Issues At Columbia/HCA Exist At Other Hospitals

Prediction that whistleblower lawsuits already play a major role in federal investigation

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CEO SUMMARY: Even as federal regulators attract big headlines in their investigation of Columbia/HCA, laboratory administrators in a variety of hospital settings may be surprised in the future to find federal investigators scrutinizing the billing practices at their institution. Columbia’s investigation reveals that federal prosecutors will use precedents in earlier laboratory billing cases as a key part of future cases.

NASHVILLE’S Columbia/HCA Healthcare continues to dominate national news reports of healthcare fraud and abuse.

Although laboratory billing practices will continue to play an important role in this case, several other reimbursement practices are getting attention from federal investigators. The untold part of this story is the role whistleblowers now play in tipping federal investigators where to look and how to proceed.

THE DARK REPORT has predicted the increase of whistleblower lawsuits involving laboratory practices. When SmithKline Beecham agreed to pay $325 million to the federal government in February of this year to settle claims of Medicare fraud and abuse, at least four separate whistleblower lawsuits were involved.

It is difficult to know how many whistleblower lawsuits have been filed that identify laboratories or hospitals as violators of Medicare/Medicaid fraud and abuse statutes. Whenever a qui tam lawsuit is filed by a whistleblower, it becomes sealed until the Department of Justice, after its own investigation, decides not to join the case.

Notwithstanding that fact, THE DARK REPORT believes there is an ever-growing number of whistleblower lawsuits. Press reports reference how insiders helped government investigators prepare for raids on Columbia’s facilities and offices. It is a safe assumption that at least a few of these individuals now helping the government had earlier filed a qui tam lawsuit, thus informing the government about what they know as well as where to gather evidence necessary to prosecute the case.

Probably the leading attorney on the subject of whistleblower lawsuits is John Phillips of Phillips & Cohen in Washington D.C. “I cannot comment about any specific whistleblower lawsuits that I may be involved in,” stated Phillips, “but it can be said that increased attention and focus on certain billing practices of hospitals, combined with publicity about successful whistleblower lawsuits, is causing more such lawsuits to be filed.

“In our experience, as the public becomes more informed about whistleblower lawsuits, the number of those suits increases,” he added. “This is precisely what Congress intended when it passed legislation in 1986 strengthening the whistleblower procedure.”

According to Phillips, the Columbia case illustrates two basic types of healthcare fraud which will attract the most attention by investigators and prosecutors. “I believe you are going to see the whole area of cost-reporting undergo extensive investigation. The practice of illegally inflating cost reports is widespread among hospitals throughout the country and for years was virtually unaudited by HCFA.”

“In our experience, as the public becomes more informed about whistleblower lawsuits, the number of those suits increases.”
-John Phillips

In fact, the first indictments in the Columbia case involved allegations of fraud in cost-accounting for a Florida hospital owned by the company.

“Because many hospitals kept an additional set of ‘confidential’ cost reports to reserve for potential adjustments in what they claimed in their ‘as
submitted reports,’ federal investigators will have a paper trail to seek and examine each facility’s handling of cost accounting claims year-by-year. This makes it easier to build a successful case against the hospital.

“Although it is a complex process to apply for reimbursement under Medicare’s Part A cost accounting guidelines, I believe that a significant number of items submitted will be found to be clearly improper. Per the news reports on the Florida case, the charge is that the executives ‘knowingly’ sought reimbursement for claims to which they knew, under law, they were not entitled. ‘Knowingly’ is the key. If the government can make that case, then those actions will be judged as fraud.”

Widespread Practice

“I suspect that, in the area of cost accounting, the government will find this practice to be widespread. Dollars paid to hospitals under cost accounting reimbursement guidelines were immense,” explained Phillips. “Thus the government’s potential recovery could be significant, particularly as these fraud investigations will go back ten years. A typical hospital’s cost- accounting involves about $2 million per year in reimbursement. If 30% to 40% is determined to have been fraudulently submitted, then the dollars add up quickly for prosecutors, particularly with treble damages.”

Just as cost accounting has a clear paper trail that helps prosecutors prove their case, so also do laboratory billing practices offer a similar paper trail. Because of established precedents and the relative ease of documenting such cases, Phillips believes laboratory billing practices will play a significant role in prosecutor’s cases against hospitals.

Pamela Bucy agrees with Phillips. She is a health-fraud expert on the faculty of the University of Alabama Law School. Bucy noted that the Columbia investigation is becoming a multi-agency effort. Besides the HHS Inspector General’s Office, the U.S. Postal Service and the Defense Department’s criminal investigation service are also involved in the Columbia probe. Various state agencies are participating as well.

Bucy says that, should the government choose to pursue laboratory billing practices at Columbia, the multi-agency approach helps. “If all they can come up with are isolated problems, it will be hard to show fraud instead of just honest mistakes. But if they can establish a persistent pattern of problems, they will have a stronger case.”

As reported in the last issue of THE DARK REPORT, prior to the July raids on Columbia hospitals, emergency room physicians employed by the company stated that they had been interviewed by FBI agents concerning CBC ordering patterns, whether more laboratory tests were performed than ordered, and whether the tests performed were medically necessary for the patients involved. (See TDR, August 4, 1997.)

Prosecutors Looking At Five Basic Issues

In the Columbia/HCA investigation, at least five significant areas of operation are undergoing scrutiny.

  1. Cost accounting: This involves how overhead expenses were defined to qualify for reimbursement under Medicare guidelines.
  2. Laboratory test unbundling & 72 hour DRG window: These allegations of laboratory fraud and abuse are based upon earlier settlements with clinical labs and hospitals.
  3. Upcoding: This is a new area of investigation. Reimbursement records will help prosecutors build their case.
  4. Referral arrangements: These cases will be tough, as inducement and Stark amendment violations are difficult to prove.
  5. Home healthcare procedures: Major new area for investigations of fraud and abuse.

Largest Company

As in the Labscam series of cases involving the largest commercial laboratories, government investigators have started with the largest hospital operator in the United States. Stock analysts are now beginning to publicly state that the settlement between Columbia and the government could well exceed $1 billion. There will also be a surprising number of criminal indictments filed against Columbia executives.

Once investigators complete the Columbia case, they will turn their attention to other hospital chains and smaller clinical laboratories. This process is already underway. According to the Justice Department, FBI healthcare fraud investigations climbed to 2,200 in fiscal 1996, compared to 657 in fiscal 1992. Civil investigations into healthcare fraud by the Department of Justice increased by ten-fold over the same time period, from 270 in 1992 to 2,488 in 1996.

Laboratory executives should carefully note the change in attitude by government regulators and prosecutors. The historical rules of the reimbursement game are rapidly changing. Whistleblower lawsuits add more uncertainty. Because of the increased use of criminal indictments, any laboratory, whether hospital or commercial, nailed by prosecutors for improper billing and reimbursement practices, faces possible criminal charges
along with civil penalties.


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