Justice Department joins second Columbia whistle-blower case

What could be more sensational than charges that Columbia/HCA kept a second set of books to defraud the government? How about charges that the health care giant planned to bribe an auditor who raised questions about a cost report?

That allegation of bribery is at the heart of the most recent whistle-blower lawsuit revealed against Columbia/HCA. The U.S. Justice Department has joined the lawsuit against Columbia/HCA in Tampa, FL, in which a whistle-blower claims there was a plan to bribe an auditor and also claims the health care giant tricked the government into financing its acquisition of home health care agencies.

The case is related to the whistle-blower lawsuit the federal government joined in October, filed by James Alderson. Both of the lawsuits allege a systematic scheme to defraud the Medicare program through the cost reports Columbia submitted annually for Medicare reimbursement. The other lawsuit alleges that Columbia/HCA kept a second set of books in order to defraud the government.

In a similar vein, the lawsuit unsealed in December alleges that Columbia misrepresented its costs so the federal government would unwittingly finance its acquisition of home health care agencies. Stephen Meagher, JD, an attorney with the law firm of Phillips & Cohen in Washington, DC, says the second lawsuit indicates that Columbia/HCA’s deception was widespread. The law firm represents both whistle-blowers.

"Taken together, these lawsuits reveal that the heart of the case against Columbia is pervasive cost reporting fraud," Meager says.

Both fraud cases are qui tam cases that allow the whistle-blower to recover some of the damages themselves. The latest case was filed by John Schilling, a former reimbursement manager for Columbia in Florida. He filed the case in federal district court in Tampa in 1996 under seal, as required by the False Claims Act, to give the government time to investigate the fraud allegations.

Schilling’s lawsuit reveals that he was the source of the information leading to the criminal case pending against four Columbia executives currently awaiting trial in Florida. Meager calls Schilling’s cooperation with federal authorities "extraordinary," noting that he provided documents and evidence crucial to the government’s criminal case.

Schilling is unavailable for comment because he will be a witness in the criminal trial, set for May 1999. Calls seeking comment from Columbia/HCA were not returned.

Allegation that Columbia tried to bribe an auditor with job

Schilling worked for Columbia in its Southwest Florida division from 1993 to 1995, left the company, and returned after filing his lawsuit. He first worked as a consultant and later accepted a job as a financial manager at a Columbia facility in 1997. He no longer works for Columbia.

According to Meager, Schilling became aware of what he alleges were Columbia’s fraudulent practices when he was instructed by his superiors to try to divert the attention of a Medicare auditor who raised questions about one issue in a cost report filed by Columbia. Meager says Schilling claims his superiors wanted him to offer the auditor a better paying job with Columbia if she pressed to investigate the cost report further. Schilling says he did not make the offer to the auditor.

After Schilling left Columbia and returned, he says he uncovered additional evidence of cost reporting fraud involving Columbia’s home health operations. When Columbia acquired Olsten Corp.’s home health operations in 1994, it paid Olsten "wildly inflated management fees" instead of a realistic purchase price, according to Meagher. The cost of the management fees can be passed on to Medicare through cost reports, so Columbia/HCA recouped those allegedly inflated fees.

Schilling alleges the fraud continued after the purchase, with Columbia shifting marketing and other hospital expenses into the home health agencies so they could be reimbursed at a higher rate than if the expenses were reported by the hospitals.

Both of the lawsuits were filed under the False Claims Act, which allows private individuals to sue companies that are defrauding the government and recover money on the government’s behalf. The whistle-blowers, also known in the legal system as "relators," are entitled to a percentage of the recovery as inducement for those with knowledge of fraud to report it. Companies found to have defrauded the government can be required to pay up to three times the government’s losses, plus penalties of $5,000 to $10,000 per false claim.


Stephen Meagher, Phillips & Cohen, 2000 Massachusetts Avenue NW, First Floor, Washington, DC 20036. Telephone: (202) 833-4567.