Lawsuit: Hospitals cheated Medicare out of millions

The main entrance of Carolinas Medical Center in Charlotte
The main entrance of Carolinas Medical Center in Charlotte rlahser@charlotteobserver.com

A newly unsealed lawsuit alleges that Carolinas Medical Center and N.C. Baptist Hospital have fraudulently obtained tens of millions of dollars from Medicare and Medicaid through an arrangement that artificially inflated their expenses.

The federal suit, filed by Forsyth County whistleblower Joe Vincoli, contends that the two hospitals overstated their costs – and thereby extracted more money from Medicare – by using a company that they own to provide health benefits to their employees.

Vincoli, 58, a former manager at N.C. Baptist, asserts in his lawsuit that all of that violated federal law.

Winning won’t be easy. The U.S. Justice Department had considered joining the lawsuit on behalf of the Medicare program, but earlier this month told the court it would not do so.

The U.S. attorney’s office declined to comment on the case. So did Carolinas HealthCare System, the nonprofit that owns CMC.

But Wake Forest Baptist Medical Center, which includes N.C. Baptist, issued a statement disputing the lawsuit’s claims.

“We fully cooperated with the government in its thorough investigation into the allegations and provided substantial documentation and information,” the statement said. “We never believed the allegations had any validity and we are pleased that the government has declined to intervene in this matter.”

Suit: Hospitals paid themselves

Here, the lawsuit maintains, is how the arrangement worked:

In 1996, Carolinas HealthCare System and N.C. Baptist Hospital bought MedCost, a for-profit company that administers health plans and contracts with hospitals and doctors’ offices to provide medical services.

The hospital systems became equal co-owners of MedCost and subsequently began using the company to administer health benefits to their own employees.

Carolinas HealthCare, the Charlotte-based nonprofit that runs Carolinas Medical Center and about 40 other hospitals, has more than $8 billion in annual revenue and employs more than 60,000 workers. Wake Forest Baptist, based in Winston-Salem, employs about 12,600 people.

MedCost is governed by a board made up of representatives from the two hospital systems.

Those employed by the systems are required to go through MedCost for their health benefits. By using a benefits company they own, the lawsuit alleges, the hospital systems have artificially inflated their benefit expenses.

That, in turn, has allowed the hospitals to collect tens of millions in additional Medicare dollars, the suit says. That’s because Medicare reimbursement to hospitals in a particular area is adjusted based on a “wage index” – a measure of how much those hospitals pay for staff wages and benefits. It’s a system that allows hospitals with high employee costs to get more Medicare reimbursement.

Medicare tries to prevent overpayments by requiring hospitals to report whether any of the money they’ve spent has been paid to organizations they own or control. But the suit alleges that the two hospitals hid the fact that MedCost was a related party.

Under federal rules, if hospitals pay money to a related party and don’t disclose it, they can be required to refund what Medicare paid them.

The lawsuit asserts that the scheme also hurt hospital employees, because it allowed the two systems to overcharge workers for their health care.

CHS: MedCost a good deal

Carolinas HealthCare officials have argued that the MedCost health plan offers good benefits at a competitive price. CHS lawyer Brett Denton said in a 2010 interview that the hospital chain needs to provide a competitive health plan in order to attract and retain good employees.

In 2006 and 2007, Vincoli was N.C. Baptist’s director of managed care, a job that made him responsible for negotiating the hospital’s contracts with MedCost and other payers. He filed the lawsuit in 2009. A judge sealed it in order to give federal authorities time to investigate, but that seal was lifted recently, after the U.S. Justice Department opted not to join the case.

It’s not clear why the Justice Department chose not to intervene. But one of Vincoli’s lawyers said the department still has the option to join the case.

Vincoli, who filed the suit under the name of a partnership called “Complin,” acknowledged that he’s the plaintiff. At the advice of his attorneys, he declined to comment.

But if he prevails, he could win millions. Under the federal False Claims Act, whistleblowers who uncover fraud against the government are entitled to up to 35 percent of what the government recovers.

Taxpayers could benefit, too, one of his attorneys says.

“It’s a problem we think could spread and become more costly to the government,” said Philip Michael, a New York City lawyer who is helping represent Vincoli in the case. “So we’re going to try to put an end to it.”

Labor Department investigating

Most of the lawsuit’s allegations center on N.C. Baptist, where Vincoli previously worked.

In 2009, Baptist’s employees sued the hospital. They alleged that the hospital’s choice of MedCost was not serving the best interests of employees.

As a preferred provider organization, or PPO, MedCost is supposed to negotiate on behalf of employees to get discounts for medical services from hospitals and doctors’ offices.

But N.C. Baptist employees contended the hospital selected MedCost, its subsidiary, because it wanted its employees in a PPO that wouldn’t drive a hard bargain on treatment costs employees pay at the hospital.

N.C. Baptist ultimately agreed to pay nearly $5.4 million to settle the suit. The federal Labor Department later ruled that N.C. Baptist had not demonstrated that it was adequately protecting employees.

In 2010, Vincoli called the federal Labor Department to file a similar complaint about Carolinas HealthCare System, MedCost’s other co-owner. The department soon began investigating.

The federal Employee Retirement Income Security Act, known as ERISA, prohibits most employers from using companies they own to provide health benefits for employees – unless they can show the Labor Department that they’re putting employees’ interests first. Vincoli questioned whether Carolinas HealthCare’s ownership and use of MedCost violated the law.

CHS officials have contended they’re not governed by the federal law because of a provision that excludes governmental employers. CHS, one of the nation’s largest public hospital systems, is a governmental entity known as a “hospital authority.”

The Labor Department’s investigation remains open.

Alexander: 704-358-5060

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