The Penn physician group denied any wrongdoing. It agreed to pay the $30 million "to avoid the expense, burden and uncertainty of litigation." The $30 million represents $10 million in false claims and overbilling and $20 million in penalties.
"The submission of these false claims to Medicare is a very serious matter," said Michael R. Stiles, U.S. attorney for the Eastern District. ''Obviously, the escalating costs of Medicare are a concern to everyone. Hopefully, this agreement will serve notice on other institutions to closely audit and monitor their Medicare billings and to come forward if they find discrepancies."
Richard Kusserow, a former inspector general for the U.S. Department of Health and Human Services, which oversees Medicare, said he would be surprised if this were an "uncommon" problem.
"If you find it at Penn, you can find it at almost any teaching hospital," he said.
Robert Dickler, senior vice president of health-care affairs for the Association of American Medical Colleges, said the settlement was sure to get the attention of the industry because of its size and Penn's elite status. But he questioned whether the false-billing practices were as widespread as has been suggested.
The case comes amid an intense debate in Congress about the financial future of Medicare, which pays for health care of the nation's elderly and disabled. Penn and other teaching hospitals contend they would be sorely hurt by proposed cuts in Medicare because the program helps subsidize the cost of training doctors.
Assistant U.S. Attorney Margaret L. Hutchinson, who handled the Penn investigation, said the government planned to audit other teaching hospitals. In the Philadelphia region, there are 49 such institutions.
The government's investigation at Penn focused on 600 faculty doctors who make up the Clinical Practices of the University of Pennsylvania. These doctors generated huge revenue increases between 1989 and 1994, the period when the government said the false billing occurred. In the fiscal year ending June 1994, the Penn doctors group brought in $226 million - 70 percent more than in 1989. The most recent figures show that about 25 percent of the hospital's patients were covered by Medicare.
In arriving at the $10-million false claims figure, federal auditors sampled 100 medical records in 1993 and extrapolated their findings for the six-year period.
In its settlement with the government, Penn agreed to monitor its billing practices to ensure that Medicare rules are met and said it would set up two hotlines for employees to report irregularities.
"We think it's a model compliance plan for every hospital in the country," said James G. Sheehan, chief of the civil division in the U.S. Attorney's Office. He said Penn officials cooperated with the government.
The settlement releases Penn and its trustees from further legal action. It does not preclude the government from taking action against individual doctors or administrators.
Dr. William Kelley, chief executive of the University of Pennsylvania Medical Center and Health System, said in a statement that internal reforms in billing practices had begun even before the federal audit. He added: "We deeply regret any billing errors that may have occurred."
Authorities are hoping the Penn case will spur other teaching hospitals to review their Medicare billing practices and make voluntary disclosure of irregularities.
Institutions that turn themselves in can reduce their liability - but settling with the government will still hurt. Rather than facing maximum penalties of triple damages and $5,000 fines for each false claim, institutions that confess their sins face only double damages for overbillings.
Federal auditors found broad patterns of overbilling at Penn. The irregularities, as described by federal officials, occurred in two principal areas:
* Medicare was billed at inflated levels for services by staff doctors - a practice known as "upcoding." Doctors are permitted to charge varying rates for consultation services to a patient depending on the complexity of the case.
A hypothetical example would be: A staff doctor looked in on a patient, noted on the chart that the patient was "alert," and then, without further documentation, billed Medicare for a complex examination.
* Medicare was improperly billed for services provided to patients by resident doctors - a practice barred by Medicare rules because the salaries of residents at teaching hospitals are already subsidized by Medicare. Bills were submitted under the names of faculty doctors even though the work was done by residents.
A hypothetical example: A patient comes to the hospital with a broken leg. A resident sets the cast. The faculty doctor signs the chart and then bills Medicare in his name for the procedure.
"We think the billing of resident services is a common problem," Sheehan said. "This is a prototype case to address a problem that is not unique to" Penn.
A Penn doctor who asked not to be identified said the irregularities occurred at a time of changing rules regarding insurance. He said that prior to the late 1980s it was routine for residents to oversee the care of patients in the hospital, with faculty doctors signing off on the cases.
But, he said, by the early 1990s the government and private insurance companies were demanding documentation of direct involvement by faculty doctors.
He said the hospital was not quick enough to keep doctors abreast of changing insurance rules.
In recent years, the doctor said, there also has been tremendous pressure on doctors at the medical center to bring in more money.
"The message is clear. Money runs the system and you have to produce," the doctor said. "Now more and more attention is being paid to billing to justify your existence. You have to have a certain amount of billing to cover your salary, you secretary's salary, your nurse practitioners, your office space."
The Penn case comes as part of a wide crackdown on health care fraud. Government officials estimate that 10 percent of the nation's health-care costs can be attributed to fraud and abuse.
Sheehan said that his office currently is investigating about 70 cases of various types of suspected health care fraud. About 20 of those, he said, were sparked by whistle-blowers who hope to collect a bounty when and if the government makes a monetary recovery.
Under federal law, an individual with knowledge of a fraud can file a civil lawsuit in behalf of the government. The lawsuit is filed under seal and referred to the U.S. Attorney's Office for investigation. If evidence of a fraud is discovered, the government joins in the suit. The whistle-blower receives a portion of the final judgment.
Whether a whistle-blower was involved in the Penn case is unclear. Prosecutors declined to say what triggered the audit at Penn.