February 16, 2001 — Sacramento Business Journal — Vol. 17, No. 49, page 1.

Kathy Robertson – Staff Writer

The U.S. Department of Justice is joining new portions of a whistle-blower lawsuit that accuses Mercy Healthcare Sacramento and its parent company, Catholic Healthcare West, of cheating the government of millions of dollars by filing false Medicare cost reports.

The new allegations come from whistle-blower Joseph Kimball, a Folsom man who worked in Mercy’s billing department until August 2000. His initial lawsuit, filed in 1999, alleges fraudulent billings worth $19 million.

In an amended complaint filed after the U.S. government intervened in portions of the case last May, Kimball claimed that CHW, Mercy and 13 of its hospitals knowingly double and triple-charged the Medicare program for the same expenses on multiple occasions. The new charges increase the claim to $20 million.

Federal investigators said they found enough merit in specific allegations against four Sacramento hospitals — Mercy General, Mercy San Juan, Mercy American River and Mercy Folsom — to jump in and pursue the new claims. That increases the portion of the lawsuit now in the hands of the feds to $9.3 million. The government said its amended complaint will be filed Feb. 28.

“We have intervened at this time because we thought it was appropriate,” said U.S. Attorney John Vincent. He declined further comment.

“We are as interested as the federal government in having the facts clearly understood, so that all relevant concerns may be addressed and resolved,” CHW president and chief executive officer Lloyd Dean said in a prepared statement.

In a related development, a $1.4 million case filed by Mercy consultant turned whistle-blower Arlan Boyd reached tentative settlement last week. That lawsuit — which also was joined by the government — related to overpayment of a Medicare claim that Mercy initially hired Boyd to fix.

“The case has settled, but the final papers haven’t been signed by anybody,” said David King, a Petaluma attorney who represents Boyd. Until then, he declined further comment.

Ongoing investigation: Healthcare providers nationwide are undergoing intense review of how they bill Medicare, the federal healthcare program for seniors.

This is especially true of large hospital operators like CHW, which has been under investigation for several years. Health system officials consider the announcement last week by the U.S. attorney’s office an extension of the same investigative process. “We will cooperate with the government and the courts in an effort to put these issues behind us as soon as possible so that we may return our attention to fulfilling our mission, which is providing quality healthcare for all people, regardless of their ability to pay,” Lloyd said in response to the announcement that government’s role in the case has expanded.

Last spring the feds intervened in about $6.4 million worth of Kimball’s $19 million original case. Among the local entities named are: Mercy San Juan Hospital, Mercy American River (which closed in June 2000), Mercy General, Mercy Folsom and Mercy Home Health.

Other hospitals in the CHW system named include: Mercy Hospital of Bakersfield; St. Joseph’s Hospital and Medical Center in Arizona; St. Mary’s Medical Center in San Francisco; Mercy Medical Center Redding; Mercy Medical Center Mt. Shasta; Dominican Santa Cruz Hospital; Mercy Hospital and Medical Center San Diego; St., John’s Regional Medical Center in Ventura; and St. Rose Dominican Hospital in Nevada.

The allegations cover a period of nine years and claim that:

The hospital system failed to disclose billing errors in its own favor.

Mercy’s organizational costs were disguised as reimbursable capital costs.

That Mercy manipulated the reimbursement ratio for caring for indigent patients.

Mercy incorrectly reported the costs of retiring its bonds, benefiting Mercy financially.

And that it inappropriately claimed depreciation expenses on used building space.

“This is a dispute over rules that are complex, confusing and literally ever-changing,” Douglas Kelley, a Minneapolis attorney who represents Mercy, told the Business Journal when the first charges became public. “No quality-of-care issues are involved.”

New claims: The new charges are part of an amended complaint filed last May.

“As Mr. Kimball went along, he was able to confirm and expand the allegations,” said Paul Scott, a San Francisco attorney who represents Kimball.

The 13 CHW hospitals implicated by the new allegations are those whose bonds were retired in 1994. The initial lawsuit claims the entire bond retirement loss was made in the same year instead of amortizing the loss over the life of the bonds.

The new charges claim CHW and Mercy “knowingly billed the government multiple times for the same loss.” Initially, the losses were billed by CHW — at the home office or corporate level — and again by the hospitals at the hospital level, legal documents allege. The feds have joined this aspect of the lawsuit as well.

The federal False Claims Act allows whistle-blowers who have information about fraud against the government to share in the recovery of financial damages. The person can file a “qui tam” lawsuit, kept under wraps by a court seal, and then serve the government with a copy of the complaint and supporting documents.

That’s what happened in the Kimball case.

The government has 60 days — sometimes longer, if necessary — to investigate and decide whether to intervene and take over litigation of the case. It took the feds six months instead of 60 days to look into the additional charges and decide to intervene, said Assistant U.S. Attorney Adisa Abudu-Davis, a local attorney who, along with Department of Justice trial attorney Lani Anne Remick, is handling the case.

“There is a 60 — day window, but it can be extended,” Abudu-Davis said.

Government intervention increases the likelihood of success for the whistle-blower, but it affects the whistle-blower’s share of the financial recovery.

If the government takes over, the whistle-blower’s share is between 15 percent and 25 percent of the total amount recovered, including fines and damages. If the whistle-blower goes at it alone, his or her share ranges from 25 percent to 30 percent of the total money recovered.

The stakes are huge. The law allows the feds to recover three times the actual damages.

In addition, the court must award no less than $5,000 and no more than $10,000 for each false reimbursement claim, even if no damages resulted. If the false claims were filed after Sept. 29, 1999, the per-claim award is higher — from $5,500 to $11,000.