JULY/AUGUST 1998 · VOLUME 19· NUMBER 7&8

The company, the Medicare contractor for Illinois and Michigan, also admitted obstructing justice and conspiring to obstruct federal auditors.

The company will pay $4 million in criminal fines and $140 million in a civil settlement to resolve its liability under the False Claims Act.

At a news conference at the Justice Department to announce the guilty pleas, June Gibbs Brown, the inspector general of the Department of Health and Human Services, made it clear that the crimes of Blue Cross/Blue Shield of Illinois were in no way unprecedented.

"I would like to tell you this is an unprecedented cases, but it is not," Brown said. "Rogue contractors have been caught cheating the program in the past and I am sure, because of the vast amount of money spent on Medicare, others will be tempted to scam the program in the future."

By vast amount of money, Brown means $100 billion a year lost to health care fraud and abuse -- and that may be a low estimate, according to experts such as Harvard's Malcolm Sparrow, who believe that the number might be as high as $300 billion to $400 billion a year.

Over the past five years, Brown's office has investigated five additional cases that have resulted in criminal or civil actions against a Medicare contractor.

In 1993, Blue Cross/Blue Shield of Florida paid $10 million to settle charges that it falsified and failed to properly screen provider claims.

In 1994, Blue Cross/Blue Shield of Massachusetts paid a $2.75 million fine to settle charges that it falsified its performance reports.

In 1995, Blue Cross/Blue Shield of Michigan paid a total of $51.6 million to settle charges that it falsified audit reports and used Medicare money to pay claims that were the responsibility of other insurers.

In 1997, Blue Shield of California pled guilty and paid $12 million in civil penalties to settle charges of falsifying documents and failing to properly process claims and of destroying claims.

And in 1997, Blue Cross/Blue Shield of Massachusetts paid $700,000 to settle charges that it falsified statements related to its Medicare HMO application.

But the Blue Cross/Blue Shield of Illinois case was different at least in magnitude -- $144 million in fines and damages.

And the government had to be dragged kicking and screaming into the case. If it were not for a whistleblower, Evelyn Knoob, and her attorney, Ronald Osman of Marion, Illinois, the government would never have prosecuted the case.

Knoob began working at Blue Cross/Blue Shield's Marion, Illinois facility in 1983. Over the years, she witnessed a wide range of wrongful activity, including destruction and falsification of documents.

To anyone who has ever called their health insurer only to be met by maddening tape recordings or busy signals, Knoob knows why.

The government hired Blue Cross/Blue Shield to process claims. The company has been under contract with the Health Care Finance Administration to process claims submitted by Medicare beneficiaries and their doctors to other health care providers in accordance with Medicare coverage and payment rules.

To keep its contract, the company had to meet certain performance standards. For example, the company was supposed to answer 98 percent of the beneficiary calls within 120 seconds.

Knoob's supervisors had a way around this standard. They set up a monitor to keep track of calls. If this performance standard was about to be breached, Knoob and her colleagues were ordered to shut off the 800 line. Result: when a beneficiary called in to check on a claim, the line would be busy. A busy signal did not count as a call coming and thus did not have to be answered within 120 seconds.

In 1992, Congress held hearings about the busy signals Medicare beneficiaries were getting. The company felt the heat and changed strategies. According to Knoob, the company just stopped answering some calls. Beneficiaries would call and no one would answer.

Under the qui tam provisions of the False Claims Act, a private party may bring suit on behalf of the United States to recover damages resulting from the knowing submission of false claims to the government.

The party, in this case Evelyn Knoob, is entitled to receive 15 to 25 percent of the proceeds of the recovery in these cases.

That means Knoob will get anywhere from $21 million to $35 million for taking on a major corporate criminal -- her employer.

In addition to bringing the False Claims Act on her behalf, Ronald Osman, Knoob's attorney, went to the Justice Department Criminal Division in Washington, D.C. to seek a criminal prosecution for the destruction of documents and creation of false documents.

The Justice Department attorneys declined to bring the case. "I got upset," says Knoob's attorney, Osman. "I was saying that there were crimes committed, and they said, 'no.'"

Frustrated, Osman went back home and made a presentation to Chuck Grace, the U.S. attorney for the southern district of Illinois. Osman says he laid out the case for Grace in 102 memos.

Grace saw the crime, assigned a number of attorneys and FBI  agents to investigate the case. After two years, the company pled guilty to eight felony charges.

Osman adds that the Justice Department's Civil Division was also reluctant to enter the case. "They were not enthusiastic about the False Claims Act," Osman says.

-- Russell Mokhiber