Health Care’s New Breed of Whistle-Blower

There was a time when Dr. James Montagano was known as “Mr. Midway.”

But that moniker vanished when this slight, intense physician in his mid-40s--who plays violin in a physicians orchestra and is building an elaborate Italianate garden behind his Hollywood Hills home--blew the whistle on his colleagues at Midway Hospital in West Los Angeles.

As the hospital’s second-ranking staff doctor, Montagano accused some of Midway’s most prominent doctors--including some fellow hospital board members--of rampant corruption in alawsuit filed in 1995. He also accused Midway administrators of scheming to pay doctors tens of thousands of dollars a year in illegal kickbacks to win their loyalty--and boost hospital admissions.

His cause received a huge boost when the Justice Department joined his suit and launched a probe that eventually spread to other Southern California facilities owned by Ornda Healthcorp., a unit of the Tenet Healthcare hospital chain. Last July, Tenet agreed to pay $12.6 million to settle civil charges of physician kickbacks and Medicare fraud at Midway and three other hospitals.

Montagano and his lawyer received $2.3 million of that amount under the so-called False Claims Act, which allows individuals to sue contractors on behalf of the government and receive up to 30% of any settlement. Although handsomely compensated for his troubles, he paid a steep price professionally and personally.

Montagano is among the new breed of whistle-blowers who are proving instrumental in the government’s efforts to crack down on fraud in the $1-trillion health care industry.

The number of health fraud cases filed under the federal False Claims Act soared more than sevenfold from 38 in 1993 to 284 in 1997, according to Justice Department figures. Health fraud cases jumped 40% last year alone.

Southern California leads the nation in the number of pending health-related whistle-blower cases, a reflection not only of the region’s population but its importance as a home to thousands of health care companies, large and small.

“There’s no question that more [whistle-blower] tips are coming in,” said Nora Manella, U.S. attorney for California’s central district, which stretches from San Luis Obispo to San Bernardino.

The rise in whistle-blower lawsuits--formally known as “qui tams,” a Latin abbreviation for “he who brings an action for the king as well as himself”--partly reflects a shift in the government’s priorities in battling white-collar crime.

“Defense used to get all the news, and now it’s health care,” said June Gibbs Brown, inspector general of the U.S. Department of Health and Human Services and a former defense fraud investigator. “Health care truly is where the money is, and people are going in to try to get a share of it.”

The huge health care industry is an obvious and easy target for crooks who are cheating the government out of roughly $100 billion annually, according to government estimates.

Although funding for military programs has been slashed considerably in recent years, government spending for Medicare and Medicaid--the federal health insurance programs for the elderly, disabled and poor--continues to rise rapidly. The government spent a total of $351 billion last year on the Medicare and Medicaid programs.

The federal government has shifted significant resources to agencies involved in investigating and prosecuting medical fraud. Health reform legislation of 1996 included more than $2 billion over seven years in additional funding for federal agencies to fight health fraud.

From Defense to Health Care

The first wave of modern whistle-blowers came in the 1980s and early ‘90s, when middle managers defied the defense industry’s military-like atmosphere and came forward with tales of abuses and cheating. They often did so reluctantly, fearful of retaliation by their employers or of blackballing by the industry.

The second wave of whistle-blowers in this decade are far more likely to carry stethoscopes than pocket calculators. They are doctors, nurses and other hospital insiders who often are in a better position than their defense industry counterparts to observe wrongdoing and understand its “big picture” implications, according to attorneys and prosecutors familiar with these cases.

“These are professionals who have access to information, the ability to discern its impact and who have a stature that allows them to come forward,” said Neil V. Getnick, a New York lawyer who has represented whistle-blowers in several high-profile cases.

But the government crackdown has prompted cries of heavy-handedness from the health care industry.

The American Hospital Assn. lodged a formal complaint last year with U.S. Atty. Gen. Janet Reno about a “level of accusation and allegation [that] is out of control.” The trade group called for a six-month moratorium on broad actions involving the False Claims Act--a request the government rejected.

“There is a difference between medical billing errors and mistakes that are an honest outgrowth of complex, conflicting and vague regulations, and real fraud and abuse that is intentional,” said Rick Pollack, executive vice president of the association.

Industry lawyers usually characterize whistle-blowers as malcontents motivated by greed or a desire for revenge against a former employer.

But Lisa Hovelson, executive director of Taxpayers Against Fraud, a Washington-based legal group that assists whistle-blowers, counters that money often is not the main motivation. “More and more health care workers are coming forward . . . because they are angry that people are not being provided the appropriate care,” she said.

Andrew Hendricks, a dermatologist in central North Carolina, insists that it was concern for his patients and a sense of outrage as a taxpayer--not a desire for a rich bounty--that prompted him to come forward in 1993.

Hendricks grew suspicious after Medicare patients came to him with complaints about the large bills they were receiving for laboratory blood tests. Hendricks noticed that the labs were charging Medicare as much as 10 times what his office was paying for the same tests--and that many of the tests seemed unnecessary.

“After a certain point, I called up the lab and said, ‘Look, these patients don’t need all these tests, yet they keep getting run,’ ” Hendricks said in an interview. “The lab said, ‘Why do you care? Medicare is paying.’ ”

After state investigators declined to look into his allegations, Hendricks filed a lawsuit under the False Claims Act in 1993. The result: In November 1996, Laboratory Corp. of America, then the world’s largest clinical laboratory, agreed to pay $182 million to settle Medicare fraud charges.

Hendricks, who received $9 million as his share of the government settlement, says his patients and doctor friends cheered him for speaking out, and that his career suffered no harm.

“A lot of the doctors said they had noticed something going wrong with all these lab tests but never thought about doing anything about it,” Hendricks said in a phone interview.

Whistle-blowers are particularly important to prosecuting health fraud cases, which often involve sophisticated billing schemes. And it is generally easier to get whistle-blowers to come forward in health care cases than in defense cases, experts say.

“There is a culture of discipline in the defense industry, and it is a small, tight-knit community,” said Robert Vogel, a Washington, D.C., attorney who represents whistle-blowers. “In defense, you have to have almost an extraordinary event to make someone a cooperating witness.”

The culture of health care does not usually breed the same sense of loyalty as defense. Despite many recent mergers, the medical industry remains vast and fragmented, enabling workers to easily switch employers. With more mobility, health care whistle-blowers may be more confident about their prospects of finding work after going public with their allegations, experts say.

Even so, prosecutors say it is often difficult to convince doctors, in particular, to come forward with allegations of wrongdoing against a colleague. Unlike the overall health care business, doctors typically live in a tight-knit environment of a hospital or community where reputation and relationships are crucial.

“Doctors are not really equipped to transfer their skills to another profession,” said Lori Pelliccioni, a former assistant U.S. attorney in Los Angeles. “Where do you go if you get ostracized or blackballed in your profession?”

Fallout at Midway

The Midway Hospital case offers a rare in-depth look at what happened to one doctor who decided to blow the whistle on some of his colleagues at an institution that he regarded as a second home.

Although Montagano said little for the record, saying he preferred to put an unpleasant experience behind him, his story has been gleaned from court records and interviews with attorneys, prosecutors and others familiar with the case.

After joining Midway’s medical staff in 1982, Montagano doggedly made his way up the hospital’s leadership ranks: He chaired important credentialing and medical quality committees, was appointed chief of surgery and was elected vice chief of staff. By 1994, Montagano was next in line to become chief of staff--the physician leader.

He gained a reputation for fairness but also for what some saw as an uncompromising attitude that reflected his disdain for institutional politics. He irritated some Midway officials and doctors by openly questioning policies favored by the administration.

When the medium-sized hospital wanted to allow general-practice doctors to assist surgeons in the operating room--a move Montagano opposed as potentially harmful for patients--he refused to implement the changes.

Henry Gradstein, a Los Angeles lawyer who represented Montagano, described his client this way: “Dr. Montagano . . . is the kind of guy about whom others might say, ‘Don’t let Dr. Montagano see you doing this.’ ”

Greg Luce, a Washington, D.C., attorney who represented the Ornda hospitals, called Montagano “a highly meticulous and structured individual” who sees “only black and white, no gray.”

In late 1994, Montagano, through a co-worker, had obtained copies of confidential hospital documents that described compensation contracts between Midway and some doctors. The contracts suggested that perhaps a dozen Midway doctors--but not Montagano--were receiving what Montagano believed to be illegal kickbacks.

In January 1995, the doctor went to a meeting of the hospital’s trustees and dropped a bombshell.

Montagano accused the hospital of paying $180,000 a month in illegal kickback arrangements to numerous physicians, including several physician board members sitting in the room with him at the time, according to the lawsuit he would file six months later.

“There are numerous agreements appointing doctors to nonexistent posts with lip-service duties or duties for which they are already responsible and compensated, the only difference being that the monthly payments vary depending on the volume of patients each doctor refers to the hospital,” Montagano said at the meeting. (Federal law prohibits doctors from receiving any payment that could influence their patient referrals.)

Montagano accused the hospital of paying one orthopedist $96,000 a year to be director of a nonexistent “hand surgery center.” A physician who was not a neurologist was paid $30,000 a year to be “medical director of neurology” although the hospital had no neurology department. Another doctor who was an important source of patient referrals to the hospital was paid $120,000 a year to perform nonexistent duties as a program director, according to the lawsuit.

Although conceding that some of Montagano’s allegations “had merit,” Luce said “there were a number of contracts that Dr. Montagano didn’t have or didn’t understand their nature.”

“Nobody is saying Dr. Montagano was totally off base and [the hospital] paid $12 million as a nuisance factor,” Luce added.

Montagano paid a steep price for speaking out. The hospital replaced him as chief of surgery--essentially firing him--and ending any chance that he would become chief of staff. The hospital administration told Montagano, who had served as chief of surgery for five years, that he “lacked leadership skills,” according to Gradstein.

Gradstein says the action was taken in retaliation after Montagano, in the summer of 1995, took his concerns about the physician contracts to the hospital’s then-chief executive, John Fenton. Fenton declined to be interviewed, but Luce disputed Gradstein’s account.

Montagano was “ticked off” after his ouster as chief of surgery, Luce contends, denying that the move was retaliatory in nature. Gradstein calls Luce’s account “an absolute lie that is demonstrably false.”

After word of the settlement in July, doctors who used to exchange friendly greetings with Montagano in the hospital’s hallways glared at him. Some Midway doctors stopped referring patients to him. Rumors began circulating that he had quit his practice, which is not the case. An ear, nose and throat doctor, he continues to practice in Los Angeles.

“Though I received a substantial amount of money for my role in exposing fraudulent activities at the hospital, all in all the experience has been painful and disillusioning,” he wrote in a letter to The Times responding to a request for an interview. “My instincts tell me that I should let this thing rest; my life has soured sufficiently to dampen any impulse to carry the issue further.”

Meantime, federal prosecutors say their investigation into certain doctors identified in the Midway/Ornda case is continuing.