CFO nails 4 hospitals for keeping discounts

They may have saved money on X-ray film, but a sweet deal has cost four hospitals more than a half-million dollars. The hospitals just signed a $586,075 settlement with the Justice Department to resolve a whistle-blower suit that alleged they had not included those discounts in their Medicare cost reports.

The suit charged that the four hospitals had received discounts on X-ray film and supplies through a discount program from Kodak. Kodak would reward purchases with bonus dollars that could be used to purchase or lease Kodak products or could be taken as rebate checks.

The institutions are:

- Sacred Heart Hospital in Pensacola, FL, which didn’t report $896,218 in rebates;

- St. Thomas Hospital in Nashville, TN, which received $243,242 in rebates and another $712,689 in lease payments;

- St. Vincent’s Hospital in Birmingham, AL, which received $267,992 in lease payments;

- St. Mary’s Hospital in Saginaw, MI, which failed to report $200,000 in rebates. In addition, St. Mary’s reported another $208,580 as discounts or rebates against its general and administrative costs, rather than against the radiological cost center.

The settlement also requires all four hospitals to have the San Francisco-based Catholic Healthcare Audit Network audit their cost reports by mid-November. The institutions will have to pay twice the amount of the losses uncovered by the auditto Medicare .

The hospitals are all owned by St. Louis-based Daughters of Charity National Health System. The qui tam suit was filed by Timothy J. Walsh, the CFO of Carney Hospital in Dorchester, MA. Carney formerly was owned by Daughters of Charity.

Daughters of Charity COO Douglas French acknowledged that there had been "billing irregularities," though only at four of the group’s 21 hospitals. "It all comes down to an accounting clerk and the accounting office," French adds.

Ironically, Kodak took care to protect itself against allegations of kickbacks. At three separate points during the discount process, providers were reminded that the Social Security Act "requires that reduction in price and discounts be properly disclosed and reflected in the costs claimed or charges made by a provider under Medicare or state health programs," according to the suit.

Unfortunately, the law is straightforward regarding discounts, says Dennis Barry, an attorney for Vinson and Elkins, Washington, DC. All rebates from vendors must be netted from costs before they’re included in cost reports, according to Medicare regulations.

Yet a problem can arise when there is a lack of coordination between the purchasing and accounting departments, Barry warns. Purchasing managers need to know that they should report discounts to the accounting staff.

Yet while hospitals are quick to offer compliance training for their billers and coders, training purchasing managers is often at the bottom of the list, says Barry.

That’s logical because an institution’s greatest exposure lies in the claims process. Yet Barry recalls a case where a vendor told a purchasing manager it would donate $50,000 to a favored charity if the hospital signed a contract. "I would be very uncomfortable with that," Barry chuckles.