“At the center of one such Medicare scheme: Mitt Romney. It is a story of fraud. It is a story of big profits, big lies and at the time the biggest criminal fine for health fraud ever levied in Massachusetts history.”

— Voice-over from “Blood Money: Romney’s Medicare Scandal,” a video produced by pro-Newt Gingrich super PAC Winning Our Future.

Winning Our Future, a Super PAC supporting Republican presidential candidate Newt Gingrich, has released another attack on rival Mitt Romney’s business practices. A one-minute “trailer” and a 30-second TV ad (see below) that amplify the themes of corporate malfeasance accompany the nearly eight-minute video, “Blood Money.” (The title refers to the fact that a company once partly owned by Bain Capital, Romney’s firm, was found guilty of charging Medicare for unnecessary blood tests.)

We were highly critical of Winning Our Future’s “King of Bain” film, awarding it Four Pinocchios, in part because it focused on business failures in which Romney was only tangentially involved. And anyone living in Massachusetts would find this Medicare fraud case to be old news because the case first emerged in 1992 as an issue in Romney’s successful race for governor.

Still, this time Winning Our Future gets closer to the mark. The case concerning Damon Clinical Laboratories is relevant because 1) Romney was a director of the firm while the fraud took place; 2) the fraud appears to have ended only after Bain sold its stake in the firm; 3) Romney personally earned nearly $500,000 from the sale of Damon; and 4) Romney’s statements about what he knew and when he knew it have been inconsistent.

We’re going to hear a lot more about Damon if Romney becomes the GOP presidential nominee. The American Federation of State, County and Municipal Employees union is already running an ad in Florida that highlights the case. (The spot is at the end of the column.)

Let’s take a closer look:

The Facts

In 1996, the Justice Department announced that Damon had agreed to pay a $35.3 million criminal fine — one of the largest corporate fines in U.S. history — and an additional $83.7 million to settle whistle-blower lawsuits. The company, then owned by Corning, admitted that from 1988 to 1993 it had bolstered its earnings by submitting false claims to Medicare and other federal programs. Essentially, the firm billed for blood tests that doctors had not ordered.

“This is a case, pure and simple, of corporate greed run amok,” U.S. Attorney Donald Stern said at the time. “The settlement represents about $3 for every $1 Damon stole from the taxpayers.”

When the case broke, it was clear that Corning ended the scheme after it had acquired Damon from Bain Capital in 1993, according to company and prosecutors’ statements.

In the first article on the case — in the Boston Globe on Oct. 10, 1993 — Romney was quoted as saying that he was unaware of any investigation. He claimed that the chief executive of the firm had told the board in about 1992 “that all current practices at the company were now in conformity with government regulations and that in the past there may have been practices which would not be deemed appropriate.”

When the Globe revisited the case during Romney’s run for governor in 1992, his story was different. The Globe, disclosing that Romney had earned $473,000 from the sale, reported on Oct. 10, 2002:

“Romney said yesterday he was a proactive board member who helped to uncover the fraud. He said he and other board members became aware of the problem after another laboratory, in December 1992, was found to have committed fraud through use of a billing system similar to Damon’s. Romney said the board used its New York law firm to investigate, and as a result, the board took ‘corrective action’ months before Damon was sold to Corning.”

But Romney’s claim was not backed up by the facts, the Globe said:

“Court records — including statements from prosecutors and Damon’s own admissions — tell a different story, and reveal that the fraudulent activity occurred right up until the time Bain and other owners sold the company to Corning. Prosecutors also give sole credit to Corning for cleaning up the fraud after it purchased the company from Bain and other owners.”

Romney later acknowledged that the board did not report to federal investigators any findings from the alleged internal inquiry.

Still, Romney was never charged with any wrongdoing. The fraud apparently began in 1988, one year before Bain Capital invested in the company. In the end, four Damon officials were charged with Medicare fraud, including President Joseph Isola, who pleaded no contest to fraud charges and was placed on three years’ probation.

The “Blood Money” video takes these facts, reasonably damning by themselves, and then hypes them further.

Most troubling, with words and images, it makes it appear as though Romney was running the company himself: “Romney would manage the company and serve on its board of directors. . . . Under Romney’s direction, the company was making huge profits. . . . Under Romney, the number of tests skyrocketed. . . . Romney’s company was ordering unnecessary blood tests. . . . Romney sits at the center of the 15 greatest corporate crimes of the 1990s.”

(The 30-second ad actually says: “The crime: Medicare fraud. . . . The boss: Mitt Romney.”)

But while Romney was on the board of directors, which had a fiduciary duty to oversee company executives, this was just one of many companies in which Bain Capital had a stake. Romney was not running the firm and certainly was not “the boss.” Bain, in fact, was a minority investor, owning less than 10 percent of the company.

Moreover, the video makes too strong a link between Bain’s sale of the company to Corning in August 1993 and the issuance of federal subpoenas regarding the fraud that same month. The film calls it “an incredible coincidence” but clearly suggests that Romney dumped the firm because federal authorities “were busy closing in the Damon Corporation.”

There is no evidence to suggest any connection — and Corning may well have sued Bain if it thought it had been duped. Indeed, a 1996 Boston Globe article quoted a spokeswoman for Corning as saying that that her company knew when it acquired Damon that its billing practices would face scrutiny from federal officials. But she added: “To the degree of detail, we would have no way of knowing.”

The film correctly notes how Romney’s story changed about his knowledge of the investigation. It also airs of clip of him denying at a GOP debate this month — to Gingrich — that Bain Capital did any Medicare business. It ends with a plea to report Medicare fraud to the government.

The Pinocchio Test

The Damon case is certainly a valid subject for scrutiny of Romney’s business record. He was on the company’s board at the time criminal fraud was taking place, and his statements about his knowledge of the federal investigation have been inconsistent. But the film goes too far in suggesting that Romney was responsible for running the company — or that he sold it to avoid a federal probe.

Two Pinocchios

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