Vencor Whistle-Blower Lawsuit

Charging Medicare Fraud Joined by Government

The Wall Street Journal 
FRIDAY, MAY 21, 1999


The federal government has joined a whistle-blower lawsuit that alleges several Vencor Inc. hospitals systematically tried to defraud the Medicare program.

In joining the Suit, the government lends weight to the allegations, which were originally brought by two administrators of a Vencor hospital in Florida. The original suit was kept under seal until this week, when a federal judge in Tampa, Fla., unsealed it.

The government also said it has had “extensive discussions” with Vencor about the allegations, “including a possible resolution of this matter, and that these discussions will continue in the future,” according to court records.

Neither the U.S. attorney involved in the suit nor Vencor would comment.

The suit was brought under the federal False Claims Act by the whistle-blowers, who are entitled to share in any money the government recovers from Vencor. It was originally filed in late 1997; in officially joining the suit this week, the U.S. Attorney’s Office for the Middle District of Florida said it has “conducted an extensive factual investigation” of the allegations and that it plans to prepare its own complaint on the matter. The judge in the case said the new complaint, which will replace the original one, should be filed by July 9.

The two complainants are Virginia Lee Lanford, who was quality-review manager, and Gwendolyn E. Cavanaugh, assistant administrator of finance. Both worked at Vencor Hospital-Central Tampa, which was included in Vencor’s 1997 acquisition of Transitional Hospital Corp.

According to the suit, Vencor inappropriately included on its Medicare costs report the revenue and the expenses of running a separate business. That business supplies its nursing homes with special contracted services such as respiratory therapy. Vencor operates more than 300 nursing homes in addition to its 60-some long-term care hospitals.

The suit alleges that “rehabilitation costs on each cost report submitted to the United States were for non-hospital patients and costs, and therefore not properly chargeable as a cost report expense.”

Vencor, according to the suit, was thus able to inflate both the revenue and expense lines at its hospitals, which, under Medicare’s complicated formulas, boosted its reimbursements from Medicare. The suit doesn*t say how much Vencor may have received in overpayments, although it does say that the two whistle-blowers believe it occurred at other Vencor hospitals across the country and began as early as 1993. It also says that the policies alleged in the suit were “set or ratified at the highest corporate levels” of Vencor.

Both women have since left Vencor.

The suit is the latest in a series of problems for Vencor, based in Louisville, Ky., which in the past year has been hammered by government investigations, reimbursement changes and significant losses.

The whistleblowers in this lawsuit are represented by Nolan & Auerbach, a law firm located in Fort Lauderdale, FL.

Kathleen Hawkins

Dignity Health
$37 million

Kathleen Hawkins, RN MSN, had been employed by Defendant, Catholic Healthcare West (CHW) for approximately 6 years when she decided she had had enough of trying to change the hospital system from within.

CHW, a California not-for-profit corporation that operated hospitals in California, Arizona, and Nevada, was at the time the eighth largest hospital system in the nation and the largest not-for-profit hospital provider in California.


Joe Strom

Johnson & Johnson
$184 Million

Joe Strom contacted us in 2005. We were very grateful that he did. We immediately formed an all-star legal team and a process to stop a very harmful pharmaceutical marketing strategy. It was this process we set into motion that ultimately returned hundreds of millions of dollars to the U.S. Treasury, and a portion of that, very well-deserved, into Joe’s bank account.

Joe told us a very troubling story about the off-label promotion of a pharmaceutical drug for patients who already suffered from chronic heart failure.


Bruce A. Moilan Sr.

$27 Million

Bruce Moilan was a seasoned hospital systems expert by the time he contacted our Firm. At the time he decided to file his qui tam lawsuit, he was employed by South Texas Health System as a System Director for Materials Management. In this position, he oversaw $24 million in annual purchases of supplies and equipment and helped determine budget, reduction and cost analysis throughout the contract bidding and negotiations process. His job was to insure proper implementation for purchasing, receiving and management of inventory, for McAllen Hospitals, L.P.


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