UW failed to address overbilling, probe finds

By Sharon Pian Chan
Seattle Times staff reporter

Lee Huntsman, UW president, said it's been a tough week.

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As the University of Washington agreed to pay a historic $35 million settlement yesterday, U.S. Attorney John McKay said his investigation found that Medicare and Medicaid overbilling was common knowledge at the school's medical centers, but the UW did not address the problems.

McKay said the blind eye that UW officials turned toward the institutionalized abuse was what ultimately led to the settlement, the largest penalty ever imposed on a U.S. teaching hospital.

The settlement ended an investigation that spanned five years, hundreds of witnesses and millions of documents. It began when Mark Erickson, a UW compliance officer, filed a complaint alleging rampant fraud in the UW's Medicare and Medicaid billing practices.

Erickson's 1999 complaint, unsealed yesterday, prompted a criminal investigation, guilty pleas from two renowned doctors and a civil lawsuit that resulted in the $35 million settlement.

At a news conference after McKay's statements, defiant UW officials said only that the university had made billing errors. Paul Ramsey, dean of the UW Medical School, called the majority of them "innocent mistakes." He denied the existence of systemic abuse.

The medical centers' settlement came two days after a six-month internal investigation concluded that the UW failed to stop a doctor who had overmedicated the school softball team.

"It's been a tough week," said UW President Lee Huntsman. "We've had two unrelated occurrences."

McKay, the top federal prosecutor in Western Washington, said the investigation spawned by the complaint confirmed that "many people within the (medical centers) were aware of billing problems" and that "despite this knowledge, the (centers) did not take adequate steps to correct them."

He added that he was "especially troubled by evidence that Erickson was directed to destroy audit reports and rewrite them to cover up the problems the original audit reports addressed.

"The billing plans' failures to address known billing problems led to the federal investigation and ultimately to this settlement announced today," he said.
 
The UW maintained that no documents were destroyed.

Erickson, who has since left the UW, will receive $7.25 million of the total penalty. Washington state will receive $2.1 million for overbillings to Medicaid, and the federal Medicare program will get more than $25 million.

The UW plans to pay the penalty, due in mid-June, with medical-center income that is normally set aside in a reserve account for capital projects and new programs. Ramsey said taxpayer money will not be used.

The government was prepared to ask for more money, McKay said, but wanted to consider the importance of the UW to the regional medical system.

"We felt the number was appropriate, given the conduct and range in other cases in the country," he said. "We wanted to make sure a settlement would not cause damage to the UW's role in the regional medical system."

The second-largest settlement in such a case was $30 million, paid by the University of Pennsylvania in 1995. McKay declined to elaborate on what the higher amount might have been. He said the UW's efforts to reform its compliance program have been "outstanding."

In addition to entering a compliance agreement with the Department of Health and Human Services Office of Inspector General, as part of the settlement agreement, the UW medical centers created a new oversight office. It replaced 17 of the 22 administrators who oversaw billing and now spends about $4 million a year on compliance.

The Justice Department's investigation uncovered a pattern of fraud throughout the UW medical centers. Doctors claimed they were present during procedures that residents had performed, in order to bill Medicare and Medicaid for the services. Records were backdated and falsified to cover up discrepancies.

Erickson's complaint alleged that when a new compliance program revealed that doctors had been routinely charging federal programs for more expensive services than they had performed, billing policies were altered. Doctors were allowed to round up to the next higher rung on the billing chart. But even after the policy change, he said doctors were rounding up charges for services by two or more rungs.

Erickson alleged that he was directed to destroy these reports and rewrite sanitized versions.

Except for the initial complaint, many of the details of the lawsuit have been sealed by the court since 1999. The settlement now opens up the possibility for the documents to be made public.

"Our position is that as many documents as possible should be released," except information related to patient privacy, McKay said.

The UW said unsealing the documents "is largely an issue between the Department of Justice and the court," indicating it probably will not contest the lawsuit's public release.

Sharon Pian Chan: 206-464-2958 or schan@seattletimes.com.