Highmark Admits It Defrauded Medicare Pa.'s Largest Health Insurer Hid Errors In Processing Claims Forms. It Will Pay $38.5 Million.

Posted: September 04, 1998

HARRISBURG — The state's biggest health insurer, Highmark Inc., has agreed to pay $38.5 million to settle civil claims stemming from what federal authorities yesterday called one of the largest frauds ever uncovered against the Medicare program.

In a related development, a former Highmark vice president has pleaded guilty to three misdemeanors and is cooperating in a criminal investigation that is expected to result in charges against other former executives, Harrisburg-based U.S. Attorney David Barasch announced.

Barasch said employees of Highmark's predecessor, Pennsylvania Blue Shield - which was paid $510 million from 1990 to 1994 to process $19.3 billion in Medicare claims for residents of Pennsylvania, New Jersey, Delaware, Maryland and the District of Columbia - engaged in a variety of schemes during that period to overstate its performance by hiding errors from federal auditors.

Medicare is the federal government's health-care program for elderly and disabled people, and Blue Shield's job included policing fraud by doctors who billed the program.

But the company perpetrated its own deception, authorities said.

Blue Shield failed to properly monitor some of the doctors' bills, then provided auditors with samples that were supposed to be random but in fact were manipulated to make the company look good, Barasch said.

``We expect to be filing additional criminal charges shortly,'' he said.

He declined to provide an estimate of the total loss to the government as a result of the misconduct.

``We admit to wrongdoing,'' a spokesman for Highmark, Brian Herrmann, said. ``This is performance that we regret. It involved former employees with no previous history of misconduct or poor judgment.''

Four Blue Shield employees, three of whom have since left the company, will receive a total of $6 million from the settlement in connection with separate civil complaints they filed as whistle-blowers in the case. Under federal law, whistle-blowers are entitled to between 15 and 25 percent of any money recovered through their assistance.

According to the complaint filed by one whistle-blower, Susan Howell of Harrisburg, Blue Shield ignored thousands of letters notifying it that Medicare had overpaid certain claims. In 1994, 10,000 such letters had piled up without action, the complaint said.

When she told her bosses, they told her to throw the letters away, the complaint said. Later, according to the complaint, a truckload of documents was removed from Blue Shield's Camp Hill office to keep them away from federal auditors.

Howell was eventually reassigned, and she finally quit. She complained about Blue Shield to the Health Care Financing Administration in June 1995 but heard no response, the complaint said. She is to receive $560,000 in the settlement.

PRODUCT OF MERGER Pittsburgh-based Highmark was formed from the merger of Pennsylvania Blue Shield and Blue Cross of Western Pennsylvania in 1996, and still operates as Blue Shield in the Philadelphia area. Barasch said Highmark cooperated fully when his office contacted it about the criminal investigation in 1996.

Pennsylvania Blue Shield has been a Medicare administrator since the program began three decades ago. In a statement, HCFA said Highmark agreed last year to give up its Medicare business in every state but Pennsylvania. The statement said Medicare had toughened its contractor-monitoring in recent years.

``We will continue to monitor [Highmark's] compliance carefully,'' the statement said.

Highmark's Herrmann said the company instituted a ``corporate integrity'' program in 1996 and has significantly improved its accuracy in processing claims. He also said Highmark helped the government uncover more than $500 million in fraudulent Medicare claims last year.

Barasch declined to say how many other people might be charged. Last summer, Highmark disclosed it had placed four employees on administrative leave. Those employees were involved in the conduct under investigation, Herrmann said yesterday.

EXECUTIVE ADMITS LYING A vice president in Blue Shield's governmental business unit, Judith Krafsig-Kearney of Mechanicsburg, pleaded guilty in July to a three-count information saying she lied to government officials as part of a conspiracy to hide Blue Shield's shortcomings.

The charges carry a penalty of up to three years in prison.

Krafsig-Kearney's lawyer did not return a phone message left at his Washington office.

Barasch declined to say whether she was paid bonuses or otherwise had a financial incentive to lie about Blue Shield's monitoring work.

Barasch yesterday called this settlement the second-largest of its kind in the country. The biggest occurred in July, when Blue Cross Blue Shield of Illinois paid $144 million to settle similar civil fraud charges.

In that case, a single whistle-blower walked away with $21 million.

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