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HCA-The Healthcare Co. is turning the tables on those who have prosecuted the company for years regarding its billing practices. The company has filed a counterclaim suit against the U.S. government seeking reimbursement for an unspecified sum of Medicare costs that have not been paid to the company since 1997.
The counterclaim asks the court for an order requiring the Health Care Financing Administration (HCFA) to reconcile at least 1,000 HCA Medicare cost reports dating back to 1994. The Justice Department recently filed civil complaints in eight whistle-blower lawsuits alleging hundreds of millions of dollars in fraud by HCA, the largest U.S. hospital chain. The complaints included the whistle-blower suits filed by two former HCA executives who have charged that the company engaged in widespread cost-reporting fraud at Columbia/HCA Healthcare Corp, now HCA, and its subsidiaries.
The Justice Department said the claims were not covered by the agreement HCA reached last year to pay a $745 million civil settlement and $95 million in criminal fines to resolve some of the allegations arising from an investigation started in 1997. The more recent lawsuits involved payments of kickbacks to physicians to increase the numbers of government-insured patients, the inflation of hospital cost reports to increase Medicare and other government reimbursement, and kickbacks and inflated cost reports for wound care services.
The Justice Department filed in federal court a document of more than 1,000 pages detailing a huge scheme by HCA to defraud the Medicare system of more than $400 million by making false claims in its annual "cost reports." The complaint is the latest salvo in a eight-year government investigation of Medicare cost-reporting fraud by HCA and its related companies that was sparked by two qui tam whistle-blower lawsuits.
The government also filed separate complaints pursuing its longstanding investigation of the other outstanding civil issues confronting HCA: kickbacks and improper physician investment arrangements. If the cost-report case results in a victory at trial, HCA’s liability could be more than $1 billion plus an undetermined amount in penalties because the lawsuits were brought under the False Claims Act. That federal fraud law provides that liable companies may be required to pay up to three times damages plus penalties of $5,000 to $10,000 for each false claim made to the government.
The complaint also includes allegations of HCA cost-report fraud schemes for which the government has not yet determined its monetary losses. A former HCA management subsidiary pleaded guilty last December to criminal charges related to many of the schemes alleged in the current complaint. HCA paid $95.3 million to settle the criminal charges, but has not yet resolved its civil liability for cost-report and kickback issues. HCA’s cost-reporting liability will be separate from and in addition to the $745 million civil settlement reached last year on other claims, explains Stephen Meager, JD, a San Francisco attorney with Phillips & Cohen, which represents the two whistle-blowers.
"The breadth of the allegations and the detailed calculations of Medicare’s losses are a clear signal that HCA’s problems with the government are far from over," Meager says.
The government’s analysis of HCA’s cost reports finds that the company set aside reserves totaling more than $400 million from 1987 to 1997 to cover claims that it knew were not allowed under Med-icare reimbursement regulations. Nearly 400 past and present HCA facilities made thousands of false claims, the government found. The scope of the fraud alleged in the government’s complaint is "unprecedented," says Peter W. Chatfield, JD, a Washington, DC, attorney with Phillips & Cohen. "But it is in many ways a very conservative estimate of the fraud," Chatfield says. "The Justice Department has given HCA the benefit of any possible doubt on tens of millions of dollars in highly dubious claims submitted, and reserved for, by HCA."
These are the government charges against HCA:
— Filed claims and received reimbursement for nonallowable costs such as marketing, advertising, and unrelated investments by mischaracterizing them.
— Billed Medicare for idle space in hospitals by claiming it was being used for patient care.
— Concealed overcharges and Medicare auditing errors that favored HCA facilities.
— Failed to implement Medicare audit adjustments in cost reports in subsequent years — continuing to claim costs that Medicare auditors previously had disallowed for reimbursement.
— Shifted costs to home health rehabilitation and other facilities that Medicare reimbursed at higher rates.
The government’s amended complaint also reveals for the first time details of HCA’s spinoff of 104 hospitals in 1987 to form HealthTrust Inc. The complaint alleges that Medicare unwittingly paid more than $100 million of the cost of that business deal. The chairman, CEO, and president of HCA at that time was its current chairman, Thomas Frist. "The details provided by this complaint expose cost-report fraud to be an endemic HCA problem going back into the 1980s and not solely a product of the Columbia era," Meager says.
Columbia Healthcare Corp. merged with HCA-Hospital Corp. of America in 1994 to become the largest for-profit hospital chain in the country. HealthTrust Inc. was reacquired by Columbia/ HCA in 1995.
The two whistle-blower lawsuits were brought separately by James Alderson, a former director of fiscal services with a small hospital in Montana, and John Schilling, a former reimbursement manager for Columbia in Florida. Alderson was the first person to file a False Claims Act lawsuit exposing HCA’s broad-based cost-reporting fraud. Schilling was the key witness and provided essential documents in a criminal trial that resulted in prison sentences for two HCA executives in Florida.
In October, the Justice Department and Quorum Health Group, the nation’s largest hospital management company (formerly known as HCA Management), agreed to a $77.5 million settlement to resolve a whistle-blower case filed by Alderson for cost-report fraud.
Schilling also has filed a qui tam lawsuit against accounting firm giant KPMG for its role in facilitating the fraud at some HCA facilities. The Justice Department joined that lawsuit in December. Both HCA and Quorum routinely prepared two sets of cost reports, according to the whistle-blower lawsuits and the government: One contained "aggressive" claims to file with the government; the other — marked "Confidential" and never shared with Medicare auditors — was used to calculate funds to be held in reserve in case Medicare auditors ever caught a false claim and demanded the payment back.
Hospitals and other health care providers file cost reports with Medicare annually to get reimbursement for costs related to patient care, including expenditures for capital improvements — such as new medical equipment or bigger wards — and some general administrative costs. Medicare pays a percentage of those costs based on the number of Medicare patients a hospital treats.
In a related matter, Quorum Health Care in Brentwood, TN, announced that it has completed its Medicare cost-report case settlement with the Civil Division of the U.S. Department of Justice. The tentative settlement was announced Oct. 2, 2000. The settlement consists of $82.5 million in compensation, plus interest and implementation of a corporate integrity agreement for five years.
In addition to resolving the government’s claims against Quorum, the government has agreed not to pursue claims against current and former managed hospitals that take certain administrative steps. The company has consistently maintained that the settlement was not an indication of wrongdoing, but was in the best interest of the company, its associates, and shareholders.