Cigna unit agrees to pay $24.5 million to settle False Claims case in Medicare fraud lawsuit

Largest "cost report" fraud settlement by a single hospital

Dec. 4, 2002 — Lovelace Health System, a wholly owned subsidiary of Cigna Corp., has agreed to pay the federal government a record $24.5 million to settle a whistleblower lawsuit brought by Phillips & Cohen LLP alleging the hospital routinely mischaracterized and overstated its expenses to increase its Medicare reimbursement by tens of millions of dollars.

Lovelace, based in Albuquerque, New Mexico, defrauded the Medicare program by making false claims for reimbursement in "cost reports" and "cost-report reopenings" from 1988 to 1998, according to the "qui tam" (whistleblower) lawsuit and government charges. Lovelace also failed to report that it had received Medicare overpayments.

The U.S. attorney's office in Los Angeles joined the lawsuit after investigating the allegations. The lawsuit had been "under seal," meaning not available to the public, and was made public today. The settlement is the largest paid by a single hospital for cost-report fraud.

"This is the latest in a rapidly accelerating enforcement initiative against Medicare fraud involving the cost-report system," said Stephen Meagher, a San Francisco attorney with Phillips & Cohen LLP, which represents the whistleblower. "This record-setting settlement is a harbinger of more to come."

Under the federal cost-reporting system, hospitals file Medicare cost reports annually to receive reimbursement for treatment of Medicare patients.

Recent qui tam settlements involving cost-report fraud include those by:

  • Tenet Healthcare Corp., which paid $9.75 million to the federal government last June in a case against the Brotman Medical Center, which Tenet owns and operates, in the Los Angeles area.
  • Quorum Health Group Inc., formerly the nation's largest hospital management company, which paid $85.7 million two years ago to settle charges that it filed fraudulent "cost reports" for dozens of its clients.

The government's largest cost-report fraud case is against HCA, the nation's biggest for-profit healthcare provider. The federal government complaint seeks triple damages totaling $1.2 billion. The case currently is being litigated in the District of Columbia. HCA paid $95.3 million to settle criminal charges related to the cost-report fraud, but has not yet resolved its civil liability.

Mark Razin of Laguna Beach, Calif., filed the whistleblower lawsuit against Lovelace in 1998 in federal district court in Los Angeles. He was a former employee of Healthcare Financial Advisors Inc. (HFA), a Medicare reimbursement consultant hired by Lovelace. HFA, now owned by Certus Corp., was the subject of a 1999 search warrant.

HFA offered Lovelace and its other hospital clients a contingency arrangement whereby it received a large percentage of whatever recoveries it generated for its clients through their cost reports.

Earlier this year, another HFA client, St. Joseph's Hospital in Houston, Texas, paid $1.5 million to settle a qui tam case alleging cost-report fraud. That lawsuit also was brought by Razin.

The False Claims Act permits private individuals to file qui tam lawsuits against companies that defraud the government. Liable companies pay as much as three times the government's losses plus $5,500 to $11,000 per false claim. When the government joins the case, whistleblowers are entitled to 15 percent to 25 percent of the government's recovery.

Phillips & Cohen's practice is devoted exclusively to representing whistleblowers in qui tam lawsuits. Cases brought by the firm and its attorneys have generated civil and criminal recoveries totaling more than $2 billion.

The case referred to above is: CV98-389-GLT (ANx)