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Sunday, July 8, 2001 - Page updated at 12:00 AM

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UW doctors may face charges amid allegations of overbilling for Medicaid, Medicare services

Seattle Times staff reporters

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Copyright 2001, The Seattle Times Co.

The University of Washington School of Medicine is bracing for possible federal criminal charges against doctors and administrators suspected of overbilling for Medicare and Medicaid services, according to lawyers and others involved in the case.

At least four doctors and two administrators have been told they may be indicted in the investigation by the FBI, the Department of Health and Human Services and the U.S. Attorney's Office, the sources said.

A grand jury has heard allegations of doctors billing for procedures while they were on vacation and falsely claiming they were present for procedures done by medical residents, and of staff members backdating documents and claiming more- expensive procedures than were actually performed.

The case is built in part on secretly recorded audio tapes from a hidden microphone worn intermittently for three months by the whistleblower in the case, a former employee of two private-practice groups affiliated with the medical school. Existence of those tapes has been a tightly guarded secret.

The two groups under investigation are University of Washington Physicians, which provides services at UW Medical Center, Harborview Medical Center and eight neighborhood clinics, and Children's University Medical Group, a collection of doctors who practice at Children's Hospital & Regional Medical Center. Both groups are private nonprofit corporations operating under the authority of the university's Board of Regents.

Although grand-jury proceedings are secret, numerous sources on both sides of the case - including federal law-enforcement officials and criminal-defense lawyers who represent some of the doctors - described the scope of the investigation.

Additionally, former U.S. Attorney Kate Pflaumer, who headed the office until three months ago, and Dr. Paul Ramsey, vice president for medical affairs and dean of the UW medical school, spoke about the case, confirming a criminal investigation has been under way for two years.

Ramsey and other UW officials are alarmed that doctors could be charged with crimes. They admit some billings were wrong but say the errors were unintentional. The amount of wrongful billings is yet to be determined, but sources close to the investigation said it is in the tens of millions of dollars.

Ramsey said reputable doctors "face the very real risks of an honest mistake being cast by prosecutors as an intentional act of fraud."

At the same time, Ramsey added in a prepared statement, "We have concluded that some of our procedures and compliance efforts have fallen short, and we are making a number of improvements."

Pflaumer said she was aware the length of the investigation has been a concern to the university but said it has been slowed in part by people invoking their Fifth Amendment rights against self- incrimination. The prosecutors assigned to the case are experienced in distinguishing between civil violations stemming from unintentional billing errors and criminal conduct of the type handled by grand juries, she said.

The prospect of criminal charges is the most serious development in the investigation that began in 1999 with a complaint from the whistleblower, Mark Erickson, 33, of Seattle. Erickson declined comment for this story. He stands to collect a substantial reward, perhaps millions of dollars, if fraud is proven.

The grand jury in Seattle is continuing to hear secret testimony from numerous witnesses, some of whom have been given immunity from prosecution, and could issue indictments as early as this fall, sources said.

If criminal charges are filed, they would be the first of their kind in the federal government's five-year, nationwide crackdown on the overbilling of Medicare and Medicaid by teaching hospitals. Other cases have been resolved with large civil payments.

By focusing on the private-practice groups, the UW case is being handled more like criminal prosecutions of the health-care industry. What makes this case unique is that the practice groups are associated with a major medical school.

The groups allow about 1,200 UW-affiliated doctors to collect fees for patient services that go beyond the state salaries they receive, in some cases by as much as three times.

The two practice groups collected $35.8 million from Medicare and Medicaid and another $61.8 million from private payments for medical services during the fiscal year that ended June 30, 2000. Medicare is the federal program that guarantees health care for the elderly; Medicaid is a similar program for the poor.

FBI agents and investigators from the U.S. Department of Health and Human Services' inspector general served search warrants in a raid on UW Physicians on Nov. 22, 1999, and have questioned dozens of employees in several of the UW's medical departments, including kidney dialysis, radiology and neurosurgery.

UW Physicians paid $2.9 million last year to the Seattle law firm Preston Gates & Ellis to coordinate its legal work, a sevenfold increase in the previous year's payment to the firm, tax records show. Children's paid $457,000 to the firm, a sixfold increase. UW Physicians also paid $180,000 to two top criminal-defense attorneys and $84,891 to a legal-service company to copy documents provided to prosecutors last year.

In addition, the UW risk- management office has taken the unprecedented step of deputizing a criminal-defense attorney, Dan Dubitzky, to be a special assistant attorney general and coordinate the response to the federal investigation.

Dubitzky said he has not found any fraudulent billing. "Our people have made errors while struggling with frighteningly complex regulations," he said.

University officials said that even before they learned of the investigation, they began taking steps to fix problems with billing procedures. Among the changes, the medical school has hired a full-time compliance director and has increased staffing and training.

Several lawyers representing doctors, staff and nurses say the allegations stem from misunderstandings or mischaracterizations of sloppy bookkeeping.

"I don't know if there is black and white there. There are a lot of shades of gray," said Richard Troberman, who represents 14 nurses questioned as witnesses and not targets of the investigation.

But former UW Physicians' employees have told The Times that managers ignored warnings of problems and could have stopped them.

The whistleblower, Erickson, began working as a professional fees coordinator for UW Physicians in 1991 and was later promoted to compliance officer and auditor at Children's University Medical Group. In April 1999, he warned that teaching physicians must be physically present to bill for services, according to records obtained by The Times under the state public-records law.

Medical residents are paid a salary and are not permitted to bill Medicare and Medicaid for their services.

At some point, Erickson hired an attorney who specializes in filing suits under the federal False Claims Act, a law aimed at encouraging people to report fraud against the government in exchange for a monetary reward if wrongdoing is proven. Payments generally amount to 15 to 20 percent of what the government recovers. The attorney filed a suit that outlines Erickson's allegations, but it has been sealed while the investigation continues.

Erickson, protected by law from retaliation, was given a severance package to leave his job in early 2000. He is continuing to work with federal investigators.

UW officials say the investigation's premise of greed is undercut by statistics showing the university's medical facilities provide vastly more free care to the poor than any other health provider in the state; that its medical faculty members make far less than they could in private practice; and that a significant portion of fees is used to bolster care and buy new equipment.

"Our providers serve as a critical resource for people in our community and the region - including many of the sickest, poorest and otherwise disadvantaged," Dean Ramsey said in his statement.

Ramsey said the UW takes the criminal investigation seriously, as well as "the importance of conducting the business aspects of our work in a professional and ethical manner."

"One of those business aspects - billing for health-care services - is among the most confusing, burdensome, ever-changing, and expensive areas of federal regulation today," he said.

"Given these challenges, billing mistakes are made," Ramsey said. "And while we have made mistakes, we have seen nothing to date that suggests that anyone's actions were designed to commit fraud."

UW officials note that findings of Medicare and Medicaid overbilling at 14 other teaching hospitals have resulted in nearly $117 million in civil settlements since 1995. The University of Pennsylvania paid the largest settlement, $30 million.

"We know of no instance in which criminal charges have been filed for billing improprieties in these settings," Ramsey said. "We should be treated no differently."

Most of those cases were different, however, because they stemmed from regular federal audits and voluntary participation by teaching hospitals, not whistleblower complaints, grand juries and search warrants.

Steve Miletich can be reached at 206-464-3302 or smiletich@seattletimes.com. Duff Wilson can be reached at 206-464-2288 or dwilson@seattletimes.com.

Seattle Times staff reporters Warren King and Mike Carter contributed to this report.

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