Apria Discloses Probe of Charges to Medicare

Federal prosecutors investigating a whistle-blower’s suit against Apria Healthcare Group Inc. contend the Costa Mesa company overbilled the government by as much as $103 million, the company disclosed Monday.

Apria, one of the nation’s largest home health-care providers, disputed the amount allegedly owed, saying the government’s estimate is “unsupported legally and factually.”

Trading in Apria stock was halted for more than three hours Monday as the news circulated. The company’s disclosure was made in a document filed with the Securities and Exchange Commission for the planned public sale of 8.5 million shares owned by the company’s biggest shareholder. The stock dropped $4.44, or 16%, to close at $24.08 a share on the New York Stock Exchange.

Apria gets about 40% of its $1 billion in annual revenue from Medicare payments. In the last three years, the company has been targeted in a series of investigations into overbilling, including a probe in which federal prosecutors in Sacramento issued eight subpoenas for company records. But the Sacramento office closed its criminal case two years ago without filing charges.

The U.S. Attorney’s office in Los Angeles declined to comment on any investigation.

Apria’s chief executive, Philip Carter, said in an interview Monday that the government’s past and current investigations cover roughly the same three-year period, between 1995 and 1998. “I hope the Sacramento case is a good indicator of the quality of our billing practices,” he said.

Apria still faces lawsuits, even if the Los Angeles case gets resolved, Carter said, but “nothing of any significance.”

It was only last week that federal authorities disclosed the results of an audit of Apria’s billing practices to the company, saying a sample of 300 files over a 3 1/2-year period had turned up $110,000 in billings that lacked adequate documentation.

Projecting from those figures, lawyers for the government and the whistle-blower calculated Apria is liable for $103 million in overcharges, which could be tripled to $309 million under federal law. And penalties of $5,000 to $10,000 for each of a potential 900,000 overcharges could bring total fines to as much as $9 billion, the company said.

Apria said that, by its calculation, it may have to repay less than $10,000 in billings from the sample. The company said it never intended to defraud the government. At most, Carter said, there were errors and omissions that do not amount to fraud.

Experts in whistle-blower cases said it’s highly unlikely any court would ever allow penalties as large as the billions of dollars Apria said were possible.

Phillip Benson, who frequently represents health-care whistle-blowers, said appeals courts have held that such penalties awarded under the False Claims Act can be so huge as to violate the Constitution.

Mark Kleiman, another lawyer for whistle-blowers, said Apria is probably “softening up the market,” preparing shareholders for some bad news by grossly overstating the company’s potential liability. He said the government is willing to settle such cases for no more than 2 1/2 times the amount of overbilling, indicating that $250 million might be a reasonable settlement to expect in the current case.

Federal law prevents whistle-blowers, their lawyers or the government from discussing their charges so long as the lawsuits are under seal, as is the case with Apria. The whistle-blowers share in any funds that are recovered, up to 25% if the government takes over the case and up to 30% if it decides not to get involved.

The government’s investigation into Apria’s billing practices is part of a campaign to rein in Medicare fraud that it believes is rampant in the health-care industry. In December the government collected a record $840 million from health-care provider HCA Inc. in a case involving alleged unlawful billing practices.

“It’s been quite a high priority,” said Susan Hershman, deputy chief of the civil fraud section of the U.S. Attorney’s office in Los Angeles. “The government spends a lot of money on health care, so you wind up with a lot of cases.”

Fraud has increasingly plagued the health-care industry. Recoveries last year amounted to $840 million, or 56% of the $1.5 billion the government collected in all civil fraud cases it brought, said Charles Miller, a spokesman at the Department of Justice. The government collected $490 million in health-care fraud cases for its 1999 fiscal year and $296 million for the previous year.

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At a Glance

Apria Healthcare Inc.

Headquarters: Costa Mesa

Business: Provides home respiratory therapy, home infusion therapy and home medical equipment services

Founded: June 1995 by a merger of Homedco Group Inc. and Abbey Healthcare Group Inc.

Employees: 8,000 in 370 branches across the U.S.

Management: Chairman Ralph V. Whitworth. Chief Executive Philip L. Carter. Chief Operating Officer Lawrence M. Higby

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Revenue Earnings (millions) (millions) 1996 $1,181.1 $33.3 1997 1,180.7 -272.6 1998 933.8 -207.9 1999 940.0 204.1 2000 1,014.2 57.0

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Sources: Bloomberg News, Apria Healthcare Group Inc.