Undercover: How I Went from Company Man to FBI Spy--And Exposed the Worst Healthcare Fraud in U.S. History

By John W. Schilling | Go to book overview

APPENDIX A
The Fawcett Interest Issue

The Fawcett interest issue, which was at the core of my whistleblower lawsuit and the criminal indictments against four Columbia/HCA officials, was a debt interest expense question emanating from a mortgage loan from Manufacturers Hanover to an HCA predecessor company, the for-profit hospital chain Basic American Medical, Inc. (BAMI). The original loan of around $15 million was to Fawcett Memorial Hospital, one of five hospitals then owned by Indianapolis-based BAMI.

In 1982, 46 percent of the loan proceeds were targeted for capital expenditures, and 54 percent were allocated to operations. In 1983, the loan was included in a $13.25 million refinancing package with Northwest National Life. The fiscal intermediary (FI, the contractor Medicare hired to review the bills hospitals submitted to the federal health program) ultimately concluded—and Fawcett agreed—that 39 percent of the new debt was used for capital purposes, and 61 percent was spent on operations.

Although it was clear that a substantial portion of the refinanced debt was directed to non-capital purposes, Fawcett filed cost reports for 1984 and 1985 characterizing the interest expenses as entirely capital-related. This was a lie. And it was significant because Medicare reimburses hospitals through their Medicare cost reports at a higher rate for debt interest used for capital expenditures, as opposed to operational expenditures. The change in categorizing the debt interest resulted in Fawcett Memorial Hospital gaining hundreds of thousands of dollars in unwarranted Medicare reimbursement.

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