Whistleblowers Knew About Medicare Fraud

By John Davis, WGCU

Jun 18, 2010 –- Two whistleblowers say the new front-runner in the Republican race for governor is lying when he says he did not know about fraud in his former company, the Columbia/HCA hospital chain.

In July 1997, FBI agents raided Columbia/HCA accounting offices in seven states, including Florida. Within days, Columbia’s board of directors ousted Scott, but gave him a nearly $10 million severance package, including stock shares worth $300 million and a $1 million a year consulting contract.

The company wound up paying more than $1.7 billion for defrauding the federal Medicare and Medicaid programs.

Scott says he didn’t know about his company’s fraudulent billing practices and if he had, he’d have fired those responsible.

But company whistleblower John Schilling of Naples says Scott must be lying.

“He’s pulling the wool over your eyes if he says that he wasn’t aware of this and he would have fired anybody if he would have been aware of it. I think it’s a bunch of malarkey,” Schilling said.

Schilling worked for Columbia as a Medicare reimbursement supervisor in Fort Myers. His whistleblower case, along with others, helped put an end to the fraud and hold the company accountable.

Schilling first discovered the company’s fraudulent billing practices in 1993 after a call from a Medicare auditor about a cost reporting issue with Fawcett Memorial Hospital in Port Charlotte.

Schilling describes a meeting he had with Columbia administrators, during which he was instructed to “throw federal auditors off the track.” That included offering one of the auditors a job.

“They didn’t use the word conspire, but it was basically a conspiracy of, let’s think of some ideas and have John do this,” he said.

“Well, at the end of that to-do list, Jay Jarrell, the CFO said, ‘Well, if all else fails, let’s just offer the Medicare auditor a job with the company.’ And it was at that point, that I really started to feel sick to my stomach that, this is not right.

“You don’t want to offer a Medicare auditor a job. If this was a mistake, why are we trying to hide this?” he said.

Schilling left the company and filed a lawsuit on behalf of the federal government. Then Columbia began courting Schilling to come back. At this time, the FBI was already on the case – and Schilling says his life began to resemble a John Grisham novel.

“The FBI saw that it was a good opportunity for me to get back into the organization and kind of be their eyes and ears,” Schilling said.

He said the FBI wanted help with their search warrants and “just to kind of be that fly on the wall or spy within the organization,” he said.

“I worked my way back into the company. They had no idea I was a government informant,” he said.

Schilling’s case was merged with that of another whistleblower in Montana: former HCA hospital CFO Jim Alderson.

Alderson says he believes he was fired because of his refusal to abide by accounting practices that maintained two separate sets of books: one showing reimbursements submitted to Medicare, and another secret book documenting fraudulent claims that would be rejected if found by Medicare auditors.

The company maintained large reserve funds in case auditors ever discovered the false claims and had to pay up. Alderson says the practice was so widespread, that Scott had to know about it.

“These reserves represented anywhere from 25 to 35 percent of the bottom line of the company in its heyday,” Alderson said.

“It’s just totally unfeasible that a CEO making the kind of money he was making, that you wouldn’t know where 30 percent of your bottom line came from. How could you sit in a board room and say, ‘Gee, I wonder; we had record profits this year. I wonder where they came from?’”

Alderson says fraud also helped Scott grow the company at such a rapid rate.

“It’s a house of cards. From what we found in our case was Medicare defrauding paid for the acquisitions,” he said.

“They charged the Medicare program interest when they’d buy these other hospitals and that, in many cases, was not legal and that was a major part of our case,” Alderson said.

One of four Columbia/HCA executives convicted in the case was Bob Whiteside. He was later acquitted on appeal and says he still stands by Scott, his former boss.

Whiteside wouldn’t consent to a recorded interview. He says the billing practices didn’t start with Scott, but were adopted from one of the other companies acquired by Columbia.

Whiteside says the illegal activity was widespread within the healthcare industry, but since Columbia/HCA was the largest, the government made an example of it.

Schilling agrees that the fraud didn’t start with Columbia, but says Scott’s profit driven and cut-throat corporate culture encouraged the practice to grow. Schilling says administrators who met profit goals were rewarded with bonuses of 50 percent or more of their base salary.

“They took shortcuts, they did whatever it took to get to it because they were motivated by the money,” Schilling said.

“They had to meet certain profit margins and if they didn’t meet them, I tell you what, I saw several CEOs of hospitals or CFOs that got fired because they didn’t cut it,” he said.

Scott was never charged and says he was never questioned in the case. After leaving Columbia, he invested in a television network which became Discovery Health. He also co-founded Solantic Corporation; a chain of urgent care centers in Northeast Florida.

At an event in Tampa Friday, Scott characterized his former company's actions as a mistake.

"Sometimes, people make mistakes. And when you're CEO, you take responsibility -- which I do -- but you talk about the things you do well, which I do, and the things you've got to work on," Scott said.

"We drove down the cost of health care, we improved outcomes, we improved patient satisfaction. Could we have hired more internal auditors? You'd better believe it.

"But that's the difference. In business, if something goes wrong, you're held accountable. In government -- think about all the things that have gone wrong. Have you seen politicians take responsibility? They don't. So what you want in a leader is someone who learns, and take those learnings, and applies it to any issue and takes responsibility," Scott said.

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