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Firm Picked to Run LICH Paid $95M to Settle Medicare Fraud Suit

By Murray Weiss | April 10, 2014 6:41am
 Dozens of protesters gathered in front of LICH, fighting SUNY Downstate's decision to end emergency ambulance service to the hospital.
Protesters at Long Island College Hospital
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NEW YORK CITY — The company selected to run the proposed new Long Island College Hospital paid nearly $100 million in fines to the feds to settle accusations it systematically defrauded the U.S. health care system for nearly 15 years, DNAinfo New York has learned.

The U.S. Justice Department alleged that Quorum Health kept two sets of books on its Medicare costs from 1985 to 1999 — one of which contained inflated, reimbursable medical costs, which it presented to the government for payment. And in a separate case, Quorum was accused of wrongdoing at an Alabama Hospital involving misallocated costs to inflate government payouts.

In April 2001, the company — one of the largest health care providers in the country — forked over $95.5 million to settle the two lawsuits.

Quorum Health recently surfaced as part of a newly formed consortium called Brooklyn Health Partners, which won the statewide bid to reopen LICH. It beat out eight other bidders to take over the troubled Cobble Hill facility, offering $250 million and a community-pleasing pledge to operate a 300- to 400-bed hospital at the site.

Brooklyn Health was cobbled together by California hospital provider Merrell Schexnydre, who reported that Quorum management would run the hospital.

But federal records show Quorum Health, a Tennessee firm that operates about 200 hospitals around the country, came under Justice Department scrutiny after a whistle-blower alleged the company was cooking its books and falsely receiving millions of dollars in Medicare reimbursement.

In announcing the Medicare fraud settlement in April 2001, the Justice Department declared “the civil settlement resolves allegations that (Quorum) made false statements in annual cost reports to various fiscal intermediaries, the companies that process Medicare cost reports for the government.”

The company also has several other recent lawsuits involving bankruptcy or negligence cases, including a federal suit filed in February in Mississippi in which a hospital claims Quorum's management was “so abysmal that the hospital’s chief financial officer vanished following a scathing report.”

The company did not respond to several phone calls seeking comment.

When Quorum settled the massive federal case it denied wrongdoing, but claimed it agreed to the penalty to put the matter to rest and move on.

Donnette Dunbar, a spokeswoman for Brooklyn Health, said Schexnydre selected Quorum because of his belief in their expertise as a top health provider. She was unaware of Quorum’s past troubles with the feds, and declined comment.

LICH had 500 beds — only 200 were filled — before the State University of New York shut the site last February after years of turmoil and financial troubles, bleeding about $13 million a month, state officials said. 

SUNY voted unanimously to close the hospital in February 2013. The decision met with a massive outcry and protest that included then mayoral candidate Bill de Blasio being arrested outside the facility last July.

In February, the state decided to accept bids to take over the struggling hospital with no application fees or monies required upfront.

SUNY did not respond to a request for comment.

Brooklyn Partners edged out Peebles Corporation and Witcoff Group, which had agreed to pay $260 million and planned to operate an emergency room and urgent care center.

With hundreds of jobs at stake, officials said, the offer to keep the site as a full-time hospital obviously helped the Brooklyn Partners bid, even though filling the beds has been a key problem.

SUNY expects to complete the transaction with Brooklyn Health by May 22.

In the meantime, Brooklyn Partners is looking for financial backers. The firm has until the first week of May to post 10 percent of its bid or lose its top spot for the facility.

Led by Schexnydre, who is a California real estate developer and former clinical lab supervisor, Brooklyn Health's proposal calls for a 150-bed temporary hospital with an emergency room, ambulatory care, intensive care, and other medical facilities to open while hospital construction is underway.

The consortium also promises to create 1,000 apartments, some below market rate, commercial space and medical offices on the campus.

If a new operator isn't selected, SUNY will likely give up control of the hospital in May 2014 and LICH will close.