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Gender Inequality

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Running Head: Medical Billing Fraud

Medical Billing Fraud

Rebecca A. Recker

Limestone University


I chose to do my research paper on Medical billing fraud for many reasons. The first and most important reason to me is that I have been a first hand witness to medical billing fraud while I worked as a Practice manager at a very well-known hospital residency clinic. I reported the erroneous billing procedures to many levels of superiors only to be told that they have always done it that way. Ultimately, a new CEO came into place and the problems were rectified, but it did open my eyes to the unethical billing procedures that some have come to consider the "norm" in many Healthcare settings. In this paper I will discuss one particular case in which John W. Schilling took on a Healthcare giant and won a Qui Tam Lawsuit he filed back in the 1990's.

Medical Billing Fraud

In my paper on Healthcare billing fraud I must first define it as detailed in the case I am presenting. Fraud under the False Claim Act means that a contractor has knowingly presented a false claim for payment to the United States. The fraud can occur wherever federal or state monies are directly or indirectly used to purchase services or goods.

The most common forms of healthcare fraud and abuse relate to the areas of false claims and billing practices. For example, billing for services not rendered such as submitting bills for physician examinations, ex-rays, and laboratory tests that were never delivered. Other examples are up coding and unbundling. There are many more types of medical billing fraud. Double billing is one where charging more than once for the same service, for example by billing using an individual code and again as part of an automated or bundled set of tests.

The case that I am going to focus mainly on in this paper is one brought on by Columbia Healthcare defrauding Medicare by submitting false information in cost reports in the early 1990's. A man by the name of John W. Schilling set about to expose the fraud after many attempts to encourage his superiors and company to fix the problem/fraudulent cost reports. Schilling ultimately had to make a decision to go along with the company and remain a loyal "company man" or do what is ethically right and report these violations. Schilling chose the latter and became enmeshed in a 7-year battle with Columbia Healthcare and the U.S. Government. He filed what is called a Qui Tam Lawsuit. Qui Tam actually is a Latin term for a type of lawsuit in which a private individual files a lawsuit on behalf of the federal or state government for fraud committed by someone-a company or individual that is cheating the government. Sometimes doing the right thing is difficult when faced with the real possibilities that you might find yourself harassed, unemployed, or retaliated against. Schilling had all of these things happen to him. Whistleblowers often face all of these fears and yet proceed anyway because ultimately it is the right thing to do. As stated in our text, "Whistle blowing is something that can be done only by a (past or present) member of an organization. Whistle blowing involves exposing activities that are harmful, immoral, or contrary to the public interest or to the legitimate goals and purposes of the organization." (Shaw, Barry, 2007).

In the case of John Schilling he had utilized what he thought to be all of the appropriate channels of reporting this unethical behavior before filing his Qui Tam lawsuit. He felt that he had a moral and ethical obligation to report these acts perpetrated by Columbia Healthcare and protected by his superiors. Some later would counter that he was only motivated by greed in hopes of coming into a large settlement from his Qui Tam lawsuit. In fact, during closing arguments on attorney stated, "Schilling is the Lotto Man...seeking to hit the jackpot...and become a millionaire before he turns 40." (Schilling, 2008).

The facts of this case began in the fall of 1993. John W. Schilling was an accountant by trade. He had been offered and accepted a position with Columbia Healthcare as the supervisor of reimbursement services. He and his wife relocated from Wisconsin to Florida to begin this new chapter of their lives. He had previously held a position as a Medicare reimbursement specialist at a small hospital in Wisconsin. His new employer, Columbia Healthcare, was becoming a giant in the Healthcare industry. Led by cofounder and CEO Richard Scott, Columbia owned 94 hospitals and complementary healthcare facilities in eighteen states. The estimated annual revenues exceeded $5 billion. (Schilling, 2008).

Within the first year in his new job he fielded a seemingly innocent question from an auditor for Blue Cross and Blue Shield of Florida which was the fiscal intermediary he worked with regularly. These fiscal intermediaries, or FI as they are often called, conduct yearly audits of hospital Medicare cost reports. (Schilling, 2008). On this particular call the auditor asked John if he knew anything about the reopening of a cost report for one of their hospitals called Fawcett Memorial Hospital. John stated that he did not but promised to look into it. Because his boss was out of the office, John made the decision to call the controller of Fawcett Memorial directly to get an answer. He spoke to Jim Burns, the controller, and asked him about the reopening of the cost reports from 1984 and 1985. John Burns relayed to John that he thought the reopening had something to do with an "interest issue". (Schilling, 2008). Little did John know that this phone call would lead to what has been called the largest healthcare fraud case in the United States history. When his superior, Bob Whiteside, found out he had inquired about the "Fawcett Issue", he became enraged. He demanded that John "let it go" and even stated that someone could lose their job over this. (Schilling, 2008).

The Fawcett Interest Case was a debt interest expense question emanating from a mortgage loan from Manufactures Hanover to an HCA predecessor company, the for-profit hospital chain Basic American Medical, Inc. (BAMI). The original loan of around $15 million was to Fawcett Memorial Hospital, one of the five hospitals then owned by Indianapolis based BAMI. In 1982, 46% of the loan proceeds were targeted for capital expenditures and 54% were allocated to operations. In 1983, the loan was included in a 13.25 million refinancing package with Northwest National Life. The fiscal intermediary ultimately concluded-and Fawcett agreed-that 39% of the new debt was used for



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