Department of Justice Seal

FOR IMMEDIATE RELEASE CIV WEDNESDAY, NOVEMBER 5, 1997 (202) 616-2765 TDD (202) 514-1888


WASHINGTON, D.C. --- A bankrupt health insurance company based in Nashville, Tennessee, Vendell Healthcare Inc., has paid the United States $4.2 million to settle claims it fraudulently overcharged several federal health insurance programs for services, the Department of Justice announced today.

Assistant Attorney General Frank Hunger of the Civil Division and U.S. Attorney P. Michael Patterson of Tallahassee, Florida, said two Florida hospitals formerly owned by Vendell--Rivendell of Bay County in Panama City and Rivendell of Fort Walton Beach in Fort Walton Beach--and several affiliated outpatient clinics previously operated by Vendell in Florida and Alabama filed false claims with the programs. The clinics operated under the names of Altacare and Kids First in Panama City, Fort Walton Beach, Pensacola, Tallahassee and Dothan, Alabama.

"This case is an excellent example of teamwork between several federal investigative agencies and auditors and underscores the government's pledge to prosecute and penalize those who cheat federal health insurance programs," said Hunger.

"It is critical that the United States enforce the integrity of all its health care programs to protect the interests of taxpayers," said Patterson. "We intend to continue those efforts."

The settlement, which was approved by the Bankruptcy Court in Nashville, required Vendell to pay $4,216,701. The health insurance programs included Medicare; CHAMPUS, the medical benefits program for the Armed Forces; and the Federal Employee Health Benefits Program (FEHBP), which provides insurance through participating private insurance companies, including Blue Cross and Mailhandlers, to federal civilian employees and retirees.

The agreement settles a qui tam suit filed by four former Vendell employees in March 1995. Vendell declared bankruptcy in March 1997.

The complaint alleged that Vendell:

Admitted and treated federally-insured patients in its psychiatric facilities without regard to medical necessity.

Billed Medicare, CHAMPUS and FEHBP for services not rendered.

Entered into bogus contracts with doctors to pay kickbacks for patient referrals.

Claimed reimbursement in its Medicare cost reports for the services of a psychiatrist who had been excluded from the Medicare and CHAMPUS programs for a prior conviction for health care billing fraud.

Allowed a psychiatrist excluded from the Medicare and

CHAMPUS programs to render services to Medicare and CHAMPUS patients, then billed the programs for those services.

On March 19, 1997, two Vendell subsidiaries which owned the hospitals and affiliated outpatient clinics pled guilty to one count of conspiracy to defraud Medicare, CHAMPUS, Mailhandlers and private insurance companies.

The Panama City hospital and the remaining facilities in the Vendell Florida Network were sold in June 1997 to Children's Comprehensive Services Inc. of Murfreesboro, Tennessee. The Fort Walton Beach hospital is now operated by Ramsay Healthcare.

The case was handled jointly by the Department's Civil Division, the U.S. Attorney's office in Tallahassee, the FBI, the Defense Criminal Investigative Service (DCIS), and the Office of Inspector General of the Office of Personnel Management (OPM), which has responsibility for the FEHBP. Auditing was performed by the Defense Contract Audit Agency (DCAA), the Department of Health and Human Services' Office of Inspector General, Office of Audit Services, and the Insurance Audits Division of the Office of Inspector General of OPM.