A whistle-blower lawsuit contends that Planned Parenthood affiliates in California overcharged the state and federal governments by at least $180 million for birth-control pills, despite internal and external warnings that its billing practices were improper.
In the federal suit, P. Victor Gonzalez says he was fired in March 2004 as vice president of finance and administration of the Los Angeles affiliate after raising concerns about the "illegal accounting, billing and donations practices of Planned Parenthood."
The alleged overbillings began in the late 1990s and continued until the Legislature changed the law in 2004 to allow Planned Parenthood to bill at a higher rate for oral contraceptives, said Gonzalez's lawyer, Jack Schuler.
A 2004 state audit of Planned Parenthood of San Diego and Riverside Counties -- one of nine affiliates statewide -- lends some support to Gonzalez's allegations. The report identified more than $5.2 million in overbillings just during the 2003 fiscal year.
Questions about Planned Parenthood's billing practices were raised as early as 1997 by a state Medi-Cal official, according to letters provided to The Times by Gonzalez's attorney. In October 1997 and January 1998, the official told Kathy Kneer, the organization's California chief executive, her affiliates were billing for oral contraceptives incorrectly.
State health officials now say, however, that they do not believe Planned Parenthood acted improperly because the organization was given contradictory guidance on billing from the state.
In fact, after Planned Parenthood complained that a lower reimbursement rate could imperil its survival, the state passed a law in 2004 allowing it to continue billing as it had been all along.
Former state Sen. Hannah-Beth Jackson of Santa Barbara said she sponsored the legislation to remedy the problem.
"I was told and persuaded that if Planned Parenthood had to reformulate the charges . . . that they wouldn't be able to continue providing the service, that they would be losing money," she said. "It was a question of access, absolutely."
The whistle-blower suit, originally filed under seal in 2005, seeks damages under the federal False Claims Act. It was made public this week.
"Contrary to their national reputation as a prominent charity organization and as a healthcare provider for reproductive services, there is probable cause to believe Planned Parenthood's . . . California affiliates have systematically engaged in fraudulent overbilling against government funded programs," the suit says. Planned Parenthood Affiliates of California spokeswoman Ana Sandoval declined to comment Friday, saying the organization had not yet seen Gonzalez's lawsuit.
The case involves the arcane reimbursement rules of public health programs run by the federal and state governments.
At issue is a federal program that allows health centers to buy common drugs from manufacturers at a reduced price. In return for the discount, the suit says, such clinics must follow specific rules for seeking reimbursement.
The billing manual for California's Family Planning, Access, Care and Treatment program, for example, says providers must bill "at cost" for oral contraceptives.
Planned Parenthood, however, billed the government several times more than it paid for the drugs, the lawsuit alleges -- seeking what is known as a "usual and customary" fee that takes into account the costs of storing the drugs and dispensing them.
The state paid Planned Parenthood clinics more for every monthly pill cycle dispensed, on average, than it paid other public and private providers, according to a report commissioned by the state in 2004.
Planned Parenthood received an average of $11.99 for every cycle, compared with $8.65 for other public healthcare providers and $8.26 for private providers, the UC San Francisco Center for Reproductive Health Research and Policy found.
While the state's 2004 state audit was underway, Gonzalez said, he performed his own review of Planned Parenthood Los Angeles and found similar problems: $2.1 million in overpayments during a one-year period. He estimated that the agency made $100 per patient annually from the "birth control pill markup alone," documents show.
Gonzalez said he tried to raise the issue with top officials internally. The response was clear, he said: "They did not want to stop the overbilling at that point."
Schuler said his client intends to rely on internal Planned Parenthood communications showing that officials worked tirelessly to lobby state health officials to adopt the organization's point of view and even halt the audit.
Despite their auditors' findings, officials at the state Department of Health Care Services say they do not believe Planned Parenthood needs to repay any money already reimbursed by the state. If anything, agency Director Sandra Shewry said, the state's rules were unclear.