You can’t blame fraud on advice from accountants
August 1, 1999 5 minutes read
Columbia fraud case
You can’t blame fraud on advice from accountants
Now that the huge accounting firm of KPMG has been charged with helping Columbia/ HCA Healthcare perpetrate a massive fraud scheme, some risk managers may think that means you could deflect some criticism by pointing to your accounting firm and claiming, "They said it was OK."
Don’t get your hopes up. First, two of the Columbia executives were convicted recently. Second, if your company has been involved in health care fraud, you will not gain anything by claiming you were following the directions of a reputable accounting firm or that they put their impressive stamp of approval on your plans.
Even if the accountants are from a firm as huge and reputable as KPMG, the government still is going to hold you responsible, says Peter Chatfield, JD, an attorney with Phillips & Cohen in Washington, DC. The firm specializes in representing whistle-blowers in False Claims Act cases, and its cases are responsible for about two-thirds of the $1.3 billion the government has collected through whistle-blower lawsuits in the past five years.
The Phillips & Cohen firm is representing the whistle-blower in the KPMG case and two qui tam lawsuits against Columbia.
"If you have accountants coming, and they’re just blessing what you’re doing or even raising questions and letting you decide, it doesn’t insulate anyone from liability," Chatfield says. "This lawsuit against KPMG doesn’t draw fire away from the hospital. If anything, it just confirms that the government is serious about going after anyone involved in the fraud."
KPMG prepared cost reports for Columbia
KPMG (formerly KPMG Peat Marwick) is being sued for allegedly helping Columbia/HCA intentionally defraud the government. A qui tam lawsuit was unsealed recently in a federal court in Tampa, FL, charging that KPMG knew the Columbia cost reports contained false information but assisted in preparing them anyway, says Stephen Meagher, JD, an attorney with Phillips & Cohen in San Francisco.
"This case is the first seeking to hold outside accountants responsible for their role in Colum bia’s submission of false cost reporting claims to Medicare," Meagher says. "Outside accountants or consultants of any kind cannot knowingly assist their clients in submitting improper Medicare claims."
The qui tam lawsuit was filed on behalf of John Schilling, a former Columbia employee in Florida who testified in June for the prosecution at the criminal trial of the four Columbia executives facing criminal charges related to the fraud.
In October 1998, the government announced that it was suing Columbia/HCA and Quorum Health Group for purposely defrauding the government. The government claims that they orches trated a scheme for routinely overstating expenses to increase compensation from Medi care and other government programs. Along with the corporate parents, more than 200 hospitals in 37 states are defendants. The accusations center on what the feds say were secret, second sets of cost reports and worksheets that showed significantly lower expenses than the expenses submitted for reimbursement.
Known to accountants as "reserve reports," these second sets of books are not necessarily improper, according to legal and accounting experts. But the government alleges that Col umbia and Quorum went way beyond normal accounting practices and used the reserve reports to purposefully defraud the Medicare system.
There had been no fraud allegations regarding cost reporting in health care for years, so many providers began to see overstating cost reports as an easy way to increase their reimbursement from Medicare. The only risk seemed to be that the provider may be caught during an audit, but only about 25% of providers ever had their cost reports audited. And even when they got caught, the providers just had to pay back the disputed amount from a few years back with no interest.
"Reserves had been used for years, but the emphasis on for-profit hospitals turned it into something else," Meagher says. "What started in the early 1980s as an essentially acceptable accounting practice turned into a score card for how much you were getting away with."
In the lawsuit brought by the whistle-blower, Phillips & Cohen contended that Columbia/HCA and Quorum thoroughly documented their fraud. The companies needed to know, partly for projections about future earnings, what their true costs were vs. the costs they were reporting to the government. Therefore, they supposedly kept two sets of books that clearly outlined their actions.
(For an example of how the government says Columbia and Quorum provided false information to increase reimbursement, see p. 94. The records were obtained from court documents filed as part of the lawsuit against KPMG. See p. 96 for information on how risk managers could be charged with fraud.)
The upshot of the case is that two of the Col umbia executives were convicted of Medicare fraud in July, but one was acquitted on all counts. Jay Jarrell, president of the company’s Southwest division, and Robert Whiteside, former director of reimbursement for Florida, were found guilty on six of seven counts of fraud related to billing practices. Michael Neeb was acquitted on all counts. Jarrell and Whiteside are scheduled to be sentenced Oct. 15. The jury was hung on a single count of conspiracy for another executive, Carl Lynn Dick.
In all this, one important lesson may have emerged already for risk managers: When it comes to detecting and preventing fraud, risk managers may find themselves in the awkward position of knowing about improper billing but not being able to stop it. If you have brought your concerns to upper management and been dismissed with an explanation that the practices have been approved by a huge, well-known accounting firm, now is the time to show the executives how wrong they are.
The executives on trial in the Columbia scandal found that out firsthand. At least one of them, Robert Whiteside, claimed he relied on the outside accountants and others within Columbia to properly file Medicare reimbursement claims. When asked directly by prosecutors why he had not personally analyzed claims made by a Columbia hospital, the reimbursements director insisted that he thought the claims were fine as long as the account ing firm did not object. That excuse did not work in the Columbia case and is not likely to work in any other fraud case, Chatfield says.
"I think that would be a fairly common excuse, and maybe it’s thrown around the hospital just to make everyone feel better," he says. "But the basic law is that when you have conspirators in fraud, everyone is equally liable. Getting someone else’s approval doesn’t give any safe harbor." Chatfield also points out that the law does not excuse "willful blindness," or claiming ignorance of the fraud even though it was right under your nose. The government’s widening of the fraud allegations involving Columbia show that now, more than ever, you must take a hard line with billing for government reimbursement, he says.
"Look at it the same way as if the bill were being submitted to you for payment," he explains. "You’d want to see that the services were really provided, it’s what the government agreed to pay, and this isn’t treated as an opportunity to make sure the profit level is to the board’s liking. I think people often have a different mind-set with government than they would with any other customer."
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