Aetna Suit Alleges Major Billing Scam : Health care: Defendants, who operate in O.C., dispute insurer’s claims, which include recruitment of psychiatric patients and diagnoses of depression for young children.

The programs offered tender solace to the sad and sleepless. To the overwrought, the overweight, the drug-dependent and the spiritually confused, they extended a friendly hand.

One program, run by charismatic Christians, claimed to “truly understand your pain,” pledging in its advertisements to “love you, not judge you.” Another was conceived by a former addict who had crashed to the bottom and climbed doggedly back.

They all were part of a sprawling, sinister scam, a major insurer contends.

Aetna Life Insurance Co. alleges that a group of psychiatric providers, operating in hospitals in Orange and Los Angeles counties, systematically lured unsuspecting patients from throughout the country with false promises and improper perks. Then, Aetna contends, they tagged the patients with bogus diagnoses and stuck them in mental hospitals until their benefits ran dry.

In a voluminous federal lawsuit, vehemently disputed by the defendants, Aetna alleges that it and other insurers lost millions of dollars in a plot to “put heads into beds” using tactics from misleading marketing to illegal kickbacks. Insurers, Aetna alleges, were fraudulently billed for everything from whirlpool baptisms to outings at Disneyland and Knott’s Berry Farm.

The patients, the insurer claims, paid a different sort of price.

Drawn by offers of help for depression, substance abuse or religious doubt, they were left with depleted benefits and medical records filled with lies, Aetna contends.

Some patients allegedly were given unnecessary doses of powerful psychotropic drugs, and addicts were “plied” with liquor by hospital workers who greeted them at airports. Others, Aetna contends, were stranded in psychiatric centers because the hospitals delayed following through on pledges of free air transportation home. At one hospital in Bellflower, multiple members of the same family--including children as young as 3 years old--were admitted under false diagnoses of major depression.

The pitched legal battle--which already comprises 49 volumes in U.S. District Court in Los Angeles--has drawn the attention of federal authorities, who have subpoenaed records in the case as part of a grand jury probe, according to a source familiar with the investigation.

The showdown also has caught the eye of some in the psychiatric industry, who see such litigation as an emerging trend at a time when health-care spending is pinched tight.

The defendants say Aetna is merely suffering buyer’s remorse. Their attorneys say the lawsuit is just the latest in a series of opportunistic legal maneuvers by insurers to recover dollars they agreed to spend on legitimate programs but now, in the frugal age of managed care, are hoping to snatch back.

“This is a fight that has been going on for years and years about medical necessity,” said Barry Landsberg, an attorney for the Assessment Center, a San Juan Capistrano-based program for mentally ill substance abusers that is named a defendant in the suit.

“On the one hand are licensed psychiatrists that are required to [accurately] diagnose and document their treatment of patients . . . . On the other is an insurance company that makes money paying as few claims as possible.”

“Aetna,” Landsberg said, “seeks to recover every dime.”

Look for more cases like these as once-generous benefits for inpatient psychiatric care shrink, experts say. For many hospitals, it is a struggle just to stay open.

In this climate, “some [facilities] will go right up to the margin of what is legally acceptable to get patients,” said Joel Hay, a health economist at USC. “It’s possible that some may cross that boundary.”

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This is more than a tussle over insurance claims--it is full-scale war.

In court papers, Aetna accuses a Pasadena-based company, Paracelsus Healthcare Corp., of running roughshod over legal and ethical lines in hot pursuit of insurers’ dollars.

Paracelsus, with hospitals in California, Nevada and Florida, is “at the core of corruption” in this case, Aetna claims in a scathing legal complaint naming more than two dozen defendants.

Essentially, Aetna argues, Paracelsus contracted with “telemarketing” firms, who lured patients and ran programs at Paracelsus hospitals. The company then hatched a scheme to lie to insurers, patients and regulators about what went on in the programs, the suit says.

The alleged scheme results from “a conscious decision by the highest officials in the Paracelsus corporation . . . to maximize Paracelsus profits by employing telemarketing programs in a criminal campaign of fraud,” Aetna charges in its suit.

Aetna alleges a “Paracelsus Conspiracy” involving five hospitals in three states. Three are in Orange and Los Angeles counties: Orange County Community Hospital, with campuses in Buena Park and Orange; Hollywood Community Hospital of Van Nuys, with campuses in Van Nuys and Hollywood; and the recently closed Bellwood Health Center in Bellflower.

The lawsuit focuses heavily on two firms: the Assessment Center, which ran programs briefly at Bellwood and Hollywood Community, but now operates at Orange County Community only; and New Life Treatment Centers, which had a program at Hollywood Community but now operates only at Orange County Community under the name Dr. Fred Gross Christian Therapy.

The suit, which has not gone to trial, also targeted A Place for Us, a now-closed weight-disorder program founded by self-help author Janet Greeson. But Greeson recently reached a confidential settlement with Aetna. The program still is under criminal investigation by a federal grand jury in Los Angeles, court records show.

Greeson has accused critics of orchestrating “a smear campaign.” Attorneys for the other programs and Paracelsus denied any wrongdoing, saying the services have helped countless patients.

From the start, Aetna contends, the nature of the inpatient psychiatric programs was disguised and sugarcoated.

Greeson, for example, touted her California programs in advertisements as places “where you’re most likely to run into the rich and famous,” with “virtually unlimited leisure activities” such as strolls along Venice Beach, visits to the La Brea Tar Pits or tours of Hollywood studios.

In some of its advertisements in Christian publications, the Fred Gross program urged patients to call even if they felt just “tired . . . and sad”--mentioning nothing of admission to an inpatient psychiatric facility, Aetna alleges.

Once patients called toll-free numbers, Aetna contends, they were connected to call centers where “high-pressure telemarketers,” often without mental-health credentials, “converted” them into patients requiring emergency admission--whether or not this was medically appropriate.

Paracelsus hospitals sweetened the deal, Aetna alleges, by promising to waive insurance co-payments and deductibles, and by providing free round-trip plane tickets--enticements that Aetna says were hidden from the insurer.

Some programs promoted their proximity to Disneyland and the hospitals’ “resort” or “spa-like” settings, even when the hospitals were in “decaying urban areas,” the suit contends.

Patients would arrive at times not even knowing they were to enter a mental hospital, Aetna alleges. Orange County Community and Bellwood employees who picked up substance-abusing patients at the airport bought them alcoholic beverages to get them “in a pliable frame of mind,” the suit contends.

An admitting clerk who worked in the Assessment Center program at Orange County Community recalled recently that patients would arrive “extremely” intoxicated and “reeking” of alcohol. She saw open bottles of liquor in vans used to transport them from the airport, she said.

“People came in sometimes, they didn’t even know where they were,” said the former clerk, who spoke on condition of anonymity for fear of jeopardizing her current job. “They expressed to me that they were shocked. They called an 800 number and the next thing they knew they were on a plane flight to California.”

Whatever their symptoms, patients would routinely be admitted with diagnoses of “major depression” or “major depression psychosis,” which typically is covered by insurance, Aetna contends. Assessment Center patients were given unwarranted doses of powerful psychiatric drugs, including the antidepressant Prozac and the anti-psychotic Haldol, Aetna contends.

At Bellwood, an entire family of five--including a mother and four children 4 to 9 years old--was admitted under a diagnosis of “major depression,” Aetna contends. The “help line” counselor had promised the mother her children would be enrolled in a “Sunday School . . . that would mix Christian teachings with fun activities,” according to the suit.

Instead, the suit alleges, the children were placed in a “graffiti-scarred” room, and one was physically restrained. Aetna paid more than $100,000 for the family’s “incarceration,” according to the suit.

For many patients with second thoughts, leaving wasn’t an immediate option, Aetna alleged. The hospitals and programs consistently refused to give patients their free plane ticket back until they had “completed the program,” Aetna contends. By then, the insurer said, their insurance benefits often were exhausted.

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Point by point, lawyers for the defendants contest each charge. The vigor of their defense shows in the piles of motions packed in court files.

Even the wording of the allegations raises hackles.

“First and foremost,” says New Life attorney Steven Holland, “ ‘telemarketers’ is a totally pejorative term.”

He and other attorneys explained that it is patients who call the programs, not the reverse. Others said it is “ridiculous” to assume that patients who fly to California do not know they are coming to an inpatient psychiatric facility.

Aetna, Paracelsus attorney Robert Fabrikant said, is making a belated move to second-guess the medical judgments of qualified psychiatrists. These doctors diagnose patients’ conditions, generally within a day or so of arrival, and the records reflect their medical judgments, he and other attorneys said.

The insurance company, they said, approved the patients’ stays and agreed to pay the claims; any doubts about their validity ought to have been settled then.

For years, Aetna has known “about these ads and these 800 numbers,” Fabrikant said. “If they thought their insureds were being harmed, why did they sit on their hands and let their patients go through all this?”

Aetna attorneys refused to discuss any aspect of the case.

Landsberg recently invited a reporter to listen as intake operators at the Assessment Center fielded calls, saying he was confident the program’s worthiness would prove itself.

At the tastefully furnished Art Deco center in downtown San Juan Capistrano, one operator referred dozens of callers to services in their local community. A co-worker spent 45 minutes on the telephone with a 30-year-old alcoholic and cocaine abuser, just sprung from a night in jail. Her insurance, the counselor knew from the outset, would not cover admission to a Paracelsus program.

No sale, Landsberg said--just some free support and tips. Landsberg said that is typical at the center, designed and run by David Victorson, a former addict and convicted drug dealer who has “been there” himself and turned his life around many years ago.

“Don’t get me wrong, it’s a business,” but less than 1% of calls lead to admissions, Landsberg said.

Aetna grossly distorted the facts, Landsberg said. For example, he said, on rare occasions, drivers transporting patients from the airport will “buy . . . a beer” for clients who demand liquor--but only to ensure that they do not become “unruly” and pose “a danger to themselves or others.”

If that means “getting them into treatment and saving their lives . . . then that is the smart thing to do,” Landsberg said.

The attorneys questioned Aetna’s motives in what one called a “shotgun” legal assault.

Aetna “wants to appear that they provide a wide range of services, including psychiatric care,” Holland said. “Instead of telling clients these things aren’t covered, they are trying to deny coverage after the fact.”

The lawyers--who have filed motions to dismiss the case in its entirety--said Aetna has a scheme of its own to garner a hefty settlement. The lawsuit seeks three times the insurer’s alleged losses, which are not specified.

The suit was filed just as a confidential settlement was reached last year in an Empire Blue Cross/Blue Shield lawsuit that targeted Greeson--a suit Aetna monitored closely and ultimately borrowed from heavily.

A year earlier, Aetna and other insurers were paid $125 million to settle with Santa Monica-based National Medical Enterprises, fined by federal authorities in the biggest psychiatric insurance fraud case in history.

“Settlements in other psychiatric litigation has had the unfortunate effect of buoying Aetna’s confidence here,” Fabrikant said.

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The calm assurances by the attorneys for Paracelsus and its programs, however, contrast dramatically with the recollections of former employees.

Patients were reeled in and kept as long as their benefits allowed, and workers were instructed to chart patients’ conditions in keeping with fictitious diagnoses, several former employees said in interviews and sworn depositions.

If a patient was “happy and smiling . . . we were not supposed to write that in the chart,” Lorna Gail Watson, a former Orange County Community employee, testified in a deposition. “We were supposed to write that the patient had slumped shoulders, head down. My assessment was to be that he seemed depressed. To me, that was a lie.”

Aetna claims in its suit that a program director working in the Christian Therapy Program would prod employees: “Can’t you make them a little suicidal?” or “Weren’t they molested when they were little?”

Doctors in the Assessment Center program complained they were effectively stripped of authority to admit and discharge patients, a former administrator testified.

“There was a rate sheet . . . so if the benefit amount was $5,000, it was six days stayed; $10,000, 12 days stayed. And that was how the discharge date was set,” one witness who attended discharge meetings for Assessment Center patients said in a deposition.

The services offered were questionable as well, some employees said in depositions. Office worker Susan Crook testified she saw bathing-suit-clad New Life patients baptized in a whirlpool bath at Orange County Community Hospital as fellow patients sang and prayed. Later, she saw the event described in one patient’s chart as “recreational therapy,” she testified.

Trips to Disneyland and elsewhere were described as “therapeutic outings” or left out of charts altogether, employees testified.

Attorneys for Paracelsus and the programs say the charts were accurate. Because claims are routinely denied for minor deficiencies, information sometimes had to be added, they said, to charts. But this was only to reflect patients’ true conditions as well as to satisfy insurers’ requirements, they said.

The defendants’ lawyers also point out that many of the deposed former employees have not yet been cross-examined. Those who have, such as Crook, do not produce concrete examples of fraud, they say.

Aetna claims in the suit that dishonesty extended to deceiving state health inspectors. One witness quoted--but not named--in the lawsuit described “a ritual of fraud” in which Orange County Community Hospital, when tipped off to state inspections, sent workers scurrying to hide the fact that the facility housed more patients than was allowed.

“The [Buena Park] maintenance crew would go out and get a Ryder truck, “ the witness said. “The crew would go in and remove the [extra] beds, put them in the truck, drive them across the parking lot to the Albertsons shopping center and wait until the health department had come and gone. And in the meantime, the hospital had arranged for all of the patients to be out on an outing.”

The fraud went further, Aetna alleged. In its lawsuit, the insurer claims that Paracelsus orchestrated intricate--and illegal--kickback schemes at all three Southern California hospitals.

“Telemarketing” firms such as New Life and the Assessment Center were paid fees based on the length of patients’ stays, which then were disguised as “management fees,” according to the suit.

In another program for Medicare recipients, patients themselves were bribed to participate, Aetna contends.

Attorneys for Paracelsus and its programs categorically denied paying for patients. The lawyers said “management fees” were legal and proper payments for running the programs.

But one worker recalled in an interview that Medicare patients were given cigarettes and one dollar to show up at an Orange County Community-based program called “Daybreak.”

“One of the main reasons I left, I resigned from the facility, was . . . I was afraid I would go to prison,” the employee said in an interview. “They were paying for patients.” Another employee resigned in frustration as well, offering a blunt written explanation.

“The hosp[ital] actively engages in ins[urance] fraud and racketeering,” utilization review director Fran Frederick wrote last year on a form that is now part of the court records. “The hosp[ital] refuses to address blatant fraud and abuse. They attack me personally and refuse to do things in the confines of the law.”

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Cases like this one are legal nightmares for insurers and prosecutors, health fraud experts say, in part because they involve putting former mental patients through cross-examination.

Still, battles like Aetna’s are likely to be closely watched and perhaps mimicked by other insurers. Legal wrangling over benefits is just heating up.

“I think that since the pressures are going to continue, the lawsuits will as well,” Hay of USC said. “You’re going to see some very nasty lawsuits among all three [groups]--class-action suits by patients, providers suing insurers and insurers suing providers--and possibly even patients.”

Keeping costs under control is a plus, Hay said, but the courtroom brawls have a real downside for patients.

“One of the damaging spinoffs to this kind of lawsuit is further restriction of access to mental health-care benefits,” he said.

* PAST PROBLEMS: Paracelsus Healthcare has had run-ins with authorities. A40