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WASHINGTON, D.C. One of the nation's largest Medicare carriers pleaded guilty today to eight felony counts and agreed to pay $144 million, after admitting it concealed evidence of poor performance in processing Medicare claims for the federal government, the Department of Justice announced today. Health Care Service Corporation (HCSC), the Medicare contractor for Illinois and Michigan, also admitted to obstructing and conspiring to obstruct federal auditors.

As part of the criminal plea today in East St. Louis, Ill., HCSC agreed to pay $4 million criminal fines to the government. Under the federal False Claims Act, HCSC will also pay $140 million in a civil settlement to resolve its liability under the federal False Claims Act.

"Medicare contractors provide a critical service," said Deputy Attorney General Eric Holder. "If they don't meet the highest standards of honesty and integrity, then we will intervene on behalf of Medicare patients and America's taxpayers."

The plea was announced today at the Department of Justice by Deputy Attorney General Holder, who was accompanied by W. Charles Grace, United States Attorney for the Southern District of Illinois; June Gibbs Brown, Inspector General of the Department of Health and Human Services; Nancy Ann DeParle, Administrator of the Health Care Financing Administration; Donald Whitehead, Special Agent in Charge of the Springfield office of the Federal Bureau of Investigation; and Mike Boswell, Deputy Chief Inspector for Criminal Investigations of the U.S. Postal Service.

HCSC, also known as Blue Cross Blue Shield of Illinois, has been under contract with HCFA to process claims submitted by Medicare beneficiaries and their doctors or other health care providers in accordance with Medicare coverage and payment rules. HCSC's headquarters are in Chicago, although its claims processing units for Medicare Part B are in Marion and Mattoon, Ill.

HCSC today admitted that it was guilty of conspiracy to obstruct a federal audit and obstruction of a federal audit. It also admitted to six instances of false statements based on the actions of many of its managers and supervisors who administered HCSC's Medicare Part B carrier contracts with HCFA from 1984 through 1995.

Each of the crimes to which HCSC has pleaded involved manipulating work samples and falsifying reports used by HCFA to evaluate how well HCSC was performing its contractual duties. HCSC concealed its poor performance and falsely claimed superior performance.

In addition to hearing the plea, the court unsealed a complaint brought by a former employee against HCSC in March 1995. The complaint was filed under provisions of the False Claims Act that permit a citizen to sue on behalf of the United States alleging fraud on the treasury. Under the Act, the plaintiff, also known as a "relator" or a "whistle blower," can recover 15 to 25 percent of the damages paid to the United States if the government intervenes in the action.

The relator's lawsuit alleged, among other things, that HCSC had, over the course of years, altered documents and information about their claims processing functions and performance which was submitted to HCFA, failed to process claims in accordance with guidelines established by HCFA, and failed to handle beneficiary and physician inquiries in a timely manner. After a lengthy investigation by several federal agencies, the government intervened and took over the lawsuit.

The relator, the government and HCSC have agreed to settle the civil lawsuit for $140 million. The relator will receive, at the time of the final settlement, $21 million. Any additional award will be determined at a later date.

Prior to today's plea, one former and one current manager of HCSC's Marion office, Donald Heinle, 53, Marion, and Nancy L. Martin, 37, Johnson City, Ill., pleaded guilty to conspiracy, wire fraud, and obstruction of a federal audit. Their pleas have been sealed since May 13.

Heinle's sentencing has been set for August 21, and Martin is scheduled to be sentenced on September 3.

On July 8, five other managers were indicted on similar charges. They are: Thomas F. Bartels, 52, Grosse Ile, Mich.; Barbara Harrigan, 41, West Frankfort, Ill.; Bruce W. Davis, 52, Marion, Ill.; Barbara J. Hardcastle, 52, Creal Springs, Ill.; and Joan R. Davis, 41, Charleston, Ill. The five are scheduled to be arraigned on July 30 at 11:00 a.m. in Benton.

The cases were investigated by the FBI; the U.S. Department of Health and Human Services, Office of the Inspector General; and the U.S. Postal Inspection Service. The prosecution and civil action were led by U.S. Attorney Grace. He was assisted by Assistant U.S. Attorneys Thomas M. Daly, Michael J. Quinley, the late Robert T. Coleman and Michael F. Ruggio of the Criminal Division, Fraud Section, of the Department of Justice.

Grace was assisted in the civil case by Patricia L. Hanower and Stephanie Jackson of the Civil Division, Fraud Section, of the Department of Justice, and Laura J. Jones, Civil Chief of the U.S. Attorney's Office. The Office of the Counsel to the General Inspector was represented by Senior Counsel William J. Heffron.

HCSC cooperated with the investigation. As part of the civil settlement, it entered into a corporate integrity agreement with the government. HCSC withdrew from its Part B contract on December 31, 1997, and is currently assisting in the transition of a new Medicare carrier for Illinois and Michigan for Part B until July 31.


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