When former Columbia/HCA Healthcare Corp. executives Jay Jarrell and Robert Whiteside were first indicted in 1997 on criminal Medicare fraud charges, all hell broke loose for the company and, indirectly, the healthcare industry.
Nearly five years later, a federal appeals court has overturned their 1999 convictions, a ruling many lawyers believe may turn the tide in HCA's favor in its ongoing civil False Claims Act battle with prosecutors and two whistleblowers. To prosecutors and the hospital company's critics, that shift in momentum may be a sign that hell has frozen over.
A three-judge panel of the 11th U.S. Circuit Court of Appeals in Atlanta ruled March 22 that the government failed to prove its fraud allegations, saying the Medicare regulation the defendants were accused of fraudulently misinterpreting was open to more than one reasonable interpretation. Jarrell and Whiteside had been convicted of illegally conspiring to hide $3 million in Medicare overpayments to a Florida hospital bought in 1992 by an HCA predecessor company. Jarrell, 46, was chief executive officer of the company's Southwest Florida division, and Whiteside, 51, was director of the company's single markets division. Whiteside, contacted last week by Modern Healthcare, said he is starting the daunting process of rebuilding his life and career after the five-year ordeal (See related story, p. 7).
Jarrell and Whiteside were the first executives to be indicted and convicted in the sprawling probe of HCA's Medicare reimbursement strategies that reaches back to 1993. In December 2000, the company paid $840 million to settle some criminal and civil allegations resulting from the investigation. Potential civil claims related to cost-reporting fraud and physician kickbacks remain unresolved, although HCA last week agreed to pay the Centers for Medicare and Medicaid Services $250 million to settle Medicare cost report overpayments dating back to 1993 (See related story, p. 7).
Two other executives also were prosecuted in the case: Carl Lynn Dick, who was chief financial officer of Columbia's Central Florida division, and Michael Neeb, former CFO of Columbia's Jacksonville, Fla., division. At the 1999 trial in U.S. District Court in Tampa, Fla., Jarrell and Whiteside were convicted on six counts each of criminal Medicare fraud. The jury acquitted Neeb but could not reach a verdict on Dick, who later entered a "pretrial diversion program," a face-saving agreement for both sides in which Dick agreed to cooperate with prosecutors, while the government agreed not to try him again. Jarrell, who was sentenced to 33 months in prison, and Whiteside, who was sentenced to 24 months, have been free on bond. Both Dick and Neeb continue to work for HCA, their attorneys said.
The U.S. attorney's office in Tampa, which tried the case in U.S. District Court in Tampa, is aware of the ruling but has made no decision on whether to appeal it, Assistant U.S. Attorney Jay Trezevant said last week. Prosecutors could ask the full 11th Circuit Court to reconsider the ruling or they could appeal directly to the U.S. Supreme Court.
Cheering, jeering-the industry, critics
Thomas Dolan, president and CEO of the American College of Healthcare Executives, said the ruling is a shot in the arm for his group's 30,000 members. "It reinforces just how complex and confusing Medicare and Medicaid regulations are," Dolan said.
The high-profile reversal could improve industry morale, Dolan said. "No one wants to be viewed as a crook," he said. "Assuming just because somebody might make an error in interpreting a regulation doesn't make them a crook."
Dolan also said he believes the ruling will underscore the call for clearer CMS regulations, and he said he expects that call will be heeded.
Last month, Modern Healthcare published an expose on the crackdown on white-collar crime in healthcare, which is partly a result of the HCA investigation (March 18, p. 6).
"President Bush has a different philosophy than President Clinton did," Dolan said. "We have a new head of CMS-Tom Scully has a strong healthcare background. There's already been a change, and this will reinforce that change."
Not everyone was so thrilled.
Calling the opinion "ridiculous," James Moorman, president and CEO of Taxpayers Against Fraud, which strongly supports False Claims Act cases, said, "This case is written as if anybody's interpretation is as good as the government's." He said courts have normally deferred to a federal government agency's interpretation of its own rules, but this court gave the defendants much greater leeway to interpret the regulations in their favor.
Jeering and cheering-the lawyers
Healthcare defense attorneys, and even one federal prosecutor, agreed that the appeals court ruling would make it easier to defend against criminal charges related to cost reporting. The 11th Circuit ruling holds force of law only in Alabama, Florida and Georgia, but it could be cited by defense attorneys to bolster their arguments in cases nationwide.
The trial primarily involved the classification of interest expense on Medicare cost reports. The defendants were accused of fraudulently claiming that 100% of the interest on a loan to 249-bed Fawcett Memorial Hospital, Port Charlotte, Fla., was related to capital expenses when, prosecutors alleged, they knew that some percentage of the expenses should have been considered operating expenses.
Interest expense attributable to capital spending was reimbursed at a higher rate, and prosecutors said the alleged misclassification resulted in overpayments of more than $2.7 million from the Medicare program, $184,000 from Florida's Medicaid program and about $32,000 from the federal Civilian Health and Medical Program of the Uniformed Services.
Federal prosecutors who have worked on healthcare fraud cases and who requested anonymity differed in their views of the ruling. One described the outcome as a "failure of proof" case that would not change the law and would not have an impact on future cases.
"It's not sending up any alarms for me," said the Justice Department attorney, who asked not to be identified. "Cost report cases are boring and hard as hell to try. It's difficult to get a jury (excited) about them." The attorney expects prosecutors to appeal to the full 11th Circuit.
An assistant U.S. attorney called the verdict very significant but said the appeals court made the right decision. "If there are differences of opinion, and you can't prove beyond a reasonable doubt that a law was violated, you can't send somebody to jail," he said.
He said defense attorneys, as a result of this decision, will have a stronger argument that every fraud allegation is merely an overpayment. He said the reversal makes it more likely that the Justice Department will quickly settle the Medicare cost-reporting lawsuits against HCA. "This won't affect the kickback cases," he said. "But cost-reporting cases are hard to begin with, and this just raises the bar."
Charles Lembcke, the attorney who represented Whiteside at the trial, agreed. "I think the (appeals court) has found that there were no false statements, and the implications of that are significant under the False Claims Act," he said.
Broader implications for HCA
Walter Loughlin, a New York attorney representing HCA, was more cautious in his assessment. "I think the most significant aspect of the opinion is that it is a recognition, by a very important court, of arguments that we have made to the government for many years about the cost-reporting process," he said. Loughlin added that the court ruled "that reasonable interpretations of complex, ambiguous, unclear regulations can't be false. That's something that the government has to come to grips with."
HCA wasted no time in making that argument, filing a memorandum in U.S. District Court in Washington late last week that recounted the court ruling before a federal judge who is overseeing the civil cost-reporting case against the company. The memorandum attempted to bolster HCA's Jan. 28 motion to force prosecutors to tell current and former HCA executives whether they are targets of the federal criminal investigation (Feb. 18, p. 10).
"With the reversal of the Whiteside and Jarrell convictions, not a single individual has been convicted as a result of this seemingly limitless cost-report investigation," the memorandum reads (HCA's emphasis), although it also notes that a company subsidiary did plead guilty to criminal violations. HCA's lawyers argue that the prosecution of Whiteside and Jarrell "validates the reasonable fear of (unwarranted) prosecution" (HCA's parentheses) held by the current and former HCA executives.
Stephen Meagher is the attorney representing John Schilling, the Columbia/HCA whistleblower whose allegations formed the basis of the criminal case against Dick, Jarrell, Neeb and Whiteside and the still-pending civil lawsuit against HCA under the False Claims Act. Meagher said HCA is trying to stall the case.
"If their current interpretation (of the appeals court opinion) is accurate, we hope to have access in depositions to their executives real soon," he said.
HCA spokesman Jeff Prescott said the company doesn't want some former midlevel executives to take the Fifth Amendment right against self-incrimination when they are deposed just because they are concerned about personal criminal liability. "We want them to tell their stories," he said. "We think they're good stories."
Meagher said Schilling is happy that his former co-workers won't be going to prison. However, Schilling "continues to believe that this was a false claim, and nothing in the opinion calls that into question," Meagher said. "The company's guilty plea established that long ago. It's already done."