A recently unsealed whistle blower civil action known as a "Qui Tam" has made allegations of a widespread scheme to defraud Medicare at seven "Critical Access Hospitals" (CAH) across the State of Mississippi, since 2005. The complaint, filed by former U.S. Attorney, J. Brad Pigott, on behalf of Plaintiff/Relator Walton Stephen "Steve" Vaughan and Plaintiff/Relator Mitchell D. Monsour alleged violations of the False Claims Act (FCA) and the Anti Kickback Act (AKA)
Vaughan is the CEO and Administrator of Pearl River County Hospital and Monsour is a health care executive and management consultant hired by Vaughan. Together the two uncovered the alleged fraud in 2012 at Pearl River County Hospital and through investigations, put together a complaint that details evidence of fraud involving seven Mississippi Hospitals. Personal defendants in the action are:
Wade Walters (Hattiesburg, MS),
Hope Thomley (Hattiesburg, MS),
Dennis Pierce (Hattiesburg, MS), dismissed 3.21.18
Clayton Deardoff (Frisco, TX).
The four defendants are accused of using their companies:
Piercon, Inc. (Piercon), dismissed 3.21.18
Performance Accounts Receivables (PAR),
Performance Capital Leasing (PCL),
Stepping Stones Healthcare, LLC (SSH)
Defendants' Cost Padding Scheme:
43. "Beginning in approximately 2005, Defendant Wade Walters offered to each of the Hospital Defendants, and each of the Hospital Defendants have accepted, agreements under which each of the Defendants fraudulently exploited the cost-based system of Medicare reimbursement of CAH's as described above, through millions of dollars in payments by the Hospital Defendants to Walters (and the remaining Defendants who are not Hospital Defendants) for activities designed
to pad and inflate costs, the amounts of which were falsely represented on the Hospitals Defendants' cost reports to Medicare as directly related to (and as necessary to) patient health care (but the central purpose and effect of which was to enrich Walters and the remaining Defendants other than Hospital Defendants). All of those activities by the 'Defendants' Cost Padding Scheme.' "
44. "As a key part of the Defendants' Cost Padding Scheme, Defendant Walters, through Defendant Performance Capital Leasing, LLC ("PAR"), which was owned and controlled by Walters, entered written agreements with Hospital Defendants, not in order to provide services necessary to or directly to patient care, but to create higher costs and thus higher Medicare revenues for the Hospital Defendants as an end in itself."
45. "Under such agreements, the Hospital Defendants engaged Walters and PAR to 'develop and implement strategic plan(s) to restructure (the) hospital's operations to all for maximum cost based reimbursement,' pursuant to which PAR promised to provide 'monthly operating reports demonstrating revenue generation.' "
Defendant Walters through defendant PAR was given substantial managerial control in a 2005 contract with North Sunflower Hospital. The hospital agreed to pay Walters and PAR 7% of all receipts for "swing-bed" and intensive outpatient ("IOP") services delivered by healthcare professionals. In 2010 Walters and PAR obtained a new agreement requiring the hospital to pay 7% of all such revenue received by that Hospital from all inpatient and outpatient activities.
According to the complaint,
50. By agreeing to link their payments to Walters and PAR directly to the amount of Medicare revenue collected by each CAH, each such Hospital Defendant left no doubt that it was engaging Walters and PAR to increase the revenues as an end in itself, rather than to cause an efficient expenditure of costs actually necessary to patient care (as required by the Medicare laws described above).
52. As a further and related part of the Defendants' cost padding scheme, Walters recruited, and caused Hospital Defendants to enter purported service contracts with, other entities who or which would be paid by the Hospital Defendants to enter purported service contracts with, other entities who or which would be paid by the Hospital Defendants, not on the basis of any reasonable or market value of services rendered for patient care, and not on the basis of any services of any kind that they would render, but instead based on how much those other vendors or contractors succeeded in increasing the reported costs (and thus Medicare revenues) associated with their area of hospital operations.
Critical Access Hospitals (CAHs) are limited to 25 beds, and operate in rural and generally economically deprived and medically undeserved areas of the United States. Unlike traditional hospital facilities that are paid under Medicare's Prospective Payment Systems (PPSs) through which Medicare reimbursement is fixed and capped, Medicare pays CAHs based on each hospital's reported and allowable costs. Those costs must be directly related to patient care in order to be lawfully reimbursable.
Critical Access Hospitals named in the original filing, that have since been voluntarily dismissed by the Plaintiffs/Relators are:
North Sunflower Medical Center
North Sunflower Medical Foundation
Franklin County Memorial Hospital
Franklin County Memorial Hospital Medical Foundation
Tallahatchie General Hospital and Extended Care Facility
Tallahatchie County Memorial Hospital Medical
*UPDATE - Paragraph 21 of the Compliant listed the below hospitals as being "Defendants;" however, these Hospitals were never served with the complaint and are not identified on page one of the complaint as Defendants. Calls to Plaintiff's attorney Brad Pigott were not returned. A representative for Hardy Wilson Memorial Hospital stated unequivocally that they were not defendants in the complaint nor were the other below named hospitals.
Critical Access Hospitals named in paragraph 21 of the original filing,
Perry County General Hospital, LLC
Quitman County Hospital, LLC
Hardy Wilson Memorial Hospital
Noxubee General Hospital
Defendant Dennis Pierce
*UPDATE 3.23.18 Defendant Pierce and Piercon were dismissed as defendants in the lawsuit by the plaintiffs on 3.21.2018
58. "One of the vendors who Walters recruited to participate in, and who agreed to and did participate in, the Defendants' Cost Padding Scheme, was Defendant Dennis L. Pierce (hereafter, 'Pierce'), and also
Defendant Piercon, Inc. (hereafter, 'Piercon'), which was owned and controlled by Dennis Pierce."
59. "Pierce and Piercon each agreed to participate in the Defendants' Cost Padding Scheme by agreeing to conduct various construction projects on the premises of the Pearl River County Hospital, and perhaps on the premises of Hospital Defendants' operations, and to charge non-competitive and exorbitant prices for such construction work (for which no competitive bids were solicited or taken), and also to split invoices for such work into multiple invoices of under $5,000 per invoice, in order to allow Walters and such Hospital Defendants fraudulently to evade a Medicare requirement that such construction expenditures in excess of $5,000 per invoice, in order to allow Walters and such Hospital Defendants fraudulently to evade a Medicare requirement that such construction expenditures in excess of $5,000 be treated as a capital project and be the subject of depreciation over time (and also to evade Mississippi statutes forbidding 'split invoicing' to evade state bid laws governing the expenditure of State funds). "
Defendant Hope Thomley
65. "Defendant Hope Thomley agreed with Defendant Walters to support, and actively participated in and profited from the Defendants' Cost Padding Scheme, by fraudulently using her position as an employee of Defendant PAR to
cause Pearl River County Hospital to incur multiple expenses and enter multiple contracts, none of which was related to or necessary to the delivery of health care services to patients, but all of which benefited Thomley financially (and all of which were falsely included as direct health care expenses on the Medicare cost reports of that Hospital). Those transactions included payments by Pearl Rover County Hospital to Thomley of a salary apart from her salary from PAR, purchases by that Hospital of insurance policies as to which Defendant Thomley's husband was the commission-paid insurance agent, purchases by that Hospital of approximately $2,000 in Christmas decorations in November 2011 from a company owned or controlled by Thomley's husband, payments by that Hospital of over $6,000 to a company formed by Defendant Thomley and her husband for purported services including information technology consulting, and payments by that Hospital of personal expense of Defendant Thomley charged on her personal American Express credit card. "
Defendant Mike Boleware
The Plaintiffs/Relators voluntarily withdrew Boleware as a Defendant, but the Government reserves the right to bring its own complaint in the future.
64. "Defendant Mike Boleware agreed with Defendant Walters to support , and actively participated in, the Defendants' Cost Padding Scheme, as and through his position of Hospital Administrator and CEO at Pearl River County Hospital, at Defendant Franklin County Hospital, and at Hardy Wilson Memorial Hospital (located at Hazlehurst, Mississippi), in part by allowing Defendant Walters to carry out the entire Cost Padding Scheme at such Hospitals and through false items on the Cost Reports of each such Critical Access Hospital. "
Defendant Wade Walters (alleged ring leader)
68. "In the course of and for the purpose of padding the 'costs' to be reported by the Hospital Defendants on their Medicare 'costs' to be reported by the Hospital Defendants on their Medicare cost reports. Defendants Walters routinely caused Defendant Performance Capital Leasing, LLC, which he owned and controlled, to designed to 'lease' to the Hospital Defendants modular buildings, medical equipment, vans, and other properties at exorbitant leasing rates designed to increase the Hospitals' 'costs' and thus further to achieve the purpose of the Defendants' Costs Padding Scheme. "
69. Because the Defendants all knew that compliance with the AKA was material to and a prerequisite to the Hospital Defendants' entitlement to any payments from Medicare, all payment claims submitted for all Medicare payments by all of the Hospital Defendants throughout their participation in Defendant's Cost Padding Scheme were known by the Defendants to be legally and factually false claims made in violation of the FCA.
Claims By and on Behalf of the United States for Making False Claims
(and for Causing False Claims to be Made)
76. By virtue of the acts described herein, each and every one of the Defendants knowingly caused to be presented false claims for payment, to officials of the United States Government in violation of 31 U.S.C. subsection 3729(a)(1), and as amended in 2009 and codified as 31 U.S.C. subsection 3729(a)(1)(A).
Claims By and on Behalf of the United States for Causing False Records of
Statements to be Used to Get Paid,
and/or Which were Material to, False Claims
81. By virtue of the acts described above and the Defendants' uses of, or activities causing to be used, false records and statements to get false and fraudulent claims paid and approved by the Government, and otherwise the Defendants' acts causing false records and statements to be used which were material to false records or statements to get false or fraudulent claims made by the Hospital Defendants, the Defendants made and used false records or statements to get false or fraudulent claims paid or approved by an agency of the United States Government, in violation of 31 U.S.C. subsection 3729(a)(2)(codified before 2009 amendments), and also caused to be made or used false records or statements which were material to false or fraudulent claims in violation of 31 U.S.C. subsection 3729(a)(1)(B)(as codified pursuant to amendments to the FCA in 2009.
Claims By and on Behalf of the United States for Conspiracy
to Submit False Claims
86. By reason of the foregoing with respect to Defendants' Cost Padding Scheme, each of the Defendants agreed and conspired with one or more Hospital Defendants to participate in that Scheme and thereby to defraud the government in order to get false or fraudulent cost-based claims paid by Medicare, in violation of 31 U.S.C. subsection 3729(a)(3), and in violation of 31 U.S.C. subsection 3729(a)(1)(C) as amended in 2009. In furtherance of the conspiracy, and through each of the particular activities described above, each of the Defendants acted overtly to affect the objects of the conspiracy alleged herein.
87. By virtue of the false claims presented or caused to be presented by the Defendants pursuant to this conspiracy, the United States has suffered actual damages and is entitled to recover from Accretive three times the amount by which it is damaged, plus civil money penalties of not less than $5,500 and not more than $11,000 for each of the false claims presented or caused to be presented, and other monetary relief as appropriate.
While no criminal charges have been filed in this whistle blower action, the government has not waived its right to join in or to file its own complaint or charges against the defendants.walters-thomley-pierce