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Sharp Will Pay $6.2 Million To Settle Whistle-Blower Suit

Mar 7, 2003 | San Diego Union Tribune Sharp Memorial Hospital will pay the federal government $6.2 million to settle an employee's claim that it defrauded Medicare in the 1990s by misrepresenting costs involved in its heart-and kidney-transplant programs, the U.S. Attorney's Office said yesterday.

Judith A. King, Sharp's heart transplant coordinator, alleged in a civil suit that the hospital had billed Medicare for expenses that weren't incurred or didn't involve organ acquisition or transplant services between 1991 and 1999.

Having filed the suit as a whistle-blower under the federal False Claims Act, King will receive 20 percent, or $1.24 million of what the government recovers from Sharp. After paying her attorney and taxes, King said she will get about $300,000.

The settlement was negotiated with Sharp and its parent, the San Diego Hospital Association, and was announced by San Diego U.S. Attorney Carol C. Lam and the Department of Justice.

"Ensuring the integrity of Medicare and other health-care programs is an extremely important priority in this district," Lam said. "Health-care providers can and will be held accountable if they engage in improper billing practices."

The misrepresented costs included employee salaries, medical director fees, laboratory charges and square footage that were not incurred or used for organ acquisition activities and thus did not qualify for reimbursement, said a statement from Lam's office.

In reaching the settlement, Sharp officials admitted no wrongdoing. In a statement, Michael W. Murphy, Sharp president and chief executive officer, said Sharp "acknowledges certain errors were made in the preparation of the cost reports.

"However, we believe there was an honest difference of interpretation or application of complex regulations and reimbursement rules. There was never any intent to seek inappropriate reimbursement from the government, and Sharp is pleased to resolve this matter."

The settlement with the government includes a five-year "Corporate Integrity Agreement" that requires Sharp to "promote compliance" with federal laws through training, education and independent review of billing, annual reports and cost-reporting practices.

King, 47, who continues as transplant coordinator at Sharp, said yesterday she "regrets any negative light that will be cast on the programs." Her decision to become a whistle-blower was "about personal integrity. I did this on principle."

She said she became suspicious about Sharp's billing practices in the mid-1990s when she asked to move the heart transplant offices away from the kidney transplant program and closer to the cardiology department.

She was told to stop trying, she recalled, because higher Medicare reimbursement could be collected if her office stayed near the kidney program, which performed more transplants than the heart program.

During the period in question, Sharp doctors and staff performed 617 kidney transplants and 212 heart transplants.

King said she then noticed inconsistencies in how staff time was being spent and recorded. For example, staff members' time that was worked after a transplant was being logged as pre-transplant time so that higher amounts could be billed to Medicare, she said.

"It became my view that organ acquisition was becoming a slush fund because it was easy to shift costs not related to the organ-transplant program and get them reimbursed," she said.

King's lawsuit, filed three years ago, was unsealed yesterday. As a condition of the settlement, it will be dismissed.

One of King's allegations was that Sharp created medical directorships for physicians as "financial inducements" for patient referrals to the organ-transplant centers, a violation of Medicare's anti-kickback statute.

As an example, she cited Drs. Robert Mendez and Raphael Mendez, who direct transplant programs at St. Vincent Medical Center in Los Angeles and were named as officials at Sharp's transplant program in 1990. Although they were paid $175,000 each per year, they visited Sharp only twice a month for a half a day.

"Some of Mendez's patients at St. Vincent's were double-listed at Sharp, and many of the Sharp transplant patients came from the St. Vincent's program," King's lawsuit said. "Mendez also refers to Sharp his international patients who are charged on a cash basis for the transplant."

Contacted yesterday in Los Angeles, Dr. Raphael Mendez said he was unaware of the lawsuit or the settlement and referred inquiries back to Sharp. He said his brother was out of town and could not comment.

Sharp spokesman Gustavo Friederichsen said the government "did not express concerns with the terms and conditions of our medical director agreements. The focus of their investigation was on cost allocation."

Describing her case yesterday, King, a registered nurse at Sharp for 21 years, at one point broke into tears. She said attempts to correct the situation before she filed suit fell flat.

She sued under the qui tam portion of the federal False Claims Act, which allows private people who suspect fraud to sue on behalf of the United States. If the government recovers money, the whistle-blower receives a negotiated percentage. The law protects whistle-blowers against retaliation.

She said that when federal investigators told her how much money was at stake, she was shocked.

"One thing I want to make clear," she said. "The physicians and staff had nothing to do with this. It was the executives at Sharp who had to know. It was their job to know."

Murphy said Sharp was settling the case to "continue providing quality health care without being distracted by lengthy litigation." He stressed that none of the issues affected quality of care.

Friederichsen said the payment will not come from areas affecting patient care and that an amount for a possible settlement was set aside in last year's budget.

The case against Sharp is the latest in a series of whistle-blower-lawsuit settlements in recent years that have resulted in large repayments by local hospitals, including Sharp Healthcare, Scripps Health and UCSD Medical Center.

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