Board OKs Medicare Fraud Case Settlement

Ventura County supervisors unanimously agreed Tuesday to a $15.3-million settlement of the county’s Medicare fraud case, a move officials warned could force future cuts in programs and services and delay some building projects.

Still, officials are hoping the settlement will move the county a step closer to ending what has become the biggest financial scandal in county government history.

“Paying $15 million is not a good feeling,” Chief Administrative Officer Lin Koester said after the board approved the settlement in closed-session Tuesday. “But it’s necessary in order to go back to doing county business. It gets us on the path toward closure on this issue.”

The settlement will close the U.S. attorney’s civil case against the county. Investigators alleged that the county’s mental health department fraudulently overbilled the federal government for Medicare reimbursements from 1990 to 1998.

The $15.3 million includes about $2.5 million to be paid to Jerome Lance, the county psychiatrist who alerted federal authorities to the alleged improper billing practices. Federal statute requires that whistle-blowers receive between 15% to 25% of a settlement.

The entire settlement will be paid over three years and will require the county to draw $5.1 million from its $25-million reserves to cover the first payment, Koester said. The second and third payments will also probably come from reserves, officials said.

The county must immediately replenish its reserves, Koester warned, or face a drop in its top credit rating for long-term loans. A lower rating would drive up costs and potentially delay some major building projects, he said.

“The reserves are very important in our borrowing program,” Koester said. “It could mean a slowdown in our capital projects.”

For instance, Koester said a depletion in reserves could delay a $15-million cafeteria and laboratory planned for the Ventura County Medical Center as well as a $5-million social services and employment center planned for Santa Paula.

Supervisor Judy Mikels said the second phase of the county’s planned $63.5-million juvenile justice facility may also be jeopardized. Recently awarded a $40.5-million state and federal grant for the project, the county must finance the remaining $23 million.

“At this time I think the juvenile justice center will continue, but the [payment] might slow down the project’s future phases,” Mikels said.

The county could decide to cut services and programs, possibly in the mental health or social services departments, in order to reestablish the reserve funds, Koester said.

“We’ll definitely be looking at that,” Koester said. “We’ll be doing belt-tightening in all departments.”

Another option may be to use part of the $12 million the county expects to receive from the national tobacco settlement over the next two years, Koester said.

Koester, who will retire next month, said county staff members will present a plan to supervisors in September outlining a list of options on how to cover the cost.

Meanwhile, County Counsel Jim McBride said Tuesday’s settlement does not include a pending probe by the federal Health Care Financing Agency into the mental health department. That agency alleges that the county violated federal organizational rules during the months it merged its social services and mental health departments.

In April of last year, supervisors voted to create a 1,400-employee superagency, but dismantled it nine months later after officials warned it violated federal rules.

The failed merger touched off half a dozen state and federal investigations into the mental health department.

Earlier, county officials feared the federal agency might demand reimbursement for money paid during the 259 days the merged agency existed--a sum officials believed could reach as high $15 million.

But McBride said Tuesday the county would most likely be penalized only for the period from April 7 to May 19, 1998, when doctors were not working under the same chain of command as required by federal law.

To address that problem, supervisors on May 19 of this year appointed Koester to serve as the county hospital’s interim executive officer. Officials said his appointment may have reduced the federal penalty to as low as $344,000.

McBride said the county may settle the case within a week.

As soon as the Medicare fraud case is settled, however, the FBI is expected to step up a criminal investigation to determine whether county officials deliberately broke the law when billing the government.

For now, Supervisor John Flynn said he is glad the Medicare civil case may soon end.

“We’re now on a solution path, rather than a crisis path,” said Flynn, who voted in favor of the ill-fated merger, as did Supervisors Susan Lacey and Kathy Long. “Today, we took care of one big bite.”