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The Man Who Made a Difference

The Man Who Made a Difference Review It

The James Alderson Story

Posted on 06/09/09 at 11:10PM

A whistleblower is defined as a person who alleges misconduct, a violation of a law, rule, regulation, or a direct threat to public interest, such as fraud, corruption, or health and safety violations. Hollywood has made superstars of whistleblowers such as Jeffrey Wigand and Erin Brockovich. But James Alderson is one whistleblower whose story never reached celebrity status, despite a 13 year struggle for justice that left a mark on the health care industry still noticeable today.

Alderson, a Montana native, began his accounting career upon graduating from MSU in 1969. After opening a practice and working for many years in Whitefish, a small ski town in northwest Montana, Alderson accepted a full time financial officer position with North Valley Hospital. Over the next six years, Alderson handled the hospital’s affairs and climbed the ladder to Chief Financial Officer. But in 1990, everything changed when North Valley’s top administrator moved on and the hospital board decided to turn to a management company to run their operations. Quorum Health Resources Inc., formerly a division of Hospital Corporation of America (HCA), impressed the board with claims that they would be able to obtain maximum reimbursement for hospital expenses filed with the federal government through the cost-reporting system. In the summer of 1990, Quorum was selected to run North Valley – a decision that would forever change James Alderson’s life.

Alderson stayed on with North Valley and retained his position as hospital CFO, working directly with the new management firm. In late September of 1990, two months after Quorum assumed management, Alderson recalls a meeting in which a district vice president of Quorum asked Alderson if he was familiar with the practice of preparing two cost reports, spreadsheets containing reimbursement amounts from state and federal Medicaid and Medicare divisions. When he questioned why two reports would be prepared, he was told that it was Quorum’s procedure to keep two sets of records for reporting health care costs for Medicaid and Medicare patients – the first being an aggressively inflated ledger sent to the federal government for reimbursement, and another conservative report of hospital operations for internal use. The difference in costs between the two reports was kept in a reserve account. If the aggressive claim sent to the government survived the standard two-year period in which an audit could occur, the hospital could book the reserve funds as revenue, significantly improving annual profit margins.

Alderson was shocked by what he heard and told the district vice president that he never did two tax returns for anyone as an accountant and he wasn’t going to do two cost reports. The district vice president departed the room without much further comment.

A few days following the conversation, Alderson was on a Quorum manager’s retreat to Alaska. According to Alderson, during breakfast on Sunday morning, the same district vice president told him he was being dismissed. Alderson wasn’t offered a reason for his termination, other than the fact that the arrangement just wasn’t working out.

Unable to find other work in Whitefish, Alderson took a financial job with a small hospital in the rural town of Dillon, Montana, where he and his family had trouble adjusting. Alderson became angrier the more he thought about what had happened in Whitefish. He was sure he had been forced out of North Valley because of his refusal to keep two sets of financial records. Worse still, he realized that Quorum used accounting handbooks of its former parent, HCA. Alderson figured if Quorum manipulated cost reports, HCA must as well.

In May 1991, Alderson filed a wrongful termination lawsuit and demanded copies of Quorum’s reserve reports and related records. The documents he received backed up his worst fears.

Alderson’s accusations of wrongdoing outraged hospital lawyers, who denied breaking any laws. But Alderson, still feeling that he was on to something, decided to phone North Valley hospital’s former administrator. After hearing what Quorum was doing, the ex-administrator told Alderson about a case he had recently heard about called a qui tam, which allowed private citizens to file a lawsuit on behalf of the government for false claims or fraud.

Alderson had never heard of qui tam cases but resolved to learn everything he could about filing one. Investigation became a second job as he spent nights and weekends reviewing hospital documents and exhausting his personal time traveling to the University of Montana law library in Missoula, researching everything he could find to support his case.

In December 1992, Alderson completed his qui tam lawsuit draft, which included charging four huge hospital companies with fraud. Through his research, Alderson had learned that unlike most other lawsuits, a complaint under the False Claims Act must be served on the government but must not be served on the defendant until ordered by the court. It must also be filed under seal. By filing the suit, Alderson and his family were sworn to secrecy, barring them from discussing the case with anyone, including friends and extended family members.

Alderson knew that after filing his complaint and providing all necessary documents, the government had 60 days to intervene, decline to intervene, move for an extension of time to determine whether to intervene, seek dismissal of the action, or settle the case. “I thought that asking for 60 days of your life wasn’t any big deal.” Alderson said. But he was about to learn that it would be a very long 60 days.

Days turned into months as federal lawyers and investigators requested numerous extensions. By late 1995, the case had stretched on almost three years. The other three defendants besides Quorum had been purchased by Columbia Healthcare Corporation (creating Columbia/HCA), and Alderson was losing hope. But as fate would have it, Alderson came across the name of Steven Meagher, a former Federal prosecutor who worked with the San Francisco office of Phillips & Cohen, a law firm that specialized in qui tam suits. Alderson promptly flew to California to tell his story to Meagher and his colleagues. Upon seeing how prepared and relentless Alderson was, Meagher accepted the case, giving Alderson a chance to salvage years of effort.

In the summer of 1996, Meagher began breathing new life into the case by moving it from Montana to Florida and contacting an agent with the Federal Bureau of Investigation. Based on information from Meagher, the FBI began a criminal investigation of cost-reporting fraud by Quorum and Columbia/HCA.

In late 1996, a huge break in the case occurred when John Schilling, a former Columbia/HCA CPA, came forward with evidence for a lawsuit similar to Alderson’s. Schilling proposed that his complaint be combined with Alderson’s in order to strengthen the case, which Meagher accepted.

In the spring of 1997, Schilling went back to work as a consultant for Columbia/HCA while wearing a wire for the FBI and covertly mapped out Columbia offices. The FBI made their move in July of 1997 by raiding 35 Columbia hospitals in 7 states, searching for evidence of illegal accounting practices.

Weeks later, 200 Columbia/HCA hospitals in 37 states were added as defendants in the qui tam lawsuit and three Columbia executives were indicted for cost-reporting fraud. But despite such developments, the government still didn’t take on the case. Sixty days had become five years and counting, leaving Alderson to wonder if the seal would ever be lifted.

In the autumn of 1998, the government asked for more time. Tired of keeping his involvement in the proceedings secret from friends, colleagues and extended family, Alderson said he wouldn’t agree to any further extensions. Unable to stall any longer, the government finally informed him that they would formally intervene in the case on October 5, 1998.

Alderson’s tenacity, along with the undercover effort of Schilling, resulted in the largest government fraud settlement ever negotiated by the Justice Department. In 2001, Quorum settled with the government for $85.7 million and the judge awarded Alderson 24 percent of the recovery. In 2003, Columbia/HCA Healthcare Corporation paid $631 million to settle three separate qui tam lawsuits, including the Alderson/Schilling case. Both men shared a $100 million award for their efforts and the work of their attorneys on the case. Disappointingly, the criminal convictions of the three indicted Columbia executives were later reversed on appeal so no one served time for the crime.

Since 2003, thousands of whistleblower suits have been filed, netting billions in recovered money for the government, and rewarding whistleblowers themselves (and their lawyers) with millions. The Alderson’s have generously contributed some of their settlement funds to the MSU College of Business and a new aquatics center in Whitefish. Now retired from health care and a grandfather of four, Alderson says, “I am not bitter toward anybody. This was a fight over business practices. I said from the beginning that I would quit whenever someone could show me that I was wrong. In thirteen years, they never did.”

Alderson is happy to see improvements in the health care industry due to his determination to make a difference. Bonus systems have changed, discouraging the motivation for employees to cheat and Medicare spending costs have been drastically reduced since his case exposed the fraudulent practice. As Alderson says, “It feels good to have been a big part of this change.” He believes the majority of providers are honest and have nothing to fear, but warns “the minorities who are dishonest should fear the False Claims Act.”

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