Tenet to pay $55.75 million to settle Medicare fraud charges

Settlement includes LA hospital whistleblower case

June 18, 2002 - Tenet Healthcare Corp. has agreed to pay a total of $55.75 million to the federal government to settle numerous allegations of Medicare fraud, including a whistleblower lawsuit brought by Phillips & Cohen LLP alleging Brotman Medical Center, a Tenet owned-and-operated facility in the Los Angeles area, filed fraudulent Medicare "cost reports."

The other matters being settled involve overbilling by a home health agency once operated by Palmetto General Hospital in Florida and billing violations by Tenet's outpatient clinical laboratory services, Tenet announced today.

According to the "qui tam" (whistleblower) lawsuit, which the Department of Justice joined, Brotman improperly shifted costs from its general inpatient population to the rehabilitation unit to increase its Medicare reimbursement.

To curb escalating healthcare costs and prevent abuse, hospitals since 1983 have been reimbursed a fixed amount based on the patient's diagnosis for the majority of their inpatient care. However, specialized inpatient care, like that provided in rehabilitation or psychiatric units, continues to be reimbursed based on the actual costs incurred (up to a limit).

"In Brotman's case, Medicare reimbursed it for rehabilitation patients at twice the amount for general acute care patients," said Stephen Meagher, a San Francisco attorney with Phillips & Cohen LLP, which represents the whistleblower. "By shifting costs into rehabilitation units, as Brotman did, hospitals can bilk the Medicare system for substantial amounts."

Tenet paid $9.75 million to settle the qui tam case, which was initiated by Brotman's former controller, William Noll.

The lawsuit alleged that Brotman inflated the number of Medicare patients that were actually treated in its rehabilitation unit. From the rehab unit's inception in 1988 to 1995, its 20 licensed rehabilitation unit beds routinely were full. The lawsuit said Brotman placed overflow rehab patients, many of whom were covered by Medicare, in its general adults and pediatrics unit. However, to increase its Medicare reimbursement, the hospital claimed they were rehab unit patients treated in rehab unit beds.

Brotman also improperly increased the limit Medicare paid it for treating rehab patients by inflating the number of Medicare patients discharged from its rehab unit, according to the lawsuit. The number of discharges is a factor in the formula that determines the amount of reimbursement. The amount of square footage attributed to the rehab unit, another factor Medicare uses to allocate costs, was also artificially inflated, the lawsuit said.

The qui tam case was made public today when the settlement was announced. Like all qui tam lawsuits filed under the False Claims Act, it had been under seal - meaning not made public - to give the government time to investigate the whistleblower's allegations.

Mr. Noll filed the qui tam case in federal district court in Los Angeles in 1998 after informing senior management of the impropriety of these practices and no corrective actions were taken. Tenet acquired Brotman from OrNda Corp. in 1997.

The False Claims Act allows individuals to sue companies that are defrauding the government. Liable companies may have to pay the government as much as three times the government's losses plus $5,500 to $11,000 for each false claim.

Phillips & Cohen's practice is devoted exclusively to representing whistleblowers in qui tam lawsuits.

For more information about Phillips & Cohen's record, see P&C's Successful Whistleblower Cases.

For more information, please see the following news stories:

  • "Playing it cool: Tenet keeps calm, will pay $56 million to settle billing fraud allegations at hospital," Mark Taylor, Modern Healthcare, 6/24/02.
  • "Tenet Healthcare agrees to pay $55.8 million to settle inquiries," Rhonda L. Rundle, The Wall Street Journal, 6/19/02.
  • "Hospital settles billing case," John Dorschner, The Miami Herald, 6/19/02.
  • "California Tenet's $55.8 million payment settles claims," Los Angeles Times, 6/19/02.
  • "Tenet to pay $55.8 million to settle billing probe," Deborah Stern, Bloomberg News, 6/18/02.