Accountant Exposes Million of Dollars in Hospital Fraud

John Schilling caught his employer stealing millions from the US Government. But that’s not the most shocking part…

An accountant turned FBI spy, Schilling exposed Columbia Healthcare Corporation (Columbia/HCA) for committing one of the biggest frauds in healthcare history. A chain of almost 200 hospitals, they were stealing funds from Medicare, a program that’s supposed to help the elderly and disabled.

Schilling discovered the erroneous accounting within months of being hired – an overcharge of $3.5 million.  When he brought it up to his supervisors, he was told to “stay quiet about it.”  The culture among his peers was, “if the government was too incompetent to know it was being duped, then that was the government’s problem, not the company’s.”  Like Hitler’s chess pieces, everyone was marching to the same beat of “just doing their job.”    

Due to Schilling’s work, Columbia/HCA was taken to a federal court and found guilty. They were forced to pay $1.7 billion to the government. Their crime: submitting false claims to Medicare and other federal health programs courtesy of the disabled and elderly.

Most revolting in this historical case is that not a single person was held accountable.  And while Columbia CEO, Rick Scott, was ousted by the board of directors for his infractions…he moved on to become the governor of Florida.

Schilling graciously agreed to an interview.

Rarely covered in the media, he tells us his story just as it happened, which reads like a blockbuster thriller that outlines the corruption and greed that runs medicine today.  You can learn more by reading his book, Undercover: How I Went From Company Man To FBI Spy And Exposed The Worst Healthcare Fraud In U. S. History.

TPC #1: What originally made you want to work as a reimbursement specialist for Columbia/HCA in 1990?

John Schilling: I was approached by an employment recruiter who informed me about a job opening at the Columbia Healthcare Corporation division office in Fort Myers, Florida. The recruiter believed I was a perfect fit for the opening and encouraged me to apply for the position in the rapidly expanding, publicly traded, hospital corporation.

The organization offered me a promotion from my current position and increased my responsibilities. The generous offer included large salary, bonuses, stock options, relocation expenses, and other benefits. A dynamic, innovative corporation, opportunities at Columbia Healthcare Corporation seemed boundless. It was time for a change and the opportunity was right; it didn’t hurt that the job was located sunny south Florida.

TPC #2: Many people witness fraud in their jobs or industries, but they don’t say or do anything about it. What made you speak out about your previous employer?

JS: The fraud I witnessed disturbed me from the moment I unearthed it. While some might find it a moral dilemma to speak out, my compass would not allow me to condone the practices of cheating the Medicare program.

The decision to blow the whistle was difficult. I did it because it was the right thing to do. As a CPA, I had sworn and was obligated to uphold the CPA’S code of ethics. I believed I had a moral and ethical obligation, to tell the truth, and expose the fraudulent activity.

TPC #3: How exactly did you discover the $3.5 million “accounting error” in your former employer’s financial records?

JS: During a routine Medicare cost report audit of one of the hospitals in my division, I unearthed the $3.5 million accounting error.

An auditor asked a few questions about the treatment of interest expense from a borrowing that took place several years prior. To find answers, I spoke to company management regarding the borrowing and interest treatment on the cost report. Management became alarmed that the current Medicare auditor was examining this interest issue that had taken place years prior.

In a meeting with management, I was informed that an auditor made a mistake that financially benefitted the hospital each year going forward. To date, the financial benefit amounted to $3.5 million. Management made it clear they did not want to rectify the auditor’s error, choosing instead to conceal it. They had no intention of returning the excess money unless Medicare found the error. Had Medicare figured out the scheme, the company reserved the excess reimbursement, in case they had to pay it back.

Additionally, when I examined the company’s books and records, I noted they were keeping two sets of Medicare cost reports. One set would be filed with Medicare to claim overall reimbursement of the hospital. This set was filed in an aggressive manner, often times claiming costs that are truly not reimbursable under the Medicare rules and regulations. The second cost report — or the “Reserve” cost report — was prepared for internal financial purposes and reflected the true and accurate costs.

[TPC note: In his book, Schilling quotes his boss — Bob Whiteside — as saying, “Don’t tell anybody about this. Jobs could be lost if this gets out.”… and, “With time, you will learn when to keep quiet about things.” The guy sounds like a real model citizen.]

TPC #4: Who or what department at Columbia/HCA was committing the actual crimes? Can you name names? Was that ever specified in the lawsuit?

JS: A number of company departments and company subsidiaries committed the criminal activity the company pled guilty to during the settlement. The company pled guilty to 14 criminal charges. However, not one individual was held accountable for the fraudulent activity.

Many people in multiple financial departments were aware of the company’s cost report scheme. As an example, the reimbursement department was responsible for the Medicare cost report fraud, under the supervision of the finance department.

The government did criminally indict a few company management employees. These managers went to trial. Two employees were initially convicted on six charges. Both appealed, and the appeals court overturned both convictions. (Names of those charged and details of trial details appear in several chapters in my book.)

[TPC note: In his book, Schilling identifies the two individuals who were charged as his former boss, Bob Whiteside, and Jay A. Jarrell, who had been the chief executive officer for Columbia/HCA’s Fort Myers division, as well as Vice president and chief financial officer of Columbia’s Southwest Florida Division. Both of them were found guilty of six counts of conspiracy on July 2, 1999. On March 22, 2002, in United States v. Whiteside, a panel of the U.S. Court of Appeals for the Eleventh Circuit REVERSED both of these convictions! This outrageous reversal essentially gave companies a “license to steal in the area of Medicare reimbursement.” Great job, legal system! Schilling himself concluded that “the defendants in that action escaped criminal sanctions for conduct that should have been punished as a crime.”]

TPC #5: In your book Undercover, why did you call being a whistleblower a “thankless role”?

JS: Throughout history, the term “whistleblower” has had a negative connotation. Those who blow the whistle are often blackballed within their industry.

The fact is that whistleblowers make tremendous sacrifices and take a personal and financial risk, while often being vilified for speaking the truth.

TPC #6: When fraudulent multibillion-dollar companies “settle” in court by paying a few million (or even a few billion) dollars, does anything really change?

JS: Initially corporations make organizational and policy changes to be compliant, as required by the settlement agreements. Companies regard these settlements as the cost of doing business and don’t really care about compliance.

Over time, the greed resurfaces and organizations find new, creative ways to commit fraud and cheat the system. Making a bigger profit is the motive to commit fraud.

TPC #7: What has happened since Columbia/HCA was ordered to pay the United States $1.7 billion? Is the company still operating today, perhaps under a different name?

JS: Columbia/HCA reacted quickly, and corporate changes were introduced at an alarming rate. The company pled guilty to 14 charges of criminal conduct. However, the plea agreement did not involve any prison sentences for any company official.

Chairman and CEO Rick Scott was ousted by the board of directors. Years later, Scott campaigned and was elected governor of the State of Florida and is currently serving his second term. Other corporate executives left the company or were fired. The new CEO changed the company name by dropping the word “Columbia.”

Today HCA is still a publicly traded healthcare company but on a smaller scale than it was in the 1990s. For the most part, they have stayed out of the news. There have not been any large fraud settlements since.

However, questions do still linger regarding how HCA is adhering to its corporate integrity agreement. Has compliance transformed the company?

TPC #8: How common is the practice of “defrauding Medicare” today?

JS: Fraud is still quite prevalent in the Medicare program, and the criminal entrepreneur is getting more sophisticated.   

Across the board, Medicare has been slow to change regulations and reimbursement systems to prevent fraud. I believe the changes that have been enacted are positive and have prevented some of the egregious activity like cost report fraud. On the flip side, since the change has been slow, criminals have the ability to stay one step ahead.

TPC #9: What if you had NOT blown the whistle? Are there any kind of checks and balances in place today, to prevent this from happening?

JS: If I had not blown the whistle, I can only theorize that Medicare cost reporting would be the same as it was.

After blowing the whistle, I saw some changes in Medicare cost reporting appear quickly. Medicare began reimbursing providers fully on a prospective basis and no longer on a blended cost and prospective amount. I believe strongly that this was a result of my case and the exposure of using reserve cost reports.

While checks and balances exist in the Medicare program, they work slowly and are not always effective. Medicare retains subcontractors to administer and enforce the Medicare rules and regulations. Many times these subcontractors fail to enforce the Medicare rules and regulations keeping providers in compliance.

Unfortunately for the American taxpayer, a sophisticated criminal knows how to avoid these checks and balances, defrauding the program before the Medicare program knows what has happened.

TPC #10: Are you aware of any other large-scale scams being perpetrated within the “healthcare” industry today?

JS: Across the country, “upcoding” is a scheme being perpetrated by a number of providers. The upcoding scheme involves improperly (fraudulently) coding and billing tests or procedures to increase reimbursement.

[TPC note: “Upcoding” means “to assign an inaccurate billing code to a medical procedure or treatment, in order to increase reimbursement.”

What a joke! The healthcare industry is the biggest scam ever. They don’t care about your health. They just want your money. To avoid getting sucked into the web of deceit, make sure to read Over-the-Counter Natural Cures Expanded as if your life depended on it! This book will show you how to safely wean off ALL meds so that you can live a healthier, more active lifestyle. FACT: people who are off meds live younger.]

TPC #11: You and James Alderson were awarded a total of $100 million from the U.S. government for being whistleblowers. How has your life changed since receiving that money? Are you still working?

JS: After reading my story, you probably realize that becoming a whistleblower is a life-changing process. The large reward I received is the exception, not the rule. Most whistleblower rewards are small and those involved need to continue to work after the settlement.

My reward has allowed me to be financially independent, enabling my wife and I to actively raise our three children into bright, independent young adults.

I am currently working with ProtectUS Law, a law firm that specializes in whistleblower cases.

TPC #12: What do you wish every American knew about the healthcare system and/or legal system?

JS: I wish every American would realize that healthcare in our country has its flaws. Healthcare laws, systems and companies that deliver services are flawed as well. When you put healthcare and the legal system together, you end up with an opportunity to challenge long-standing customs and conventions. We all know our legal system isn’t perfect, but you have the opportunity to change systems and right wrongs.

Bio: John Schilling has more than 27 years of healthcare financial and reimbursement experience, including auditing and fraud investigations. He has helped federal law enforcement coordinate healthcare fraud investigations. God bless this guy for doing the right thing!]