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WASHINGTON, D.C. - Quorum Health Group, Inc. agreed to pay $85 million to settle claims that it defrauded the Medicare program from 1985 to 1999, the Justice Department announced today.

The civil settlement resolves allegations that the Brentwood, Tennessee-based company made false statements in annual cost reports to various fiscal intermediaries, the companies that process Medicare cost reports for the government. The annual cost report is the report prepared by hospitals to obtain reimbursement for their costs from the Medicare program. Quorum prepared two cost reports for each of its owned and managed hospitals - a false, inflated cost report that was filed with the fiscal intermediary and a second, internal cost report that identified costs contained in the filed report that Quorum knew were unallowable.

A lawsuit filed in Tampa, Florida alleges that Quorum prepared "reserve cost reports," confidential documents that identified unallowable costs contained in the company's filed cost reports. Quorum kept the reserve cost reports hidden from government auditors. Some of the reserve cost report documents were stamped "CONFIDENTIAL. Do Not Discuss or Release to Medicare Auditors." Preparing reserve cost reports was Quorum's method of reserving funds to repay the government in the event the unallowable costs were discovered by the government.

The lawsuit alleges that Quorum followed a corporate policy or practice to include in its Medicare cost reports claims for reimbursement that the company knew would probably be lost if discovered by Medicare program auditors. To reduce the risk of discovery, Quorum withheld or concealed information related to these non-reimbursable cost items from Medicare auditors. The information Quorum failed to disclose is found in the health care company's reserve cost reports, work papers, and summaries. The complaint identifies several recurring types of unallowable costs for which Quorum created reserves, including advertising, capital, depreciation, interest, and bad debt costs.

The suit was initially brought by James F. Alderson, a former employee of Quorum, under the qui tam provisions of the False Claims Act, a federal law that allows private individuals to sue on behalf of the government. The lawsuit was unsealed upon the government's intervention. The False Claims Act provides for treble damages and civil penalties for violations of the act. In addition, the act provides that under certain circumstances, a whistleblower can recover up to 15 to 25 percent of the government's recovery in a case that the government joins. The government and Alderson have not reached agreement upon the amount of Alderson's recovery.

Quorum owns and manages more than 200 hospitals nationwide. Quorum Health Resources, a subsidiary of Quorum also named in the lawsuit, is the nation's largest hospital management company. The United States and Alderson identified over two thousand inflated cost items from approximately 450 reserve cost reports prepared and submitted by Quorum.

The civil investigation, litigation and settlement were handled by the Civil Division of the Department of Justice, with assistance from the Office of the United States Attorney for the Middle District of Florida, Department of Health and Human Services Office of Inspector General, and the Health Care Financing Administration.

The qui tam case is entitled United States ex rel. James F. Alderson v. Quorum Health Group, Inc., et al., Case No. 8:99-cv-413-T-23TGW (M.D. Fla.).

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