Government joins second Columbia whistleblower case

Lawsuit alleges company boosted its profits and financed acquisition of home health agencies through fraudulent Medicare cost reports

Dec. 30, 1998 -- The Justice Department today joined a second whistleblower lawsuit against Columbia/HCA Corp. in Tampa, Fla.

The case is related to the whistleblower lawsuit the federal government joined in October filed by James F. Alderson. Both lawsuits allege a systematic scheme to defraud the Medicare program through the "cost reports" Columbia submitted annually for Medicare reimbursement.

The lawsuit unsealed today also alleges Columbia misrepresented its costs so that the federal government would unwittingly finance its acquisition of home health care agencies from Olsten Corp.

"Taken together, these lawsuits reveal that the heart of the case against Columbia is pervasive cost reporting fraud," said Stephen Meagher, a San Francisco attorney with Phillips & Cohen. The firm is representing both whistleblowers.

The latest whistleblower, or "qui tam," lawsuit was brought by John W. Schilling, a former reimbursement manager for Columbia in Florida. He filed the case in federal district court in Tampa in 1996 under seal, as required by the False Claims Act, to give the government time to investigate the fraud allegations.

Schilling's lawsuit reveals that he was the source of the information leading to the criminal case pending against four Columbia executives currently awaiting trial in Florida.

"Schilling's cooperation with the government's investigation was extraordinary," Meagher said. "He provided documents and the evidence that are the foundation of the government's criminal case."

Schilling is not available for comment because he will be a witness in the criminal trial, set for May.

Schilling worked for Columbia in its Southwest Florida division from 1993 to 1995. He left the company, then returned after filing his lawsuit. He first worked as a consultant and later accepted a job as a financial manager at a Columbia facility in 1997. Schilling no longer works at Columbia.

Schilling became aware of Columbia's fraudulent practices when he was instructed by his superiors to try to divert the attention of a Medicare auditor who raised questions about one issue in a cost report Columbia had filed. They suggested offering the auditor a better-paying job with Columbia if she pressed to investigate the cost report further.

After Schilling left Columbia and returned, he uncovered additional evidence of cost reporting fraud involving Columbia's home health operations. When Columbia acquired Olsten's home health business in 1994, it paid Olsten wildly inflated management fees instead of a realistic purchase price. The cost of management fees can be passed on to Medicare through cost reports.

Once in the home health business, Columbia shifted marketing and other hospital expenses into the home health agencies so that they could be reimbursed, again through the cost reports, at a higher rate.

"Fraud in medicare cost reporting is a widespread problem, and these cases show the government's intention to prosecute those who try to game the system," said Peter W. Chatfield, a Washington, D.C. attorney with Phillips & Cohen.

Both Schilling's and Alderson's lawsuits were filed under the False Claims Act, which allows private individuals to sue companies that are defrauding the government and recover money on the government's behalf. The "relators," as the whistleblowers are called, are entitled to a share of the recoveries. Liable companies may be required to pay up to three times the government's losses and $5,000 to $10,000 for each false claim.

Cases referred to above are:

U.S. ex rel. John Schilling v. Columbia/HCA, case no. 96-1264-CIV-T-23B

U.S. ex rel. James F. Alderson v. Columbia/HCA, case no. 97-2035-CIV-T-23E

For more information about this case, see the following news stories:

  • "U.S. suit charges fraud by two big hospital chains," Kurt Eichenwald, The New York Times, 12/31/98.
  • "U.S. joins second suit alleging fraud by Columbia Healthcare," Lucette Lagnado, The Wall Street Journal, 12/31/98.
  • "Justice Dept. joins suit against Columbia/HCA; whistleblower alleges Medicare fraud," David S. Hilzenrath, The Washington Post, 12/31/98.
  • "Feds join second suit against Columbia," Kris Hundley, St. Petersburg Times, 12/31/98.