Government joins whistleblower lawsuit against Community Health Systems alleging Medicaid fraud

ALBUQUERQUE, NEW MEXICO, March 6, 2009 -- After investigating a whistleblower's allegations, the federal government has filed notice in federal court that it will pursue a claim against Community Health Systems Inc. (NYSE: CYH), a for-profit hospital company, for fraudulently taking more than $47.5 million from a Medicaid program that helps states make supplemental payments for indigent healthcare.

Beginning in 2000, CHS manipulated a Medicaid payment program to get millions of dollars annually for three CHS hospitals in New Mexico that the hospitals weren't entitled to receive, according to a "qui tam" (whistleblower) lawsuit the government has joined and was "unsealed" (made public) today.

If found liable in court, CHS would have to pay three times the federal government's losses plus penalties for each false claim it made, bringing the hospital company's potential liability to more than $142 million. The headquarters of CHS is located in Franklin, Tennessee.

The allegations involve payments the New Mexico hospitals claimed under Medicaid's "Sole Community Provider" program. If a hospital is the only one within an area, it can qualify for higher payments or cost reimbursement under the Sole Community Provider program to assure the financial viability of rural facilities and attract providers to underserved urban and rural areas.

The three hospitals named in the lawsuit are Eastern New Mexico Medical Center in Roswell (Chaves County), New Mexico; Mimbres Memorial Hospital in Deming (Luna County), New Mexico; and Alta Vista Regional Hospital, in Las Vegas (San Miguel County), New Mexico.

"When these hospitals take payments from Medicaid for which they do not qualify and that may exceed their actual cost of providing care to Medicaid patients, then those federal funds aren't available for other hospitals in need," said Peter W Chatfield, a Washington, DC, attorney with Phillips & Cohen LLP, which is representing the whistleblower. "The government can't allow hospitals who don't play by the rules to take advantage of those who do."

A hospital can get "Sole Community Provider" payments through Medicaid only if the state and, in New Mexico's case, the local county contribute a certain percentage of the overall Medicaid expenditure. Congress mandated state or local government investment in Medicaid expendi­tures to ensure states have an investor stake in prioritizing program spending and controlling waste and abuse. This also ensures that federal resources are fairly distributed between participating hospitals and states, based on need, local commitment to funding and federally mandated ratios between state and federal spending.

The amount awarded to each state depends on need. In New Mexico, the federal government has contributed in some years as much as 77 percent of the total costs of the Medicaid program.

CHS worked out arrangements with the local county governments in New Mexico to "donate" money to the counties in amounts calculated to pay all or most of the counties' share of the disproportionate share payments so that the CHS hospitals would get more federal money.

Often within a day of receiving such "unrestricted donations," the counties would send checks written for exactly the same amount as the "donations" to New Mexico's Medical Assistance Division to secure federal matching funds. Within a few weeks or months, the hospitals would get back the amount they had "donated" plus three times more in federal payments, amounting annually to millions of dollars in improperly obtained federal matching funds.

"Congress set clear rules to ensure that state and local governments share the cost of taking care of their own residents rather than placing the entire burden on federal taxpayers," attorney Chatfield said. "We have email and other documents that show CHS was aware that 'donations' to the counties, which used the money so that CHS hospitals could get more Medicaid funds, would violate federal regulations."

The qui tam lawsuit, brought under the False Claims Act, was filed in federal district court in Albuquerque in March, 2005 by Robert Baker, who worked in CHS's revenue management department in Franklin, Tennessee, for three years. He quit in 2004 principally because he was concerned about CHS's "donations" to the New Mexico counties and the role he was directed to play in concealing the accounting trail to such misconduct.

The False Claims Act allows private individuals to sue companies that are cheating the government and recover funds on the government's behalf. The whistleblower lawsuits are filed "under seal," meaning they aren't made public, to give the government time to investigate the allegations and to decide whether to join the case. Whistleblowers, known as "relators," are entitled to 15 percent to 25 percent of the amount recovered as a result of qui tam lawsuits.

In the intervention notice filed with the court, the Justice Department asked the court for 120 days to file its own complaint.