$35 million settlement announced in UW billing case

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March 2000: Feds looking into billing by UW doctors
July 2001: UW doctors bracing for charges
July 2001: UW news release
March 2003: Prosecutor: UW staff destroyed damning documents
January 2004: Regents close to settlement
March 2004: UW, prosecutors seek delay in unsealing suit

The University of Washington destroyed and sanitized reports on billing fraud at its medical centers, according to a whistle-blower lawsuit that led to a criminal investigation and a $35 million settlement announced today — the largest against a U.S. teaching hospital.

The lawsuit, which has been under seal for almost five years, also details how the university changed its policies to allow doctors to bill the government for more expensive services than they had performed.

The lawsuit, which was reviewed by The Seattle Times a day before its expected public release, describes a far more institutionalized pattern of fraud at the UW than previously revealed.

Mark Erickson, then a compliance officer at the UW, accused the school of massive overbilling in the 1999 lawsuit. The case led to felony pleas by two leading UW doctors, one of whom left his job.

Erickson is expected to receive $7.25 million of the $35 million settlement, which was agreed to in January by the UW and will be announced by the federal government. Washington state will get $2 million for overbilling of the state's Medicaid system and the federal government will collect more than $25 million for Medicare overbilling.

At a news conference this morning, U.S. Attorney John McKay, the top federal prosecutor in Western Washington, issued a statement saying he was "especially troubled by evidence that Erickson was directed to destroy audits reports and rewrite them to cover over the problems the original audits addressed."

McKay said the settlement was in the best interest of the government and the UW because the university's medical system "is at the heart of the region's health-care system. The quality of care provided by the University of Washington medical system has never been in question."

He said the government could have asked for more money, but declined to disclose what he believed to be the total amount of the overbilling.

McKay, in his statement, said the investigation confirmed Erickson's allegations that many people in the programs were aware of billing problems, but did "not take adequate steps to correct them."

Shortly after, defiant UW officials held a news conference on campus, where they said any overbilling was the result of innocent mistakes and not deliberate actions. The officials also have denied that records were destroyed.

The UW will pay the penalty with patient fees collected by doctors in their clinical work, a source has said, and by using nontaxpayer funds from UW Medicine, the umbrella organization for all of the university's medical facilities.

The settlement is the largest since federal auditors began investigating billing practices throughout the country 10 years ago. The University of Pennsylvania paid the second-largest penalty, $30 million, in 1995.

The investigation of the UW focused on allegations that doctors falsely claimed they had been present during procedures performed by medical residents in order to bill the government and then backdated documents to cover up the fraud. But details have been secret until now. The suit has remained sealed at the request of UW attorneys and federal prosecutors, who said it was necessary to help settle the case. U.S. District Judge Barbara Jacobs Rothstein agreed.

Erickson's 1999 lawsuit describes how far the school went to undercut its own compliance program and conceal that it owed money to the government.

UW officials previously have acknowledged incorrect billings occurred but have disputed some specific allegations. They declined to discuss details yesterday, citing a court order barring them from talking about it until the case is resolved. With today's settlement announcement, that court order expires and the lawsuit was made public this morning.

The lawsuit said the nonprofit UW Physicians, a doctors group, established a compliance program in 1996 to check whether the various departments were abiding by the governments billing policies and legal requirements.

But when the program was put into place, auditors found rampant errors. Doctors were routinely overbilling Medicare and Medicaid, charging for more expensive services than those they had performed. According to the lawsuit, auditors found evidence of this in nine out of 10 departments at the Children's University Medical Group, the billing group for UW doctors who practice at Children's Hospital and Medical Center.

When UW Physicians found out, according to the lawsuit, it hid the practice by changing the compliance policy, making it acceptable to round up, meaning doctors could charge for a treatment that was one rung higher on the billing chart than the treatment they had actually provided.

With the new rules in place, UW Physicians began a second audit for 27 specialty departments. Even under the more permissive rule, though, the errors poured in, according to the lawsuit. The majority of errors came from doctors who were charging for services two or more rungs higher than the services performed. In the dermatology department, 90 percent of the cases reviewed were incorrectly billed. Rates were 57 percent for infectious-diseases, 21 percent for pulmonary and 22 percent for craniofacial.

UW Physicians destroyed the old reports, the lawsuit said, and wrote new, sanitized versions.

"Typically, the existence of a compliance program is sold to the government and the public as some assurance that billing is being done correctly," said Stephen Meagher, Erickson's attorney. "In fact, as here, compliance programs can be total shams ... ."

University officials have disputed that any audits were deliberately destroyed, saying some were destroyed in the ordinary course of business but that the underlying data were saved in a different record-keeping format. No employees tried to hide inflated billings, the officials have said.

Three years after Erickson filed the lawsuit, Dr. H. Richard Winn, a neurosurgeon, pleaded guilty to obstructing a federal investigation and resigned with a $3.7 million separation agreement. Kidney specialist Dr. William Couser was placed on probation and ordered to repay $100,000 for the overbilling. Couser is set to retire in June.

Erickson has left the UW and does consulting work. The payment he is set to receive is stipulated in a Civil War-era law that encourages whistle-blowers to come forward.

Since the suit was filed, the university has spent millions of dollars to bolster its compliance programs, creating a new oversight office, hiring more staff and replacing 17 of 22 administrators and staff who oversaw billings.

Those changes and the federal investigation have focused on government billings.

McKay has commended medical-school officials for making the changes, saying they have led to significant improvements.

Sharon Pian Chan: 206-464-2958

Timeline of investigation at UW

August 1999: UW employee Mark Erickson files a whistle-blower suit, alleging massive overbilling of Medicare and Medicaid by UW doctors.

November 1999: Acting on allegations in the suit, federal agents seize records from UW medical facilities.

July 2002: Dr. H. Richard Winn, a renowned neurosurgeon, pleads guilty to obstructing the investigation. He is later placed on probation and agrees to pay $500,000 to Medicaid and Medicare for overbillings. Winn also agrees to resign from the university in exchange for up to $3.7 million in lost pay.

March 2003: Dr. William Couser, a prominent kidney specialist, pleads guilty to a fraud charge. He is placed on probation and ordered to pay $100,000 for overbillings. He plans to retire from the university in June 2004.

May 2003: Federal prosecutors end their criminal investigation.

January 2004: UW agrees to pay the government $35 million to resolve allegations in Erickson's suit. The deal awaits approval by the UW Board of Regents and the U.S. Justice Department.