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QUORUM HEALTH GROUP & SUBSIDIARY AGREE TO PAY

WASHINGTON, D.C. - Quorum Health Group, Inc. of Brentwood, Tennessee and its subsidiary QHG of Alabama, Inc. d/b/a Flowers Hospital of Dothan, Alabama have agreed to pay $18 million to settle claims that they defrauded the Medicare Program from 1988 to 1998, the Justice Department announced today.

The civil settlement resolves allegations that Quorum and Flowers Hospital defrauded Medicare by 1) improperly shifting costs to Home Care Services (HCS), a home health agency owned by Quorum and Flowers Hospital and 2) improperly charging Medicare, through HCS, for unallowable costs.

"This settlement again demonstrates the United States' commitment to protecting federal funds from fraud and abuse," said David W. Ogden, Assistant Attorney General in charge of the Civil Division. "The federal health care system operates on the good faith and honesty of its providers, and we cannot tolerate misuse of the Reimbursement system for financial gain."

These allegations arose from a lawsuit filed by William J. Menke, the former Chief Operational Officer and Executive Vice President for External Activities of Flowers Hospital and HCS, under the qui tam or whistleblower provisions of the False Claims Act, a federal law that allows private individuals to sue on behalf of the United States. The lawsuit was unsealed in Birmingham, Alabama.

The United States alleged that Quorum and Flowers Hospital shifted costs from the hospital to HCS by improperly charging hospital costs on HCS' Medicare cost report. As a result, Quorum and Flowers Hospital received more reimbursement from Medicare than they should have. Included in the unwarranted costs were hospital employee salaries and benefits, costs of the hospital's physical therapy department and hospital medical malpractice insurance premiums.

The United States also alleged that Quorum and Flowers Hospital defrauded Medicare by charging the healthcare program for unallowable costs through their home health agency's Medicare cost report. Included in these alleged improper charges were costs arising out of a transaction whereby the hospital rented a building from a group that included the facility's former CEO. Also, the government alleged that payments made by Quorum and Flowers Hospital to the former owners of a home health agency in Florida were disguised as consulting fees and improperly charged to Medicare. Finally, the government claimed that a recruiting fee for a physician's assistant and a variety of payments, small perks, and gifts given by the hospital and HCS to various physicians in exchange for referrals were improperly charged to Medicare.

"Health care fraud and abuse is a fraud against the American taxpayer when it is directed at Medicare and Medicaid," said Doug Jones, the United States Attorney for the Northern District of Alabama. "Vigorous enforcement actions such as these help insure the future integrity of the Medicare and Medicaid Trust Funds."

The civil settlement resolves additional allegations that arose out of payments made by Quorum and Flowers Hospital to HCS' computer services vendor, which were used by that company to make payments to Mr. Menke. The United States alleged that the payments made by Quorum and Flowers Hospital to the computer services vendor were kickbacks to the former executive and improperly charged to Medicare.

As part of a separate investigation, Mr. Menke will plead guilty to one felony charge arising out of income tax violations relating to his receipt of improper kickback payments from the computer services vendor. Mr. Menke will not receive any share of the settlement between the government and Quorum. Mr. Menke also agreed to be excluded from participating as provider from the Medicare program for eight years.

The civil investigation and settlement were jointly handled by the Office of the United States Attorney for the Northern District of Alabama and the Civil Division of the Department of Justice, with assistance of the Department of Health and Human Services Office of Inspector General, including the Office of Investigations, the Office of Audit Services and the Office of Counsel. The criminal investigation of Mr. Menke was handled by the Office of the United States Attorney for the Middle District of Alabama.

The qui tam case is entitled United States ex rel. William J. Menke v. Quorum Health Resource, Inc., Quorum Health Group, Inc., QHG of Alabama, Inc. d/b/a Flowers Hospital d/b/a Home Care Services, et al., Civil Action No. CV-96-P-1638-S (N.D. Ala.).

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