Fraudulent Medicare Supervision Alleged : Firm Failed to Review 50,000 Cases, U.S. Says in Joining Whistle-Blower Suit

A private California company under government contract to guard against inappropriate health care for the state’s 3 million Medicare patients has been accused in a recently unsealed federal lawsuit of fraudulently signing off on tens of thousands of cases without ever reviewing them.

The U.S. attorney’s office in San Francisco has joined two company whistle-blowers in a civil lawsuit against California Medical Review Inc., a nonprofit San Francisco company also known as CMRI, whose explosive growth has been fueled during the last four years by its contract with the federal government to review all hospitalizations in California reimbursed through the federal Medicare program. A federal criminal investigation of the company is also under way.

CMRI’s chief executive officer has denied all allegations, and the company last month secured a renewal of its contract with the U.S. Health Care Financing Administration. The contract term was boosted from two years to three, and the amount was raised from $27 million to $82 million.

In an effort to control spending and crack down on poor patient care in the Medicare program, the government has contracted since 1984 with 56 so-called “peer-review organizations” nationwide. These organizations, the largest of which is California Medical Review, were paid a total of $155 million in 1987 to evaluate patient care and recommend sanctions against doctors and hospitals that provide inadequate, unnecessary or poor-quality treatment.

Because the review process is typically cloaked in confidentiality, the lawsuit against CMRI offers a rare glimpse at the inner workings of a company that acts as a primary safeguard against improper medical care for the state’s elderly.

The charges against the company were initially made in a $50-million lawsuit filed under the U.S. False Claims Act by two employees last fall. After reviewing the case, the U.S. attorney’s office found the claim sufficiently meritorious to intervene in the case in January, filing an amended complaint alleging that the company failed to review more than 50,000 cases as required. The complaint was unsealed without publicity in late March and obtained Monday by The Times.

In a sworn affidavit, company employee Guy McCoy, a records reviewer, charged that in the fall of 1986 the company faced a huge a backlog of tens of thousands of cases, and that a manager directed that these cases not be reviewed, as required, and instead be placed in her office.

“The stack of charts grew,” the affidavit said, “until it reached a size of six to seven feet wide, four to five feet deep and four to five feet high. . . . The stack remained in . . . (the) office approximately one week; then one Monday morning in September I noticed it was gone.”

McCoy stated that a few months later he discovered that these files were among about 30,000 charts that had been certified as reviewed “without any evaluation whatsoever.”

According to the lawsuit, the company’s computers showed that 30,000 charts were certified as having been reviewed by CMRI official Alan Snodgrass during two days in September. “These charts were not reviewed,” the lawsuit said. “It is not humanly possible for one person to review 30,000 charts in two days.” The standard practice was to review about six or seven a day.

‘Fraudulent Practices’

McCoy and fellow whistle-blower Frank Hellum, who no longer works for CMRI, charged that the incident was part of “ongoing fraudulent practices at CMRI,” which “occurred on numerous occasions over several years.” They charged that the company defrauded the government by billing it more than $2 million during that period for work that was not done.

The whistle-blowers brought their lawsuit under the recently amended U.S. False Claims Act, a law that creates incentives for individuals to report fraud involving government contractors by allowing them to personally collect up to 30% of the damages awarded to the government by a jury. The law has been used extensively in recent months against major defense contractors in connection with alleged fraud in the defense industry.

U.S. Justice Department spokeswoman Amelia Brown said she believes that this is the first time that a medical organization such as CMRI has been targeted under the act.

Since October, 1986, 140 lawsuits have been filed by whistle-blowers against government contractors of all sorts, she said. The government has joined 60 of them and declined to join 20. Decisions on the rest are pending.

Jo Ellen H. Ross, CMRI’s chief executive officer and one of four company officials named as defendants in the lawsuit, said: “We are confident that there were no acts of misbehavior. We are proud of our record of performance on behalf of California’s senior citizens.”

She added that the company has been cooperating with federal officials conducting a criminal investigation of the company for the inspector general’s office of the U.S. Department of Health and Human Services.

Through the company’s review of Medicare claims, Ross said that CMRI saved the government $79 million during a recent two-year period.

Dr. Sidney Wolfe, director of the Public Citizen Health Research Group in Washington, said he considers CMRI “one of the better peer-review organizations in the country,” based on its relatively aggressive pursuit of bad doctors and its willingness to publish data on hospital mortality rates.

Similar but smaller organizations in other states, he said, are “doing next to nothing. . . . They’re a disaster.”

The performance varies widely, according to a study done last year by the federal General Accounting Office.

“Considering the importance of the role peer-review organizations are intended to play in controlling costs and assessing quality, surprisingly little is known about their operations or effectiveness,” the report said. It added that there has been no systematic analysis of the spread between the most- and least-aggressive group.

Harvey Brook, deputy director of the office of peer review at the Health Care Financing Administration, said that CMRI reviewed about 567,000 cases from October, 1986, to February, 1989, and denied 15,000 claims for payment. The rate of denial, he said, was slightly above the national average. The company found quality-of-care problems in an additional 47,000 cases. In four instances, the medical care was so egregious that the company recommended that the government take formal sanctions against the doctors--such as denying them participation in the Medicare program.

In March, the government signed a new contract with CMRI for three years and $82 million.

“We felt they were performing acceptably,” Brook said.

As for the civil lawsuit and criminal investigation that are pending, he said, “These are just charges, rather than a court making a decision.”

He acknowledged that the agency had the option of barring CMRI from further contracts when the U.S. attorney’s office moved to intervene civilly in the lawsuit.

This option “was considered, but it was not deemed appropriate,” he said.

If indictments are handed down by the U.S. attorney’s office in San Francisco, he added, the contract can be terminated.

Ross at CMRI said of the contract renewal, “I think this shows that Health Care Financing Administration continues to have a lot of confidence in us.”