Sacramento Bee Friday, August 3, 2007

PRG-Schultz International, the Atlanta auditing company under fire for its sweeping rejection of claims for California Medicare patients cared for by rehabilitation hospitals, announced soaring second-quarter profits Thursday.

The announcement came a day after members of the California congressional delegation met with audit overseers in a heated meeting in which they complained that PRG-Schultz's wholesale rejection of claims is enriching its bottom line while jeopardizing health care for the elderly.

"We really want to see something done about this," said Rep. Lois Capps, D-Santa Barbara, in an interview Thursday. "Providers are now going bankrupt, frankly, because of this arduous process."

Rep. Devin Nunes, R-Tulare, said bluntly: "They either fix this, or we will fix it for them."
PRG-Schultz was given a three-year contract to audit Medicare payments under a congressionally created pilot program that earns it a bounty of 25 percent to 30 percent for every dollar it recovers. The pilot program ends next year, but Congress is making the program national, and PRG-Schultz officials said the company hopes to pick up a multistate contract for the West.

Blum Capital Partners, a business venture of Richard Blum, the husband of Sen. Dianne Feinstein, D-Calif., is a major investor in the company and as a result of a restructuring last year, holds a seat on the auditing company's board.

PRG-Schultz released its second-quarter financial report Wednesday after stock markets had closed and discussed it in detail during a conference call Thursday. The report said that net earnings had grown to $18.6 million for the last three months from a loss of $3.6 million for the same period in 2006. Most of PRG-Schultz's net revenues were attributed to the sale of its Meridian business unit for $19.5 million.

The company's president and chairman, James B. McCurry, said profits from the California auditing contract were "an important contribution to our revenue for the quarter."

Overall revenue was down slightly for the international company because of what it described as continuing shrinkage of 8 percent to 12 percent in its core client billings.

The California Hospital Association has been complaining for nearly a year that the auditing practices of PRG-Schultz were putting rehabilitation hospitals at risk of having to pay back large sums of money alleged to have been improperly billed. It has since asked the inspector general of the Department of Health and Human Services to investigate the company.

In response to a question during the conference call, PRG-Schultz officials said the Centers for Medicare and Medicaid Services looked into its auditing for Feinstein, and it found that its claims rejections are correct and its procedures are proper.

Wednesday's Capitol Hill meeting was with CMS officials in response to a letter signed by 36 California Republicans and Democrats concerned about the auditor. Eight members and staff from at least half the delegation's 53 districts attended, Capps and Nunes said.

Nunes said he doesn't dispute that some payments were probably improper but said they are improper under rules that haven't been enforced for at least two decades.

To come in now and demand reimbursement from hospitals without warning or time for corrective action is putting many at risk of survival, he said.

Just in his congressional district alone, Nunes said, four nonprofit hospitals are facing demands for $6 million deemed to have been improperly billed, and it has put some of them at risk of survival.

"Multiply that by 53 congressional districts, and we are talking about over $300 million, and they get $90 million of that," Nunes said of PRG-Schultz. "This is not the case of the boy who called wolf once too often. This is very serious."

Capps, who sits on the health subcommittee of the House Energy and Commerce Committee, said Congress may have to step in because the bountylike incentives for PRG-Schultz invite wholesale rejection of claims.

"Either we have a lot of people practicing medicine very badly, or we have a system that badly needs correcting," Capps said.

PRG-Schultz officials said the company is "playing a small role" in ensuring that the costly Medicare program is paying the right amount of benefits for the right beneficiaries.