Speculation that the federal government has been backing off on efforts to fight healthcare fraud were temporarily put to rest last week, capped by HCA's nearly $900 million fraud settlement with the federal government. Last week also saw another federal raid on a hospital owned by Tenet Healthcare Corp., and the U.S. Justice Department's participation in a pending whistleblower Medicare fraud lawsuit against 27 hospitals accused of improperly billing the government for the use of investigational cardiac devices.
Legal experts agreed that while the year-end spate of federal enforcement activity may demonstrate that government enforcement efforts still have a pulse, it doesn't indicate that the pendulum is swinging back to the highly aggressive push of the mid- to late 1990s.
"HCA and the cardiac device suits go back many years. While whistleblower lawsuit filings are down, I think we'll see fewer settlements, but the cases filed will have more deterrent effect and broader recoveries," said healthcare defense lawyer Gabriel Imperato of Broad & Cassel in Fort Lauderdale, Fla. He is a former lawyer with HHS' inspector general's office. "The take-home message from this is no different for providers than what they've been taking home for years," Imperato said.
Richard Coorsh, spokesman for the Federation of American Hospitals, which represents for-profit hospitals including its largest member, HCA, said his group doesn't comment on company-specific situations such as this.
Executives of the Healthcare Financial Management Association--whose organization long defended the accounting practice of maintaining reserve Medicare cost reports, a practice that came under fire in the HCA case--could not be reached for comment.
American Hospital Association spokesman Richard Wade said the AHA shares HCA's relief that the long-running legal drama is approaching closure. "Like HCA, we're glad this is over and behind them. It's no longer an issue and no longer the subject of headlines," Wade said.
But Wade also doubts the pendulum is swinging back. "I don't think this demonstrates any kind of new pattern for the government," Wade said. "They (federal fraud fighters) have been pretty consistent in saying that they will be aggressive when they see inappropriate behavior and in our members' eyes they have never let up. We don't see this as a bounce-back because we don't think it's ever stopped. They have just shifted to different sectors of the healthcare industry."
In light of federal budget deficits and the growing cost of healthcare, the government must remain vigilant in rooting out fraud in healthcare, Wade said. "I don't see the HCA settlement as an icon for anything else," he said. "We think it's legitimate for the government to investigate inappropriate behavior. We have expressed our concerns that mistakes and errors shouldn't be treated as criminal behavior, and we think our message has been heard in Washington."
HCA settlement terms
If approved by a federal judge, whistleblowers and senior Justice Department officials, the $898.5 million HCA settlement closes the door on the nation's largest, longest and costliest healthcare fraud investigation, a case dating back to 1993. The nation's largest hospital chain will pay $631 million to the Justice Department to resolve eight whistleblower lawsuits that allege the company falsified Medicare cost reports, paid kickbacks to physicians for patient referrals and submitted false wound-care claims. In addition, the company has committed to pay $17.5 million to state Medicaid departments to resolve similar allegations and will proceed in paying $250 million in nonfraud-related cost report overpayments to the Centers for Medicare and Medicaid Services. HCA also will pay a still-undisclosed amount for plaintiffs' legal bills.
Modern Healthcare first disclosed the settlement on Dec. 17 on its Web site, modernhealthcare.com.
Until the final settlement papers are approved, it's unclear whether HCA will admit to any wrongdoing under the agreement with the government.
The Justice Department has been tight-lipped about the new settlement. Two years ago, when the company paid $840 million to settle other criminal and civil fraud charges, the government called a press conference and marched a slew of high-ranking officials from the FBI, Justice Department and HHS' inspector general's office to the podium. This time around, the department issued a guarded, one-paragraph release confirming the settlement and noting that further approvals are required.
The combined 2000 and pending 2003 settlements, totaling more than $1.7 billion even when the $250 million nonfraud-related refund is excluded, are nearly double the record healthcare fraud settlement of $875 million agreed to in October 2001 by TAP Pharmaceutical Products (Oct. 8, 2001, p. 8). Still, HCA's hit should barely dent the nation's largest hospital chain, which turned a $935 million profit on $14.7 billion in revenue through the first nine months of this year.
If HCA was celebrating, it did not uncork any bottles publicly. There were no press conferences. Neither Jack Bovender Jr., HCA's chairman and chief executive officer, nor co-founder and former Chairman and CEO Thomas Frist Jr., M.D., was available for comment.
In a written statement, Bovender said that the company was pleased to negotiate the settlement. "Today, we are a stronger company with a corporate integrity agreement, a corporate compliance initiative that has set the standard for many in our industry and a culture that is focused on the delivery of quality patient care in the communities we serve," Bovender said.
"I think this marks the end of HCA's legal battle with Justice," said Darren Lehrich, a healthcare analyst with investment bank SunTrust Robinson Humphrey Capital Markets, Atlanta. "My sense is that the sheriff's posse has moved from Nashville and has bigger fish to fry in the pharmaceutical industry."
Lehrich said he knows of no other significant legal problems looming for HCA. "And hopefully there never will be, though in a highly regulated business like healthcare, there are constantly things nibbling at the edges. My sense is that there's going to be constant vigilance by the Justice Department and the HHS' inspector general, and that will keep hospitals on their toes."
Flies in the ointment
However, any giddiness could be premature. The individuals who first attracted federal attention to the company's business practices, whistleblowers James Alderson and John Schilling, may yet rain on HCA's parade and challenge the settlement. Their attorneys said they plan to review the $898.5 million settlement terms to see if they are fair and adequate. By law, the whistleblowers must sign off on the settlement before it is finalized.
Stephen Meagher of Phillips & Cohen, San Francisco, said his clients will evaluate the proposed agreement to see how it breaks down. Neither the Justice Department nor HCA has explained how the $631 million is to be divided among the cost-report, kickback and wound-care allegations.
"There will be negotiations with the Justice Department, and we're hopeful we can reach an agreement with them," Meagher said. "This is by and large a favorable result, and we hope they will consider the contributions of the whistleblowers and be fair."
John Phillips, a lawyer with Phillips & Cohen, said more than 40 private lawyers logged more than 75,000 hours and billed $30 million in legal fees to work the case and support the Justice Department.
In the cost-reporting case alone, the whistleblowers claim to have documented more than $600 million in alleged overpayments to HCA stemming from nonreimbursable costs claimed on fraudulently filed cost reports. The False Claims Act allows whistleblowers to collect a share of the settlement. The whistleblowers claim that at least $180 million of that $600 million is in lawsuit allegations that the government declined to join. The whistleblowers are free to pursue those allegations themselves on behalf of the government and that portion of the suit is not resolved by last week's settlement.
Since March, when HCA announced the tentative $250 million settlement of the cost-report overpayments with the CMS, that proposed agreement has been in limbo. The Justice Department and the CMS have declined to release it publicly.
Sen. Charles Grassley (R-Iowa), the incoming chairman of the Senate Finance Committee, began looking into the negotiation of that settlement and has questioned CMS Administrator Thomas Scully about it. Grassley and his staff wonder whether Scully, past president of the FAH, may have interceded on behalf of his association's former members--an allegation Scully has vehemently denied.
Grassley said he was concerned that the deal may have cheated taxpayers. He remained skeptical after last week's proposed settlement, saying his questions have not been answered.
"I haven't seen the statistical evidence to show this settlement will fairly compensate the taxpayers for their losses," he said in a written statement. "This settlement can't be a Christmas gift to HCA and a lump of coal for taxpayers."
Senate Finance Committee staffers said Grassley has not received the answers he's seeking from the CMS. "There's been a lot of stonewalling from that office," the committee source said. "It's too premature to know whether this settlement is a good thing. We just don't have the information we need to evaluate it."
Separately, Grassley in October called on the U.S. General Accounting Office to review HHS Inspector General Janet Rehnquist's performance during her 15 months on the job. Grassley said that since Rehnquist, the daughter of U.S. Supreme Court Chief Justice William Rehnquist and a former assistant U.S. attorney in Virginia, took office there have been 19 key personnel changes in the agency. Grassley asked the GAO whether Rehnquist, a classmate of Scully's, was eroding the office's performance and weakening the policing of healthcare fraud through her moves. Rehnquist has rebutted Grassley's assertions.
Lawsuits, recoveries and raids
Other developments last week seemed to dispel concerns that the government was backing off on fighting fraud.
For example, the Justice Department joined civil whistleblower lawsuits filed against 27 hospitals around the country. The suits allege that the hospitals billed Medicare for cardiac procedures performed on patients using investigational devices not approved by the U.S. Food and Drug Administration.
The suits stem from whistleblower suits filed in 1994 under the federal False Claims Act by former medical equipment salesman Kevin Cosens, who accused 132 hospitals of defrauding Medicare by more than $200 million from 1986 to 1995. The government has settled similar allegations with 31 hospitals for $42 million and is finalizing settlements with two others. Charges against 50 hospitals have been dropped.
Leonard Homer of Ober, Kaler, Grimes & Shriver in Baltimore, whose firm represents 10 hospitals still facing allegations, said his clients plan to contest the allegations in court unless the government offers a low settlement. A Justice Department spokesman said there would be announcements about more hospitals soon.
Also last week, the Justice Department announced it had recovered more than $1.2 billion from fraud investigations and suits, including $980 million from healthcare organizations, in fiscal 2002 ended Sept. 30. This marks the third consecutive year Justice Department recoveries have topped $1 billion.
And, Santa Barbara, Calif.-based Tenet last week said that federal investigators raided 193-bed Alvarado Hospital Medical Center, San Diego, the second raid on a Tenet hospital in the past three months (See story, p. 7).
Meanwhile, HCA spokesman Jeffrey Prescott said the company will pay whistleblower legal fees and expenses and conceded that the whistleblowers are free to continue their lawsuit against HCA for the cost-reporting claims in which the government chose not to intervene. "However, history tells us those suits are not as successful as when the government intervenes," he said.
Prescott said HCA still has $250 million remaining from the $1 billion letter of credit it signed over to the Justice Department before the 2000 settlement. He said the company likely will borrow the remaining money from banks, but isn't obligated to pay until the agreement is signed.
He said no defining event paved the way for the settlement deal. Though he acknowledged that the Grassley inquiry and the upcoming depositions of Frist and Bovender in preparation for a trial may have played a distant role, he said the decision to settle came down to money.
"We got to the point where we were comfortable with the figure and they (Justice Department lawyers) were comfortable. Both parties came together and worked things out," Prescott said. "It was really about the numbers. From our standpoint, more evolution than revolution, more process than event. There was no bellwether event behind it. Finally, we have closure and that feels good."
Two whistleblowers shared that emotion.
Alderson, who filed the first whistleblower suit in 1993, said he's relieved the long process is finally nearing completion. "It's a relief," said Alderson, likening the proposed settlement to a vindication. "It's almost like that biblical passage: `The truth shall set you free.' Once people found out the truth, they understood. It's still hard to comprehend how big they (HCA) are, and the vast resources they have. I just wish now that everything would be over."
Alderson added, "I am very appreciative of what the Department of Justice and our attorneys did for me. This is how the False Claims Act was intended to work."
James Thompson, M.D., whose 1995 whistleblower suit alleging an HCA predecessor company hospital paid kickbacks to physicians, said in a written statement he's proud of his actions. "But I'm sure glad it's over," said Thompson, who suffered a stroke in 1998 because of stress and no longer practices medicine. "I stood up for what I believed and it cost me, but I'd do it again because it was right."
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