Home Health & Hospice Week

Former MedShares exec's cost report mistakes add up quickly under False Claims Act.

If you're one of the many home health agencies convinced that your cost report is a low priority these days, a recent court decision may change your mind.

Even though a home health agency owner received no money directly from an expense recorded on a cost report, he is still on the hook for False Claims Act charges, the Sixth Circuit Court of Appeals said in a decision issued March 10.

"The allowable/unallowable cost rules still apply," Burtonsville, MD-based health care attorney Elizabeth Hogue reminds HHAs. "The industry may be in for some surprises with regard to cost reports as the basis for allegations of false claims."

In June 1993 Stephen Winters bought Trevecca Home Health Services Inc., a Medicare-certified HHA in the Nashville, TN area, from A+ Homecare, according to U.S. v. Medshares Management Group Inc. (No. 02-6545). Winters owned MMGI and other related Medshares units.

The problem started when Winters decided to make a pension plan contribution for Trevecca for the entire fiscal year 1993 period, even though he bought the agency only in the last month of that year, according to the decision.

A+ Homecare had 400 employees on its payroll for the period in question, but not all of those were Trevecca employees. In fact, when Winters bought Trevecca, the HHA had only 57 employees.

MMGI tried to get the employee numbers from A+ Homecare but couldn't, it said. But Winters directed MMGI employees to estimate a pension contribution onthe larger number of employees anyway, without knowing the number of employees who worked for Trevecca that year or who qualified for the MMGI pension plan.

Trevecca submitted the cost on its interim rate report in 1993, and the pension cost took the agency from an overpayment (owing money back to Medicare) to an underpayment (receiving money from Medicare) on the IRR. Then, Trevecca submitted the cost on its 1995 cost report, the court says.

Intermediary Palmetto GBA disallowed the cost, but Winters, MMGI and Trevecca got hit with a False Claims Act suit anyway. A+ Homecare had filed a qui tam suit and the government took it up.

Because MMGI and Trevecca went into bankruptcy, the suit proceeded against Winters. It charged Winters with knowingly submitting a false pension expense of about $527,000 on the IRR, knowingly submitting a false pension expense of nearly $621,000 on the cost report, and providing false information to Palmetto during an audit.

The district court granted summary judgment on the audit charge, but in 2002, a jury found Winters guilty of the other FCA charges. The jury awarded $1.1 million in damages, but the district court reduced the damages to the $602,000 amount the government requested. Thanks to the FCA's treble damages provisions, though, Winters ultimately was ordered to shell out $1.8 million, the decision recounts.

Appeal Shot Down

Winters appealed to the Sixth Circuit. In addition to a number of procedural arguments, Winters asked for summary judgment because the weight of evidence went against the jury decision.

But the appeals court shot down Winters on all counts. The "actual result is not dispositive of liability under the FCA," the court said. Winters would have gained reimbursement if Palmetto had not disallowed the pension costs, and the "potential effect" counts toward FCA liability, the court noted.

Thus, the court upheld the $1.8 million judgment against Winters.

Winters is currently deciding whether to pursue further appeals, Winters' attorney, Matt Kirtland with Fulbright & Jaworski in Washington, DC, tells Eli.

Watch out: HHA owners should realize that mistakes can easily be construed as fraud by whistleblowers eager to cash in, Hogue warns.
 
"Many agency managers still seem to think ... regulators have to show that you sat at your desk one day and decided to defraud the government," she explains. "They miss the point that intent can be shown if there was a pattern of fraudulent conduct that providers knew or should have known about."

Winters "engaged in a common industry practice for those times," notes cost report consultant Tom Boyd with Boyd & Nicholas in Rohnert Park, CA. Many HHAs would accrue pension costs and "count on funding it within the year or usually by the time they needed to for plan requirements or taxes," Boyd tells Eli.

At the time of accrual, pension costs would have to be estimated, Boyd says.

In the trial, former cost report veteran Bernard Lorenz with American Express Tax & Business Services testified that Winters "properly accrued and reported deferred compensation costs" on the IRR and cost report, according to the decision.