September 1, 2001

HCA Agrees to Pay $840 Million in Government's Largest Fraud Settlement Ever

Settlement Resolves Seven of the 27 Qui Tam Suits Filed Across the Country In December 2000, DOJ reported that the nation's largest for-profit hospital chain, HCA-The Health Company (formerly known as Columbia/HCA) agreed to pay $840 million in criminal and civil fines and penalties to resolve allegedly unlawful billing of federally and state funded health care programs. $745 million, of which $731.4 million will go to the Federal Government and $13.6 million to the States, resolves only a portion of HCA's civil liability. The civil settlement resolves allegations of billing for services provided to ineligible patients, falsifying DRG codes, improperly billing for certain lab tests, and billing for home health services that were medically unnecessary or never provided. The agreement does not resolve allegations that HCA unlawfully included the costs of running its hospitals on cost reports submitted to the Government, or that it paid kickbacks to physicians to get Medicare and Medicaid patients referred to its facilities. The criminal portion of the $840 million consists of a $95 million fine to be paid by HCA subsidiaries. The subsidiaries that have pled guilty will be ineligible to participate in government health care programs.

The civil settlement includes the following: over $95 million to resolve allegations of fraudulent laboratory billing practices; more than $403 million to resolve allegations of upcoding; $50 million to resolve allegations that the company claimed nonreimbursable marketing and advertising costs disguised as community education; $90 million to resolve allegations of improper charges to Medicare in the purchase of home health agencies; and, $106 million to resolve allegations of billing for home health visits for nonqualified patients.

The settlement is the largest government fraud settlement ever reached by the Justice Department and resolves seven of the 27 qui tam lawsuits filed in various jurisdictions across the country, but consolidated in Washington, D.C. As part of the settlement, HCA agreed to an eight-year corporate integrity agreement, which according to HHS Inspector General June Gibbs Brown is unprecedented in its scope and level of detail.

Senator Charles Grassley (R-IA), co-sponsor of the 1986 amendments to the False Claims Act, believes that this settlement vindicates those who fought efforts to gut the Act two years ago. Grassley stated: "Two years ago, hospitals complained that prosecutors were after them for innocent billing mistakes. In response, some legislators tried to gut the False Claims Act. Today's announcement proves two things. One, outright fraud can masquerade as innocent billing mistakes. Two, prosecutors know the difference, and they need a robust False Claims Act to make their case." Former Attorney General Janet Reno described the investigation into HCA's billing practices as "the largest multiagency investigation of a healthcare provider ever undertaken by the U.S."

Significantly, the allegations not resolved by the civil settlement may ultimately lead to HCA's greatest liability. The unresolved allegations, that HCA unlawfully charged for the cost of running its hospitals on cost reports submitted to the Government and paid kickbacks to physicians for referrals, are likely to cost the company close to an additional $1 billion. Many of the unresolved allegations are part of qui tam lawsuits filed by John Schilling, a former reimbursement manager, and Jim Alderson, a former hospital CFO. Both cases allege that HCA and its predecessor companies followed a policy of including in their cost reports claims for reimbursement related to medical care that they knew were inflated, unsupportable, or nonreimbursable. A major allegation is that HCA then created "reserve" cost reports that itemized improperly filed claims so that the money could be repaid to the government if the fraud was ever discovered during an audit. In addition, HCA's hospitals allegedly shifted purchase costs for home health agencies into management fees in order to qualify for Medicare reimbursement.