Shady accounting common in health care

Latest allegations probably will lead to more

The latest federal charges against the Columbia/HCA Healthcare Corporation and the Quorum Health Group probably are only the first in a coming wave of allegations related to keeping double sets of books in an effort to fraudulently increase revenue, according to one insider. The practice has been widely accepted in health care accounting for years, he says, but now the government is catching on and planning a strong attack.

That prediction can leave risk managers in a difficult position because the creative accounting practices usually are well out of your control, yet they represent a clear risk to the institution. In some cases, you may find yourself obligated to march into the CEO’s office and recommend that the hospital give up millions of dollars in revenue it earned just by changing a few numbers on a few documents.

"There is a lot of this going on out there," says John Phillips, JD, an attorney with the law firm of Phillips & Cohen in Washington, DC. Phillips & Cohen specializes in representing whistle-blowers in False Claims Act cases. Their cases are responsible for about two-thirds of the $1.3 billion the government has collected through whistle-blower lawsuits in the last five years. "The government is now attuned to this issue and investigating it quite vigorously. We’ll be seeing more examples of this soon."

Phillips & Cohen represents the whistle-blower who brought the charges against Quorum. It also turns out that the whistle-blower responsible for these allegations prompted most of the federal government’s investigations of Columbia/HCA over the past few years. (For more information on the whistle-blower, see story, p. 150.)

In October, the federal government announced it was suing Columbia/HCA and Quorum for purposely defrauding the government with a scheme that involved routinely overstating expenses to increase compensation from Medicare and other government programs. In addition to the corporate parents, more than 200 hospitals in 37 states are defendants. The lawsuits allege that the providers kept a secret second set of cost reports and work sheets that showed significantly lower expenses — the true expenses, according to the government — than the expenses submitted for reimbursement. Columbia/HCA and Quorum both responded to the charges with statements denying any intentional deception.

The use of reserve reports, the term accountants use for such second sets, is a tricky issue, Phillips says. Reputable accountants commonly use techniques that the average person would find confusing at best, and many of them can at least have the appearance of deliberate misdirection. The important point can be just how aggressive the company is with the reserve reports, Phillips says. With Columbia/HCA and Quorum, he says upper management stepped way over the line into fraud.

Cost reporting has always been the "obscure, backwaters of the accounting process," Phillips says. There had not been any fraud allegations regarding cost reporting in health care for years, so many providers began to see overstating cost reports as an easy way to increase their reimbursement from Medicare. The only risk seemed to be that the provider may be caught during an audit, but only about 25% of providers ever had their cost reports audited. And even when they got caught, the providers just had to pay back the disputed amount from a few years back with no interest, he explains.

"Providers were lulled into using this as a new source of revenue with low risk," he says. "When you have that situation occur with high potential and low risk, people are going to take advantage of it, especially the for-profit hospitals. This was an easy place to look for more money."

Phillips contends that Columbia/HCA and Quorum became so complacent about the practice that they thoroughly documented their fraud. The companies needed to know, partly for projections about future earnings, what their true costs were vs. the costs they were reporting to the government. So they kept two sets of books that clearly outlined what they were doing, he says.

"It has turned out to be like the Rosetta stone," he says. "There’s nothing inherently wrong with reserve cost reports, but what is unusual is the level of detail that clearly indicates a degree of knowledge that they knew these items were not proper for including in the cost report.

"They were even stamped on the front, Do not show to Medicare auditors,’" Phillips says.

Other providers may be doing the same thing

The same accounting practices probably can be found in many hospitals and systems across the country, Phillips says. Columbia/HCA and Quorum may be exceptional in the degree to which they supposedly documented the fraud, but he says "this is not an unusual example. The likelihood is that this is widespread."

That means risk managers should take a look at their institutions’ accounting practices. These recent allegations are a major warning that similar charges are on the way, Phillips says. Risk managers would be well advised to find out what type of accounting practices are used in their facilities and try to head off any government charges, he advises.

"Voluntary disclosure is the way to go if you think you have exposure. The government will treat you much better," he says. "You can take the risk that nobody will ever know and you can keep the money, but your chances of getting away with that are much less than they might have been years ago."

If you investigate the paper trail and find something that makes your heart stop, you are obligated to act even if you think accounting practices are far beyond your sphere of influence, says Grena Porto, RN, ARM, DFASHRM, director of clinical risk management and loss prevention services at VHA Inc. in Berwyn, PA, and president of the American Society for Healthcare Risk Management (ASHRM). These tricky accounting practices usually are approved at the very highest levels of administration, and because they involve millions of dollars in essentially free money, it is reasonable for a risk manager to fear being laughed out of the CEO’s office when you suggest stopping the practice.

"If you’ve got knowledge of something like this, you have to do something about it," Porto says. "Even if it were not a legal obligation, there is a moral and ethical obligation. And I can tell you that ASHRM would expect its members to do that."

Porto says she hopes there would be enough awareness about the risk of fraud these days that a risk manager would be received well when bringing such an issue to upper management. But she also acknowledges that the concerns may be dismissed when so much money is at stake. She suggests that the risk manager probably should take his or her concerns to the compliance officer, not necessarily the CEO, and report them as a compliance issue.

And conversely, she advises risk managers to take the issue seriously if anyone else brings the issue to them. "Sit up and listen when somebody comes in and reports this. If a person reports this and doesn’t get a reasonable response, this is what makes them whistle-blowers," Porto says. "Honestly, I’m shocked to hear the allegations of what Columbia has done. Some of this stuff was so wrong that it makes us all look bad as health care professionals. I was professionally embarrassed by it."

For More Information

o John Phillips, Phillips & Cohen, 2000 Massachusetts Ave. NW, First Floor, Washington, DC 20036. Telephone: (202) 833-4567.

o Grena Porto, VHA Inc., 200 Berwyn Park, Suite 202, Berwyn, PA 19312. Telephone: (610) 296-2558.