Court vindicates provider in fraud and abuse case

Feds blamed for `reckless disregard for the truth'

When Elliott Ness and his group of federal agents were dubbed "The Untouchables" in their fight against Al Capone's crime empire in the 1920s, it was because they were incorruptible. They couldn't be "touched" by bribes.

In the 1990s, however, some federal agents apparently think "untouchable" applies to their methods of investigation of home health providers, which often sidestep due process in an attempt to get a Medicare fraud conviction. Attitudes at the federal level seem to run along these lines: You are a home health provider; you are filing for reimbursements for services under Medicare; therefore, you must be corrupt.

But federal agents, like the rest of us, are subject to the law, a fact the United States Fourth Circuit Court of Appeals made clear last September by denouncing investigators' actions in the case of a North Carolina home health agency accused of Medicare fraud as "reckless disregard for the truth."

The appeals court supported the 1996 finding of a federal magistrate in North Carolina in the case of Home Health and Hospice Care of Goldsboro, NC v. the United States of America.1 U.S. Magistrate Alexander B. Denson declared that investigators had obtained the search warrant using false information for their 1995 raid of Home Health and Hospice Care.

Denson wrote in his decision: "The court finds that the false information was included in the search warrant affidavit knowingly and intentionally or with reckless disregard for the truth and that the material omissions were omitted with the intent to mislead or with reckless disregard as to whether omitting the information would mislead the court."

No indictments were ever returned against the nonprofit agency, whose 10 branches serve more than 5,000 patients from Raleigh, NC, to the Atlantic Coast - but not because the government didn't try. Jan. 19, 1995, federal and state agents arrived unannounced at eight branch offices of Home Health and Hospice. After searching for hours, while keeping employees from even going to the restroom, agents packed up 500 boxes containing 5 million documents, it has been reported, and drove off. For the next 21¼2 years, the government pursued its case vigorously, and as it turned out, illegally, while forcing 3HC to work without medical charts, billing records, even physician orders.

Local news media, of course, jumped on the story, providing wide coverage of the investigation on television and in print, while dealing a staggering blow to the agency's reputation in the community.

Now Home Health and Hospice Care has filed suit under the Equal Access to Justice Act (EAJA) to recover more than $533,000 from the government for costs related to the illegal search. The statute allows nonprofit organizations and other small businesses to recover legal fees and expenses incurred during litigation with the government. The government has since returned the agency's records.

The suit, filed Dec. 31, 1997, is still pending, reports 3HC president Beverly Withrow.

The high cost of proving innocence

"The government's agents clearly stepped way across the line," says Withrow, a minister's wife who started as a volunteer at 3HC. "No less than the judges of the Fourth Circuit Court of Appeals unanimously denounced their actions as `misleading and amounted to deliberate falsehood or reckless disregard for the truth.' These agents' misconduct was very costly for our nonprofit agency. We are asking now simply that the government reimburse us for money we had to spend proving our innocence. That's only fair."

The government accused 3HC of billing Medicare and Medicaid for services not rendered and said the agency falsified patient records. In one case, the agency was accused of billing Medicare for services that allegedly were rendered after the patient died. None of these allegations were proved true.

The government's agents, which included representatives of the U.S. Attorney's Office, the FBI, the Internal Revenue Service, and the state of North Carolina Attorney General's Office, built their case on interviews conducted with three unidentified informants, known only as CI-1, CI-2, and CI-3. Their warrant suggested the three were 3HC employees.

In court hearings before Denson, 3HC's attorney, David Queen, JD, of Baltimore, a former federal prosecutor and deputy U.S. Treasury secretary, grilled government agents on discrepancies between the search warrant and a memo prepared the day after agents had interviewed the informant known as CI-1. The informant, a special programs director at 3HC named Bobby Shoemake, talked with investigators at his home in 1994. At the hearing, he testified that the warrant affidavit distorted what he had said. Denson agreed, citing five areas of either bungling or outright false statements:

· Shoemake never told the agents that records were falsified.

· The affidavit falsely stated that 3HC billed for services not rendered. On the stand, federal agent Berlin admitted this was not true.

· The agents misrepresented Medicare and Medicaid rules.

· Shoemake did not tell agents that he had personal knowledge that 3HC workers spent nights and weekends altering documents as the government said.

· The agents made the standard practice of revising patient records look suspect and intentionally deceitful, yet their notes of interviews with Shoemake showed no such deceitful intent.

In the matter of the deceased patient, the allegation was false, and it was disclosed that agents did not take the easy steps to verify it. "The agents could have reviewed the records," notes Withrow, "but they didn't. There were no records at Palmetto [government fiscal intermediary] that said we were billed. We had no record that we had billed for services, and we had no payment after Dec. 17, 1992, [the date of the patient's death] on our records."

And the agents did not disclose that CI-3's employment at Home Health and Hospice had ended more than two years before the warrant application. The information was outdated.

Disclosures 'eviscerated' affidavit

Once these facts were brought to light, Denson, who had signed the warrant in 1995, ruled in the home health care agency's favor. "Core provisions of the affidavit are eviscerated, and its entire tenor is changed," the judge wrote in his decision. "The search warrant does not support a finding of probable cause to search Home Health's offices."

The three judges of the Fourth Circuit Court of Appeals back the lower court completely, calling the probe "careless" and "flawed" by "multiple misstatements and apparent gamesmanship on the government's part."

So far, the government has refused to comment on the case, but another of 3HC's attorney's, Robert Zaytoun of Raleigh, has said he fears the government won't stop.

No matter what happens, Withrow says Home Health and Hospice will "continue to provide services for patients in the community in their homes. That will not change. We knew then, and we know now, that we are a good, honest company with good, honest people. We are all stronger for it and as committed as we've ever been to providing care in the patient's home."


1. United States of America v. Home Health and Hospice Care, Incorporated, No. 96-4813, United States Court of Appeals for the Fourth Circuit (Sept. 5, 1997).