Department of Justice Seal Department of Justice
(202) 514-2007
TDD (202) 514-1888


WASHINGTON, DC -- KPMG Peat Marwick, LLP. (KPMG) has agreed to pay the United States over $9 million to settle allegations of preparing false hospital cost reports that were submitted to Medicare and Medicaid, the Justice Department announced today.

The government's suit alleged that KPMG violated the False Claims Act by submitting false reports to the health care programs from 1990 to 1993 on behalf of Basic American Medical Inc. (BAMI) and Columbia Hospital Corporation (now known as HCA, Inc.). Under the False Claims Act, those who file false claims against the federal government may be subject to three times the damages caused and penalties of $5,000 to $10,000 per violation..

In the early 1990's, KPMG was retained by BAMI to provide advice and prepare Medicare and Medicaid cost reports for four Florida hospitals and one in Kentucky, for the facilities' fiscal year 1990 and 1991 reports. KPMG was also hired to provide the same services for an additional BAMI hospital in Florida for fiscal year 1991.

After HCA purchased BAMI in July 1992, Columbia continued to retain KPMG to prepare the reports for some of the former BAMI hospitals for the 1992 fiscal year. The settlement also covers false statements included by KPMG in BAMI's Medicare home office cost statements for fiscal years 1990 and 1991.

The government alleged that KPMG, acting as a reimbursement consultant and preparer of the cost reports, knowingly made claims for repayment on behalf of its client hospitals that were false, exaggerated or ineligible for payment and concealed errors from government auditors enabling BAMI and HCA to illegally retain Medicare funds. At the same time that KPMG prepared the reports that were actually filed with Medicare, the financial services company also prepared "reserve" cost reports used to estimate the impact on a hospital's reimbursement that would occur in the event that the non-allowable expenses and allocations in the filed reports were detected on audit by Medicare 's fiscal intermediaries.

Based on information developed during the creation of the "filed" and "reserve"cost reports, the government alleged that KPMG prepared summaries for BAMI and HCA which detailed the non-allowable nature of the expenses and allocations in the filed cost reports and recommended that the hospitals set-aside, or "reserve," specific funding to cover the potential adjustments to the hospitals' Medicare reimbursement that would be made if the false statements and false claims in the filed cost reports came to light. The government also alleged that KPMG and its client hospitals concealed the existence of the "reserve" cost reports and associated accounting documents from Medicare and its auditors.

The settlement covers conduct by KPMG relating to annual Medicare and Medicaid cost reports prepared for BAMI and HCA for fiscal years 1990 through 1992 and relates to fifteen cost reports prepared for six BAMI, later HCA, hospitals over three years.

"This settlement demonstrates the United States' commitment to protecting federal funds from fraud and abuse and to holding accountable not only those who receive ill-gotten gains, but also those who facilitate the submission of false claims to federal programs," said Robert D. McCallum, Jr., Assistant Attorney General in charge of the Civil Division.

The settlement resolves allegations brought under the qui tam, or whistleblower, provisions of the False Claims Act by John Schilling, a former Supervisor for Reimbursement for the Southwest Florida Division of Columbia Hospital Corporation. Under certain circumstances, the whistleblower is entitled to a portion of the government's recovery.

The United States intervened in the lawsuit in December of last year. The case was investigated by the Federal Bureau of Investigation in Tampa.

The lawsuit is filed in the Middle District of Florida as United States ex rel. Schilling v. KPMG Peat Marwick, No. 98-901.