The home health company's plea and $3.36-million fine is part of a deal to settle charges it defrauded Medicare. It also will cooperate in the government's investigation of Columbia.
In 1994, Kimberly Home Health Inc.'s operations in Florida faced a potentially deadly competitor: Columbia/HCA Healthcare Corp.
Columbia was going gangbusters, plucking up hospitals throughout the state and eyeing the home health business as one more link in the lucrative patient care chain. Instead of fighting Columbia, Kimberly decided to join forces with the Nashville, Tenn., hospital company in a deal that federal prosecutors said amounted to Medicare fraud.
On Wednesday, Kimberly, a subsidiary of Olsten Corp., accepted that assessment, pleading guilty to one count of mail fraud in U.S. District Court in Tampa and agreeing to pay a $3.36-million fine. The plea is part of Olsten's agreement to pay a total of $61-million to settle criminal and civil allegations that the company defrauded Medicare. Olsten and Kimberly also have agreed to cooperate with the government in its ongoing investigation of Columbia.
Court documents filed in connection with Kimberly's guilty plea sketch out how the Melville, N.Y., company spent nearly a year negotiating a deal with Columbia that would pay off for both companies while shifting the cost to Medicare. When it was finalized in October 1994, the contract had three parts.
Columbia bought Kimberly's 24 home health agencies, which had provided 1.46-million annual visits, for $3.7-million, far below its fair market value.
At the same time, Columbia hired Kimberly to manage those agencies and eight others at an inflated fee of $9.60 per patient visit in a contract valued at $24-million per year. Finally, Kimberly agreed to pay $1.1-million to buy out an existing home health management contract Columbia had with a third party, Rescare.
In a memo, an Olsten executive said the company was willing to accept a lower sale price on its agencies because it could recover the loss within the first two years under the generous management contract, paid through Medicare. But the memo also noted a possible risk: "Future Medicare audit could claim that a portion of the management fee paid by Columbia to Olsten Kimberly Quality Care represents cost of acquisition," a clear violation of Medicare regulations.
Olsten's in-house lawyer was even clearer. On several occasions before the deal with Columbia was signed, he warned company officials that selling the agencies for less than fair market value would be "too close to the line (if not on or over the line)."
Olsten officials ignored their legal counsel. According to court papers, a key player in the negotiations was Columbia's senior vice president of the Southwest Florida Division. Although neither the documents nor Columbia officials identify that individual, the title was held from 1992 until mid-1994 by Jay A. Jarrell, who recently was convicted on six counts of Medicare fraud. During his trial on unrelated charges in Tampa this summer, Jarrell said he had been involved in Columbia's purchase of Kimberly's home health agencies in 1994.
Jarrell has not been charged with any wrongdoing in connection with the Kimberly contract, and his lawyer was not available for comment Wednesday afternoon.
A spokesman for Columbia said the Kimberly plea had been expected and presented no new information. The company currently is negotiating a settlement with the Justice Department on several civil charges.
In addition to illegally shifting acquisition costs to Medicare, Kimberly pleaded guilty to allowing Columbia to use its home health workers for sales and marketing purposes. Patient and physician solicitation costs are not allowable under Medicare. So Columbia called its workers, who got bonuses based on the volume of patient referrals they generated, "community educators." In a 1996 e-mail, the director of community education warned staffers about calling themselves marketers or sales representatives, positions clearly non-allowable under Medicare.
"We are slipping away from the education word to things like m and s," the e-mail said. "This is a big no-no."
Though Kimberly has been excluded from the Medicare program as part of its guilty plea, Olsten retains the right to participate. The company operates 15 home health agencies in the Tampa Bay area.