Metropolitan News-Enterprise


Tuesday, July 15, 2008


Page 3


Court: Medicare Cost Reports Violated False Claims Act


By SHERRI M. OKAMOTO, Staff Writer


A health care provider violated the federal False Claims Act when it requested reimbursement from the Medicare program for bankruptcy legal fees and interest, additional space unrelated to patient care and management fees, the Ninth U.S. Circuit Court of Appeal held yesterday.

A three-judge panel upheld the district court’s judgment holding the owner-operators of a Chula Vista psychiatric hospital liable for filing false claims, as well as an award for trebled damages, for defrauding the Medicare reimbursement process.

Bayview Hospital and Mental Health Systems was a psychiatric hospital that participated in the Medicare program between 1994 and 2000. It was owned and operated by a California limited partnership, known as California Psychiatric Management Services.

CPMS’ only general partners were single-employee corporations controlled by Robert I. Bourseau and Dr. Rudra Sabaratnam.

The Medicare program reimburses hospitals, for the reasonable costs of services that the hospitals provide to Medicare beneficiaries, the portion of costs that relate to Medicare patients.

The government contracts with private insurance companies which pay providers an interim amount periodically throughout the year, based on the estimated treatment costs for Medicare patients. Each year, the providers submit a cost report to the intermediates providing a final accounting of their actual treatment costs for Medicare patients that year.

Intermediaries make an initial retroactive adjustment to the interim payments as soon as they receive the cost reports, generally accepting the costs as reported, although the reports are later subject to an audit. The intermediary uses the cost report to determine whether a provider, or Medicare, is owed money based on the difference between the interim payments already paid to the provider and the actual amount that was actually due to the provider.

CPMS declared bankruptcy in 1996 and reorganized, and between 1997 and 1999, Bourseau included interest on loans, bankruptcy legal fees and other expenses CPMS’ cost reports to its intermediary, Mutual of Omaha Insurance Company, even though the expenses were unrelated to Bayview’s Medicare patient services and CPMS never made any interest payments.

Mutual of Omaha never made adjustments to Bayview’s cost reports, never audited the cost reports and never collected overpayments or paid underpayments.

After CPMS filed for bankruptcy again in 2000, the government filed suit against CPMS, Bourseau, Sabaratnam and their corporations, for alleged violations of the False Claims Act.

The False Claims Act punishes anyone who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.”

U.S. District Court Judge Roger T. Benitez of the Southern District of California found that the 1997, 1998 and 1999 cost reports constituted false claims under the act. By including false costs in the reports, he determined that Bayview had decreased the amount it owed Medicare by $5,219,195.

Benitez held the defendants jointly and severally liable to the government for $15,657,585 in treble damages and $31,000 in civil penalties.

Writing for the appellate court, Judge Robert R. Beezer explained that the Medicare regulations impose an obligation on a medical provider who receives interim payments from the Medicare Trust Fund to repay any overpayments at the end of each reporting period, as well as an obligation for the government to pay any underpayments at the end of each reporting period.

Thus, he reasoned, by including nonexistent, nonallowed and inflated costs in their cost reports, defendants concealed and decreased the amounts that they were obligated to repay to Medicare.

Even though the cost reports are not final until after an audit and the specific amount of the repayment obligation may not be known at the time the report is filed, Beezer wrote, both sides are under a continuing, specific obligation to repay each other.

He noted that CPMS’ bankruptcy may have frozen both the rate for interim payments and Medicare’s ability to collect overpayments, but it did not eliminate CPMS’ obligation to reimburse Medicare for overpayments. This obligation was fixed, Beezer explained, even if the specific amount of the repayment obligation was not.

Further, Beezer wrote, the defendants’ cost report entries were material because they had the potential effect, or natural tendency, to decrease the amount CPMS owed Medicare in overpayments, despite the fact that cost reports were never audited.

Although Sabaratnam did not prepare or sign the cost reports, Beezer reasoned the doctor acted with “deliberate indifference” when he agreed to submit cost reports without making any inquiry into the veracity of its contents.

Beezer also concluded the award of treble damages was proper because the false entries in the cost reports impeded Medicare’s ability to determine whether it should have decreased interim payments, substantial evidence supported the district court’s calculation, and the court’s judgment was not disproportional to the gravity of the defendants’ offense.

Judges Cynthia Holcomb Hall and Barry G. Silverman joined Beezer in his opinion.

The case is United States v. Bourseau, 06-56741.


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