A national chain of psychiatric hospitals yesterday agreed to pay an unprecedented $379 million in fines and penalties to settle federal charges that it provided unnecessary treatment to tens of thousands of patients to illegally collect insurance money.
National Medical Enterprises Inc. (NME), which owns three Washington-area psychiatric hospitals, entered the agreement with the departments of Justice and Health and Human Services in what was described as the largest health care fraud settlement in U.S. history.
The settlement marks the latest step in an ongoing three-year civil and criminal probe into company-paid kickbacks to doctors and others in a scam to bilk the government and private insurance companies out of millions of dollars. As part of the agreement, the company has agreed to divest itself of its 60 psychiatric hospitals and substance abuse businesses nationwide, including the Springwood Psychiatric Institute near Leesburg, the Psychiatric Institute of Washington and Potomac Ridge Medical Center in Rockville.
The California-based company has been the subject of numerous lawsuits by patients alleging insurance fraud and medical malpractice. The Justice Department's complaint charged the company with a variety of patient abuses, including "keeping patients longer than was necessary" in order to collect insurance, billing for false diagnoses and denying patients necessary services.
The announcement of yesterday's settlement was used by federal officials to underscore the Clinton administration's commitment to reduce waste and fraud in medical care as part of an overall effort to refashion the nation's health care system.
"Bribes, unnecessary medical treatments and false billings hurt every American," Attorney General Janet Reno said. "Let the message be very clear. We have made health care a law enforcement priority."
NME's troubles became public last summer when 600 federal agents from a variety of agencies, including the FBI and the Internal Revenue Service, raided more than 20 of its facilities across the country, hauling out cartons of records.
As part of the operation, FBI agents swarmed onto the pastoral grounds of Leesburg's Springwood Psychiatric Institute and a regional NME office in Fairfax County. Although it is unclear how much, if any, fraud took place in the area institutions, a law enforcement source said the Justice Department is investigating whether there were kickbacks at those sites.
Last year's raids and the subsequent investigation resulted in the company yesterday pleading guilty to six counts of making unlawful payments to bribe doctors and other professionals to refer Medicare and Medicaid patients to their hospitals and one count of conspiracy to defraud the U.S. government.
"The loss of money to federal insurance programs was over $100 million," said John Bates, chief of the civil division in the U.S. attorney's office for the District of Columbia. He noted that in addition to Medicare and Medicaid recipients, affected patients included those under the Federal Employees Health Benefits Program.
Under the agreement, NME must pay about $357 million to the federal government, $16.3 million to several states and several million dollars to a number of programs and agencies, including $2 million to the federal Center for Mental Health Services. The state of Maryland will recover $1.4 million in Medicaid funds lost to kickbacks and fraud in locations there, according to state Attorney General J. Joseph Curran Jr.
In addition to the fines and penalties, the settlement also requires the company, with headquarters in Santa Monica, to develop a corporate integrity plan to assure fair patient treatment. The firm is now shifting its focus to acute care, said spokeswoman Diana Takvam, noting that it changed management last June and recently instituted company-wide ethics training.
Charter Medical Corp., a Georgia-based chain, has agreed to buy 47 of NME's hospitals, including two in the Washington area, but the purchase has not been finalized. NME is still looking for buyers for 10 psychiatric facilities.
Yesterday's complaint and other documents outlined a pattern of what one law enforcement official described as a "corporate policy" of fraud:
* In Dallas earlier this week, a former regional vice president of Psychiatric Institutes of America, a division of NME, pleaded guilty to charges "involving kickbacks to doctors in return for the referral of patients and making false statements to Medicare," a Justice Department document states.
* In San Antonio, one of NME's psychiatric hospitals pleaded guilty in November to making false claims and statements and was fined $2 million. The hospital's director later pleaded guilty to making false claims, theft of public money and forgery.
* In January in Wichita, Kan., a federal grand jury indicted the administrator and marketing specialist of a Topeka NME facility on charges of paying a postal worker bribes to get him to refer postal service employees to the hospital. The postal worker has pleaded guilty in the case.
* In Kansas City, Mo., last month, a federal grand jury returned a 19-count indictment against a doctor on charges of soliciting bribes and kickbacks in exchange for referring patients to an NME hospital.
Staff writer Brooke A. Masters contributed to this report.