Last week's news that executives from a suburban Chicago hospital had filed a civil whistle-blower lawsuit was unusual, healthcare attorneys say, not because of who was blowing the whistle, but because of whom the lawsuit targeted.
Generally, when hospital executives blow the whistle, it's on their own hospitals or their competitors. In the Illinois case, however, the lawsuit was brought against a former member of the Illinois Health Facilities Planning Board; a prominent investment banker and the national investment firm he heads; and the owner of a local construction company. The suit, filed under the federal False Claims Act, alleged kickbacks in the assignment of certificate-of-need approval to build a new hospital. The suit comes as many states are re-evaluating certificate-of-need programs two years after a similar scandal hit Tennessee's CON board.
The Illinois lawsuit was filed May 24 in U.S. District Court in Chicago by Pamela Meyer Davis, president and chief executive officer of Naperville, Ill.-based Edward Hospital, and by William Kottman, the hospital's vice president of physician integration. The government has not joined the suit. It names as defendants Jacob Kiferbaum, a principal at Deerfield, Ill.-based Kiferbaum Construction Corp.; Stuart Levine, a power broker who abruptly resigned from the CON board several weeks ago; Nicholas Hurtgen, who heads the Chicago office of investment bank Bear, Stearns & Co.; and Bear Stearns itself.
The Edward executives allege that Kiferbaum and Hurtgen said they were Levine's friends and told Davis that unless the hospital selected Bear Stearns to finance a $169 million hospital project in Plainfield, Ill., and used Kiferbaum to build it, the board would deny the CON. Davis refused and the board rejected Edward's proposal at its April meeting. However, the board did approve the first new Illinois hospital in more than 25 years. It was a proposal by Janesville, Wis.-based Mercy Alliance, parent corporation of the Mercy Health System, for a new hospital in Crystal Lake, Ill. Mercy hired Bear Stearns and Kiferbaum after its initial proposal was rejected by the board late last year.
Government sources told Modern Healthcare that all of the board members have received subpoenas and a criminal investigation is under way by U.S. Attorney Patrick Fitzgerald. Furthermore, last week Illinois House Speaker Michael Madigan introduced a bill that would dissolve the current board's membership and permit Gov. Rod Blagojevich to appoint new members to a smaller board, probably with only five members.
"We think a fresh slate is the best way to proceed," said Madigan spokesman Steve Brown.
Levine, Edward officials and members of the CON board either could not be reached for comment or refused to discuss the allegations. A spokeswoman for Bear Stearns said the company had not read the complaint and could not comment and Kiferbaum did not return phone calls. Ronald Osman and Robin Potter, the whistle-blower attorneys, also refused comment.
Washington healthcare defense attorney Robert Salcido of the firm Akin Gump Strauss Hauer & Feld, an expert on the False Claims Act, said the Edward lawsuit is "a novel theory."
Salcido said he knew of only two other whistle-blower suits filed against state healthcare authorities and said both were dismissed. "It's common for hospital executives to sue their own facilities, but the action described here is really bizarre," he said. Salcido said he has not seen the lawsuit, which remains under seal.
In most lawsuits, the connection between the bid-rigging and the damage to the government is more obvious, he said. In this case no false claim was directly submitted to the government. "That's where they may have a tough time," he said.
Local news reports said the lawsuit details refusals by Edward in November 2003 and April 2004 to the defendants' "kickback demands," noting that "a portion of the $1 million in costs expended by Edward Hospital for the failed construction project was paid by the government in Medicare and Medicaid cost adjustments and reimbursements." The lawsuit also details how Medicare and Medicaid paid some of the hospital's bond- financing costs.
American Hospital Association spokes-man Richard Wade said the AHA takes no position on CON programs. "(The AHA) doesn't get involved in any way," he said. "Our view is it's always a decision based on conditions within states."
Thomas Piper, a nationally recognized expert on state CON programs who directs the Missouri Health Facilities Review Committee in Jefferson City, Mo., said 36 states and the District of Columbia now operate CON programs.
Piper said the Illinois CON board case is not likely to affect CON programs in other states. He said a similar scandal in Tennessee resulted in that state's governor firing and replacing the entire board and re-creating the CON program there.
"There's no question that opportunistic antiregulation individuals will jump at the chance to discredit CONs," Piper said. "But at the last minute some of the states considering that option kept their programs instead, finding that they save money."