of hospital executives," he said, adding that members tell him it's important to ferret out the bad apples from the industry. "When you catch the criminals and root out the fraud and abuse, it's good for everyone."
Several legal and healthcare experts said the possible penal future for healthcare executives may not be as harsh under the Bush administration. Some said they believe the enforcement pendulum may slow, if not swing away, from the aggressive fraud-enforcement stance of the Clinton administration, especially with new targets such as terrorism and white-collar crime in other segments of the corporate world.
Richard Clarke, president and chief executive officer of the Healthcare Financial Management Association in Westchester, Ill., said Bush officials have adopted a more open approach to defining healthcare fraud and have welcomed more industry comment.
"There was a time when the government was overly zealous," Clarke said. "Now there is a better understanding of what constitutes a pattern of illegal activities that amount to fraud, as opposed to just errors."
That anticipated leniency comes a little too late for a number of healthcare executives who have exchanged their office suites for 10-by-10 cells.
Anderson, for example, led the privileged life of a highly compensated hospital CEO in Kansas City, Mo., until his conviction for paying physicians kickbacks for patient referrals.
As CEO of 265-bed Baptist Medical Center, Anderson averaged more than $400,000 per year in salary and bonuses in the 1990s. He lived in the affluent suburb of Overland Park and drove a luxury sedan to work. He dined at pricey five-star restaurants and stayed at upscale hotels such as the Four Seasons when he traveled for professional conferences, according to friends, acquaintances and published reports.
But since February when he began serving his sentence of four years and three months, Anderson has eaten for as little as $2.45 a day-the Federal Bureau of Prisons' daily spending ration per inmate for food. He now resides at the Federal Prison Camp outside the famous Leavenworth penitentiary in Kansas.
Once inside the federal penal system, the former executives find life is very different from the cushy existence they once knew. Though most convicted healthcare executives don't serve their sentences in the toughest, maximum-security prisons such as the penitentiaries in Marion, Ill., and Leavenworth, they lose their freedom and live behind bars away from family and friends.
Criminal defense lawyer Michael Kendall of McDermott, Will & Emery in Boston said white-collar executives fear the loss of autonomy and control. "Everything is regimented, from where and when you eat and sleep to what you can do, and these are people who aren't used to having their lives regimented," Kendall said.
Anderson's Kansas City lawyer, James Wyrsch of Wyrsch, Hobbs & Mirakian, said his client, the first hospital executive ever convicted under the kickback provisions of the Medicare and Medicaid fraud and abuse statutes, has adjusted well to his new environs.
"He has tremendous strength of character, a deep spiritual belief in God and a wonderful philosophy about life," Wyrsch said. "He's accepted it and gone about his business."
Anderson and the other healthcare executives in this story declined Modern Healthcare's requests for interviews.
Other healthcare executives serving sentences in federal prisons include:
* Roger Ehmen, former senior vice president of 160-bed Edgewater Medical Center in Chicago who pleaded guilty last year to racketeering and conspiracy charges. Federal prosecutors charged Ehmen with paying kickbacks to physicians, conspiring to defraud Medicare of $10 million and participating in an elaborate, ongoing patient-recruiting scheme that lured patients from homeless populations and senior-housing projects to the hospital. Ehmen is serving his 61/2-year sentence at the Oxford (Wis.) Federal Prison Camp. There, spokeswoman Linette Ritter said, he works as an orderly performing janitorial work.
* Joseph Michael Galvin Jr., another former hospital CEO, is enjoying the hospitality of Uncle Sam in Florida. Galvin, former president of 108-bed Memorial Hospital of Salem (N.J.) County, was convicted of tax evasion. He failed to pay taxes on the estimated $310,000 in personal expenses he siphoned from the hospital from 1992 to 1995. He began his five-month sentence last year and is now in a Miami halfway house, the Salvation Army Community Corrections Center, preparing for an April release.
* Wilfred Menke, the former vice president of 215-bed Flowers Hospital in Dothan, Ala., might be able to hear the engines on a still summer night at the Talladega Superspeedway 15 miles away. But Menke will have to wait until his July release to see an event there. Last summer, he began serving his two-year sentence for failing to report bonuses and kickbacks on his 1993 tax return.
Thomas Dolan, president and CEO of the 30,000-member American College of Healthcare Executives, said convicted members are expelled from the Chicago-based ACHE once the legal process has run its course. Most disgraced members drop out or fail to renew their membership, Dolan said, and estimated that the ACHE expels an average of one member per year. "When someone clearly violates the law, they deserve the punishment," he said. "But they're still human beings who can be rehabilitated and go on to lead productive lives. And if requested, we would try to help."