United States Intervenes in False Claims Act Lawsuit against Mississippi Hospital, Two Individuals and Management Company for Overcharging Medicare Program

The United States has intervened in a lawsuit and filed a complaint against H. Ted Cain, Julie Cain, Corporate Management Inc. and Stone County Hospital Inc. for submitting false claims to the Medicare program by knowingly charging excessive and ineligible expenses from 2002 to the present.  Stone County Hospital is a critical access hospital located in rural Mississippi.  Corporate Management Inc. is a management company that provides management services to Stone County Hospital.  Ted Cain owns and controls the hospital and the management company.

Most acute care hospitals are reimbursed by Medicare under a variety of prospective payment systems, which provide a fixed payment based on a patient’s diagnosis or treatment.  However, to encourage hospital coverage in rural, underserved areas, critical access hospitals, like Stone County Hospital, are exempted from these prospective payment systems and are entitled to receive 101 percent of the actual and allowable costs of providing Medicare beneficiaries with outpatient, inpatient, laboratory, ambulance and post-acute care services.  However, Medicare requires that costs charged by critical access hospitals be reasonable and necessary.  Medicare also prohibits hospitals from charging the program for luxury items, like expensive automobiles.

The government’s complaint alleges that Ted and Julie Cain, the hospital and the management company abused the special Medicare rules for rural hospitals.  In particular, the government contends that the Cains claimed to be serving the hospital in various management and directorship positions but in fact did little of the work for which the hospital paid them and any work they did duplicated work performed by the hospital and the management company staff, which were also paid by the hospital.  The government also contends that Ted Cain improperly claimed the expenses for his personal luxury automobiles on the hospital’s cost reports and his management company wrongfully charged to the hospital work that Cain did at his other businesses.

“The Medicare reimbursement rules for critical access hospitals are intended to ensure that Medicare beneficiaries living in rural areas receive access to the health care services they need,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “We will aggressively pursue providers who try to take advantage of these rules to line their own pockets.”

“In a state like ours where nearly a third of the hospitals are critical access hospitals, many of our citizens depend on this very important system, and we will protect it by ferreting out fraud where it exists,” said U.S. Attorney Gregory K. Davis of the Southern District of Mississippi.

The government’s complaint was filed in a lawsuit initially brought under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private parties to sue on behalf of the government for false claims for government funds and to share in any recovery.  The act permits the United States to intervene and take over the lawsuit, as it has done in this case.  If a defendant is found liable under the act, the defendant is subject to trebles damages and penalties.

The United States’ suit is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $25 billion through False Claims Act cases, with more than $16 billion of that amount recovered in cases involving fraud against federal health care programs.

The matter was investigated by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office of the Southern District of Mississippi and the Department of Health and Human Services’ Office of Inspector General.  The claims asserted against Ted and Julie Cain, Corporate Management and Stone County Hospital are allegations only, and there has been no determination of liability.

The case is captioned United States ex rel. Aldridge v. Cain, et al., Case No. 3:07-CV-309 HTW-LRA (S.D. Miss.).