March 2003

HCA Inc. Reaches Tentative $631 Million
Health Care Fraud Settlement

In December 2002, the Department of Justice announced that HCA, formerly known as Columbia/HCA Healthcare Corporation, had agreed to a tentative understanding to pay $881 million to settle allegations of health care fraud. This amount includes $631 million in fines and penalties to resolve all outstanding civil litigation with the Justice Department and $250 million to be paid to the Medicare program to resolve expense claims. The Government alleged that HCA submitted false cost reports, false requests for management fees and marketing expenses from its wound-care centers, and that HCA paid illegal kickbacks for doctor referrals. When added to the prior civil and criminal settlements reached in 2000 with HCA, this tentative settlement would bring the government's total recovery from the for-profit health care provider to approximately $1.7 billion, according to DOJ. DOJ senior officials, the qui tam whistleblowers, and a federal judge have yet to approve this tentative agreement.

Eight whistleblowers filed separate qui tam actions in this matter dating as far back as 1993. John Schilling and James Alderson, represented by Phillips & Cohen L.L.P. (Washington, DC), filed the cost report fraud cases. John Phillips of the Phillips & Cohen firm stated that the government has not announced how much of the settlement would be attributed to the cost report cases, pointing out that Medicare lost more than $600 million as a result of HCA's alleged cost report fraud. Similarly, DOJ has not indicated what part of the tentative settlement would be attributed to the kickback and wound-care allegations. [The other firms representing the cost report whistleblowers are Heller Ehrman; Hennigan, Bennett & Dorman; Irell & Manella; Boies Schiller & Flexner LLP; and James, Hoyer, Newcomer & Simljanich.]

In October 2002, Senator Chuck Grassley, Chairman of the Senate Finance Committee, wrote to government officials questioning whether the government's proposed fraud settlement with HCA was too lenient. Senator Grassley said the $250 million settlement announced in March 2002 was not supported by any internal or external Center for Medicare and Medicaid Services (CMS) study of HCA's records. Following the announcement of the new tentative settlement agreement, Senator Grassley commented: "The most important question is unanswered. That's whether the taxpayers will get their money back from any fraud perpetrated by HCA. I haven't seen the statistical evidence to show this settlement will fairly compensate the taxpayers for their losses. Until I see the math, I'll remain skeptical."