Garrard accused in lawsuit of lying to Medicare

May 11, 2004|JIM LOGAN

LANCASTER - Garrard County is accused in a federal lawsuit of defrauding the government of hundreds of thousands of dollars in reimbursement claims filed with Medicare.

The suit was filed in U.S. District Court in Lexington on behalf of the federal government by the company that was under contract to run the county's hospital and nursing home.

The suit, which was sealed until April 23, alleges that the county, Memorial Hospital and Long Term Care Facility conspired to file false claims with Medicare for "reimbursement claims they knew were exaggerated or not properly reimbursable at all."

It seeks unspecified damages for the government and "the maximum amount allowed" for the company, Rainmaker Financial, which filed the suit. Federal law provides that false claims like those described in the suit are subject to a penalty three times the amount of damages and $10,000 for each bogus claim.


Judge-Executive E.J. Hasty today deferred comment to County Attorney Jeff Moss, who said that the U.S. Attorney General's office investigated Rainmaker's claims and declined to pursue the matter, leaving the litigation solely in the hands of Rainmaker.

The suit is the opening salvo in what is likely to be a protracted legal fight over the financial disintegration of the hospital. The county is expected to file suit against Rainmaker, accusing it of mismanagement.

With its suit in federal court and the threat of massive penalties, Rainmaker is putting enormous pressure on the county.

At its essence, the suit alleges Garrard County received money from the government by claiming it was liable to pay Rainmaker Financial for management fees for fiscal year 2002. The Tennessee corporation, however, says it never received that money, and alleges the county never intended to pay it.

Rainmaker billed the county $264,500 for management services in 2002, it said in the suit. Rainmaker assumed management of the hospital and nursing home in July 2002 from HealthCorp of Tennessee. Both companies are owned by T. Farrell Hayes.

Furthermore, the suit alleges, the county agencies "conspired to omit disclosing or to actively conceal facts which, if known, would have reduced government obligations to them or resulted in repayments from them to government programs."

Richard Clay, the attorney who filed the suit for Rainmaker, said that although the case turns on arcane accounting practices involving Medicare, it can be reduced to basic fraud on the part of the county.

"It's simple in the concept that they got the money and they kept it," he said.

The suit comes at a time when the county appears to be making progress in easing the financial and political strain from last summer's closure of Garrard County Memorial Hospital. It completed the sale of the hospital and nursing home in March and sold the old Poor House farm Saturday for $481,800. The proceeds from the farm sale will be invested and used to pay on the county's $4.295 million debt to the Kentucky Association of Counties, which arranged the note in 2001 in an effort to keep the hospital afloat.

But Rainmaker's suit is sure to ignite renewed criticisms over the county's handling of its finances. Many people in the county blame the Fiscal Court for the hospital's closing and the tight budget that had the magistrates investigating ways to close the county's 911 center to save money - an effort that has been abandoned.

In the dense legalese of lawsuits involving government agencies, the Rainmaker suit lays out the company's case for Garrard's malfeasance.

It details how health-care providers, which includes the county because it owned the hospital and nursing home, file reimbursement claims with Medicare. It explains that providers receive payments based in part on cost reports submitted to insurance companies that act as middlemen for the federal government.

Reviews of those cost reports, the suit says, are infrequent - fewer than 25 are audited.

"Aware of the limited capacity of the United States and its intermediaries to delve deeply into their cost reports, defendants have defrauded the United States for at least the year prior to the filing of this action by including in their individual provider cost reports reimbursement claims that they knew were exaggerated or not properly reimbursable at all," the suit says.

In Count 1 of the suit, it says the hospital was billed $264,500 by Rainmaker for management services in fiscal year 2002, but never paid.

The hospital, however, submitted a cost report for reimbursement in February 2002 that included Rainmaker's management fees for the year, the suit says. The government reimbursed the hospital an unspecified amount of money for those unpaid fees, according to the suit.

"By reason of the defendants' false records, statements, claims, and omissions, the United States and Kentucky Medicaid programs have been damaged in the amount of several hundred thousand dollars in Medicare fund," the suit says.

Count 2 accuses the nursing home of the same fraud, although it says the damages are "in the amount of tens of thousands of dollars in Medicare funds."

Count 3 charges the "defendants entered into a conspiracy or conspiracies among themselves and with others to defraud the United States and Kentucky Medicaid programs."

Clay said he'd like to know where the $264,500 the county presumably received from the federal government, but said he had no idea where it ended up.

"That's just another sum of money that's unaccounted," he said. "I'm sure it's buried in their somewhere, but I don't know where it is.

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