Officials Say NME-Related Probe Still On : Health care: Justice Department says it is investigating businesses, individuals. Former executives could face fraud prosecution.

The U.S. government formally announced Wednesday that it has settled its giant fraud case with National Medical Enterprises, but it said it continues a far-reaching investigation into individuals and businesses suspected of accepting kickbacks and bribes from the Santa Monica-based hospital chain.

In announcing the record $379-million settlement at a Washington news conference, Justice Department officials said the NME investigation is one of about 1,500 health care fraud cases the Clinton Administration is pursuing.

“Let the message be very, very clear: We’ve made health care fraud a major law enforcement priority, and we’re going to pursue it as vigorously as we possibly can,” Atty. Gen. Janet Reno said.

The government’s statement that it is continuing the investigation raises the possibility that former high-ranking executives of NME will face prosecution for their role in what is perhaps the most massive health fraud scheme ever. Earlier this week, a former psychiatric division executive in Dallas pleaded guilty to arranging up to $40 million in bribes to doctors and others.

The investigation largely focused on activities under the management of NME co-founders Richard K. Eamer and Leonard Cohen. The two resigned their respective positions as chairman and president last year. There is no indication, however, that either executive is a target of the federal investigation.

A Justice Department source said the continuing investigation may take years to complete. “We are talking about a widespread scheme that involved a lot of people and a lot of money,” said the source, who requested anonymity. “We are really just at the beginning of this investigation.”

The settlement, which includes a $33-million criminal fine, settles charges that NME paid kickbacks and bribes to doctors, referral services and other people so they would refer patients to the company’s psychiatric and substance abuse hospitals in 30 states, then fraudulently billed Medicare, Medicaid and other federal programs for those services.

As part of the agreement, NME agreed to pay $324.2 million in civil penalties and damages. The remainder of the settlement includes $16.3 million to resolve potential claims in 28 states. Government officials said the civil fine settled fraud claims in which the company was accused of admitting and treating patients unnecessarily, keeping patients hospitalized longer than necessary until their medical insurance ran out and billing insurers several times for the same service or when no treatment was provided.

Many of the cases that were investigated involved juveniles, a Justice Department spokesman said. The government investigation uncovered evidence that NME bribed school counselors to send children to psychiatric hospitals, where they were held against their will, and paid doctors who agreed to keep patients in the hospital longer than necessary, he said.

Investigators also found evidence that hospital employees used computers to track illegal payments to doctors and to measure “how productive” each doctor was at providing bogus referrals. “If you fell below the productivity level, you would be cut off from the bribes,” a department spokesman said.

The settlement requires NME to divest its psychiatric and substance abuse hospitals. The company had previously announced plans to sell those operations--and has sold many of them--but it was not previously known that the government had ordered the sale.

It also requires NME’s remaining hospitals and other health services to take part in a “corporate integrity plan” to educate employees about fraud and write standards of conduct governing company behavior within 90 days.

Separately, an NME spokeswoman confirmed that the firm will soon announce a major layoff involving employees at its corporate headquarters and regional offices nationwide. The layoffs are mostly related to the sale of psychiatric and rehabilitation hospitals.

*

Leeds reported from Washington and Olmos from Los Angeles.