Confidential Consultation

June 10, 2002 — Modern Healthcare — Section: Late News
By Mark Taylor

Maintaining reserve Medicare cost reports has landed another health system in legal trouble, resulting in an $8.5 million Medicare fraud settlement.

The U.S. attorney in Sacramento, Calif., announced that Catholic Healthcare West, a 42-hospital system based in San Francisco, and its Sacramento affiliate, Mercy Healthcare Sacramento, will pay to resolve a 1999 civil whistleblower lawsuit. The charges stem from a suit filed in U.S. District Court in Sacramento by Joseph Kimball under the federal False Claims Act.

Kimball, a former reimbursement analyst at Mercy, alleged in his suit, which the U.S. Justice Department joined in 2000, that four Mercy hospitals and nine other CHW hospitals defrauded Medicare by filing false cost reports that included unallowable or inflated costs. The government alleged that CHW and Mercy kept dual sets of books-one shown to government auditors and a second reserve set hidden from the government that identified nonreimbursable costs. Mercy, which signed a five-year corporate integrity agreement, denied legal wrongdoing.

Mercy Vice President William Hunt said the Mercy system cooperated in the government investigation.

“The disputes between us related to complicated matters of accounting and reimbursement,” Hunt said in a statement. “The cost reports, which are like very complex tax returns, are governed by thousands of pages of highly technical, often confusing and ever-changing regulations. We believe we interpreted those regulations fairly and reasonably, consistent with the interpretations followed by the courts and Medicare itself, and any errors were inadvertent.”

Adisa Abudu-Davis, the assistant U.S. attorney in Sacramento who prosecuted the case, said Mercy allegedly included in its cost reports nonallowable acquisition costs incurred in the purchase of one of its hospitals, even after those costs were denied earlier by a fiscal intermediary. In addition, Abudu-Davis said the system allegedly claimed the same bond feasance costs on two separate cost report worksheets and was paid double by Medicare.

In recent years, because of compliance programs and changes in the way Medicare reimburses hospitals, it was rumored that Medicare cost report fraud cases would grow less frequent, a belief that Abudu-Davis said she sought to dispel.

“Providers’ cost-reporting practices will continue to receive scrutiny under the False Claims Act,” she said.

San Francisco attorney Paul Scott, who represented Kimball, said the statute of limitations under the False Claims Act can date back 10 years.

“I think even if institutional changes occur, because of events in the past these kinds of cases are still going to occur,” predicted Scott, who said Kimball will receive $2.48 million for blowing the whistle on the alleged fraud.

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