Plaintiff says Hospitals Lied to Medicare

May 11, 2000 — The Sacramento Bee — Section: Main News, Page: A1

By Denny Walsh Bee Staff Writer

The U.S. Department of Justice is joining a whistle-blower’s lawsuit accusing Mercy hospitals of stealing millions from the government over the past eight years by lying on Medicare claims.

While the department is joining only part of the Mercy accountant’s suit, he is claiming that the health care giant stole nearly $19 million from the Medicare program.

Mercy Healthcare Sacramento, which operates four major hospitals and associated home health agencies, has “systematically caused false cost reports to be submitted to Medicare, including numerous false claims for costs that were known not to be allowable,” the suit says.

Douglas Kelley of Minneapolis, Mercy’s outside attorney in the matter, insisted his client has behaved appropriately. “When we get to the end, Mercy Healthcare Sacramento will be shown to have acted in good faith and it will be apparent that there were no false claims made to the government,” he said.

The suit accuses Mercy Healthcare Sacramento of generating higher reimbursements by:

• Deliberately failing to disclose government errors in Mercy’s favor.
• Disguising organization costs as capital costs.
• Manipulating the ratio of total hospital days to indigent-patient days.
• Claiming an entire bond-retirement loss in the same year instead of amortizing the loss over the life of the bonds.
• Mischaracterizing the nature of its home health operation in order to qualify for overhead reimbursement.
• Shifting hospice costs to a hospital.
• Describing unused building space as being used in order to claim depreciation expense.

The Justice Department has decided to join the accountant as a plaintiff and to assume primary responsibility for prosecuting portions of the civil action.

The suit seeks damages triple the amount of the government’s loss and a $10,000 penalty for each of the false reimbursement claims, which are not quantified.

In a lengthy interview Wednesday, Kelley said that, in some instances cited in the suit, Mercy “blew the whistle on itself” long before the accountant did, and that the organization has repeatedly offered to pay much of what is claimed as damages, plus interest. But, he said, the government won’t accept payment, instead joining a whistle-blower in seeking triple damages under the federal False Claims Act.

“We’ll settle up with them by paying what they’re entitled to and no more,” he said. “We’re not paying treble damages, including the whistle-blower’s cut.”

The amount of damages alleged is approximately 1 percent of the system’s Medicare billings for the same period, according to Mercy spokeswoman Jill Dryer.

Kelley emphasized that quality of care and services provided by Mercy is not being called into question.

“These are disputes over complicated matters of accounting and reimbursement,” he said. “The cost reports are essentially like tax returns, only worse. They are governed by a set of complex, confusing and ever-changing regulations. The law in the area is a moving target.”

As recently as a December administrative ruling, Kelley said, federal health officials deemed acceptable a home-health-agency arrangement identical to one the suit challenges.

Similarly, a U.S. Supreme Court decision that changed the law on how a loss due to early retirement of bonds may be reported came after the reports attacked in the suit, he said.

From its inception in 1965 as an additional Social Security benefit, Medicare has been a tangle of red tape.

It provides federally funded health insurance for the elderly and consists of two parts. Part A covers hospital services and related care. Part B covers 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 cost 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 the 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 filed.

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

Joseph A. Kimball, who lives in Folsom and has worked for Mercy Healthcare Sacramento since 1984, initiated the suit. In accord with the False Claims Act, it was filed under seal in Sacramento federal court on Feb. 17, 1999.

Justice Department lawyers notified U.S. District Judge Lawrence K. Karlton on April 19 that they were intervening only as to certain parts of the suit. That notification triggered Karlton’s May 1 order that the complaint be unsealed. The government is scheduled to file yet another complaint by May 22.

Kimball is free to pursue those parts of the suit in which the Justice Department has chosen not to intervene, and the department has the option of coming in later if further investigation proves promising. Kimball’s attorney, Paul Scott of San Francisco, said he will continue to prosecute “the vast majority” of the suit.

Scott said in an interview that he has advised his client to refer all inquiries to him. He handled false claims suits as a Justice Department attorney in Washington, D.C., before setting up a private practice specializing in the representation of whistle-blowers.

He described the 44-year-old Kimball as “a decent, honest man. He showed a lot of courage doing what he did.” Kimball is currently a senior Medicare reimbursement analyst at Mercy Healthcare Sacramento.

Kimball would receive 15 percent to 25 percent of any amount recovered in connection with those parts of the suit pursued by the government, and 25 percent to 30 percent where the government has opted out.

Scott estimated damages in the portion of the suit in which the government has intervened at $6.4 million.

From 1990 to 1998, Kimball was a reimbursement analyst responsible for the submission of cost reports to Medicare on behalf of Mercy San Juan Hospital, and in 1997 and 1998 he was also responsible for reports on behalf of Mercy American River Hospital. Both hospitals are in Carmichael.

His most recent complaint was filed Feb. 22. It names Mercy Healthcare Sacramento and its parent, Catholic Health West of San Francisco, as defendants.

Mercy Healthcare Sacramento

Licensed acute beds: 1,128

Current employees: 8,220

(1,655 physicians)

Patient care, 1998-99

(year ended June 30, 1999)

Inpatient days: 296,952

Outpatient days: 391,869

Home health visits: 131,376

Approximately 30 percent of the hospital system’s business was from basic Medicare in 1998-99. An additional 15 percent of the hospital’s patients are covered through Medicare HMOs.