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New York Downtown Hospital has agreed to pay $13.4 million to the state and federal governments to settle a fraud case involving illegal payments made to the hospital for unlicensed inpatient drug and alcohol services. What’s more, the services were granted to patients who were unlawfully referred to the hospital. The fraud was carried out between 1998 and 2006, according to state Attorney General Eric Schneiderman’s office.
The scandal was revealed by whistleblowers Dr. Mathew Gelfand, director of a methadone treatment clinic at Long Beach Medical Center, and Enrico Montaperto, a former social worker, who had filed complaints under the state’s False Claims Act. They will share 18 percent of the $13.4 million penalty.
The hospital was charged with conspiring with SpecialCare Hospital Management Corporation, a Missouri-based health care provider, to submit false claims to Medicaid and Medicare under the guise of an “administrative services” agreement. SpecialCare marketed its services to Downtown Hospital and other hospitals around the state that initiated the New Vision program for Medicaid patients undergoing substance abuse and alcohol withdrawal.
According to the terms of the settlement, Downtown Hospital has agreed to return more than $12.6 million to the Medicaid program, which provides health care for poor and disabled New Yorkers, and $800,000 to the federal Medicare program, which serves the elderly and disabled. While the hospital continues to accept Medicare and Medicaid patients, the controversial detoxification program ended in 2005, said Chiu-Man Lai, an assistant vice president at Downtown Hospital.
According to Schneiderman’s office, the hospital was paying SpecialCare a monthly fee of $38,500 for the referral of Medicaid patients to the hospital’s unlicensed detoxification unit. The services themselves weren’t medically necessary and failed to meet professionally recognized standards of care.
In doing so, the hospital violated federal and state anti-kickback laws as well as state Medicaid rules. State law requires hospitals to have a certificate from the New York Office of Alcohol and Substance Abuse Services in order to operate a freestanding chemical dependency treatment unit.
The fine places a steady financial burden on the hospital. In settling the case, a U.S. district court outlined a payment schedule by which the hospital would pay $131,493 monthly to the state and $101,577 monthly to the feds from Sept. 5, 2012 to July 5, 2017.
“It’s going to be a hardship for us,” said Lai. “We’ll try to continue our daily operations and make the payment on time.”
In a written statement, Tony Ercolano, manager of special projects at New York Downtown Hospital, asserted that the hospital has not admitted to liability, as reflected in the settlement with the government. “The current leadership is pleased to get these allegations — which date back over ten years — behind us,” he said. “The hospital can now focus its efforts on continuing to provide the highest quality health care to the Downtown community.”
Lai voiced doubt about the charges — after all, the hospital is inspected every three years by the state, she noted. “I don’t think we would take that risk, to operate something that’s illegal,” she said. “If we’re really doing something we’re not supposed to, I don’t think they’d give us that operating license, period.” Nevertheless, Schneiderman contended that the settlement indeed holds Downtown Hospital accountable for the scheme and will make providers think twice before defrauding the Medicaid system.
Schneiderman continued, “By exploiting this need in order to maximize revenue,” he said in a statement, “New York Downtown Hospital wasted Medicaid resources and illegally billed taxpayers for unlicensed and medically unnecessary treatment services.”
“Together with our federal partners, we will leave no stone unturned in the fight to recover misappropriated money on behalf of New York’s taxpayers.”
Suzanne Mattei, executive director of New Yorkers for Patient and Family Empowerment — a patient advocacy group at 11 Park Place — said the case highlights the importance of having vigorous government oversight of institutions that spend public money.
“Every dollar that is wasted in fraud is a dollar that’s not going toward proper health care and the health and welfare of patients,” she said. “When you’re spending public dollars on health care, everything has to be done right.”
Community Board 1 chair Catherine McVay Hughes, whose family has sought care at the hospital, also stressed the significance of careful oversight of health care in Downtown and elsewhere. “This recent settlement shows that state Attorney General Schneiderman and U.S. Attorney Loretta Lynch are vigilant in making sure that our scarce public resources for important programs such as Medicare are spent properly and effectively,” she said.
Downtown Hospital began in 1857 as a care center for needy women and children under Dr. Elizabeth Blackwell, America’s first licensed female physician. The hospital has been at its William Street location since the 1950s. Upon the closing of St. Vincent’s Hospital in 2010, it assumed the role as the only hospital in Manhattan south of 14th Street. Prior to Downtown’s population boom, it primarily served the financier population on Wall Street, according to Arthur Levin, director of the Center for Medical Consumers, based in the South Village.