A Whistle-blower Gets Part of the $9 Million Deal by Hospital Giant CHW

June 8, 2002 — The Sacramento Bee

By Denny Walsh Bee Staff Writer

In one of Northern California’s largest medical fraud settlements, Catholic Healthcare West, which includes Mercy Healthcare Sacramento, has agreed to pay more than $9 million to resolve accusations that it stole millions from the government by lying on health care insurance claims.

The agreement resolves allegations that San Francisco-based CHW and 13 of its hospitals knowingly submitted false cost reports to Medicare and other federal health insurance programs.

The health care giant is obligated to pay the United States $8.5 million and an additional $577,000 to San Francisco attorney Paul Scott, who filed the original lawsuit more than three years ago on behalf of former Mercy Healthcare Sacramento reimbursement analyst Joseph A. Kimball.

In accord with the federal False Claims Act, the 46-year-old Kimball will receive $1.9 million out of the money paid to the United States. The act allows whistle-blowers to collect between 15 and 30 percent of the government’s recovery, plus attorneys’ fees and costs.

Kimball, who lived in Folsom, worked for Mercy in Sacramento from 1984 to 2000. He recently moved to Texas.

“There are few instances in life where people are rewarded for stepping forward and doing the right thing,” Scott said Friday. “This is one of those fortunate cases where that was the result.”

He said Kimball is “immensely gratified to see the case come to a successful conclusion.”

The government is also obligated under the agreement to pay California $58,371 out of its share in connection with alleged fraudulent submissions made to the state’s Medicaid program, called Medi-Cal.

CHW Vice President William J. Hunt said Friday the company denies it engaged in any wrongdoing.

“The cost reports, which resemble very complex tax returns, are governed by thousands of pages of highly technical, often confusing and ever-changing regulations,” Hunt said. “We believe we interpreted those regulations fairly and reasonably, consistent with the interpretation followed by the courts and Medicare itself, and any errors were inadvertent.”

He said the settlement grew out of CHW’s wish to “end the distraction caused by this litigation,” and to focus on health care. “We are satisfied with the outcome and pleased to put this matter behind us.”

The settlement calls for CHW, the largest Catholic hospital system in the West, to enter into a corporate integrity agreement with the Office of Inspector General for the U.S. Department of Health and Human Services, which polices the administration of federal health insurance.

Kimball agreed to drop his claims against CHW in a second suit filed two years ago in Sacramento federal court, but, according to Assistant U.S. Attorney Michael Hirst, the government will continue to investigate the claims in that suit. It never chose to intervene in that action.

After investigating Kimball’s allegations in the suit that was settled, the government intervened as a plaintiff twice in certain portions of it, first in March 2000 and again in January 2001. The case was handled by Assistant U.S. Attorney Adisa Abudu-Davis in Sacramento.

In an amended complaint following its second intervention, the government alleged that CHW and four of its Sacramento-area hospitals — Mercy General, Mercy San Juan, Mercy American River and Mercy Hospital of Folsom — submitted reports of costs that were inflated or not allowable.

The government alleged that two sets of books were maintained, one that was shown to auditors and a hidden set that identified the false claims. It also alleged that CHW established undisclosed reserves, setting aside funds to repay the government in case the fraud was detected.

The alleged scheme embodied false statements in Medicare and Medicaid hospital cost reports, and in requests for reimbursements on claims by members of the military and their dependents, which are covered by a separate program.

The conduct allegedly occurred between 1990 and 1999, and involved a variety of expenses, such as costs associated with refinancing hospital bonds, the purchase of a hospital, treatment of indigent patients, and the allocation of costs among hospitals and affiliated home care and hospice agencies.

From its inception in 1965 as an added Social Security benefit, Medicare has been a tangle of red tape. It provides health insurance for the elderly and consists of two parts. Part A covers hospital services and related care. Part B cover physicians’ and ancillary services.

Providers file cost reports with insurance companies that the government has designated as “fiscal intermediaries.” The companies pay providers based on the reports and, in turn, receive funds from the government to underwrite the program.

“Although the cost reports are subject to audit review, it is known throughout the health care industry that the fiscal intermediaries do not have sufficient resources to perform in-depth audits on the majority of (them),” according to Kimball’s suit.

It says that two to three years elapse from the time the reports are submitted until they are finalized through audit or “desk review,” but providers are generally paid most or all of the claimed amounts within weeks after the reports are submitted.

The system “relies substantially on the good faith of providers,” the suit says.