Thursday, November 20, 2008

“Scheme to cover up a fraud”

At 5:38 p.m. on Monday, Jan. 26, 2004, Mark Salo, then chief executive of Planned Parenthood of San Diego and Riverside Counties, sent a panicked email to his colleagues at Planned Parenthood’s eight other California affiliates. The email contained a dire warning – and hinted at the need for a possible cover-up. The state Department of Health Services had begun an audit in San Diego, with similar audits planned at every other affiliate. The results, said Salo, “could kill many of us.”

The problem? For years, Planned Parenthood of San Diego and other affiliates elsewhere in the state had been over-billing the government by millions of dollars for contraceptives purchased at deep discounts – a policy specifically prohibited by state and federal regulations governing the program, called FPACT – “Family Planning, Access, Care and Treatment.” Rules for the program, jointly funded with state and federal funds, specifically required that providers of services under the program be reimbursed only for the cost of acquiring the contraceptives, but Planned Parenthood had been billing far in excess of cost, in some instances more than 20 times what they paid.

In an email the same day to executives of Planned Parenthood of Los Angeles, PPLA vice president Martha Swiller had just three words in response: “This is bad.”

On Oct. 30, ruling in a federal whistleblower’s suit brought in the overbilling case, U.S. District Court Judge A. Howard Matz took note of what was implied in Salo’s email: “Although the Planned Parenthood affiliates are incorporated as independent entities, each affiliate had interests identical to those of the San Diego-Riverside affiliate that were threatened by the DHS audit. The very purpose of the e-mail was to alert other Planned Parenthood affiliates to the common threat that they all faced and to initiate a coordinated response. The e-mail even alluded to the protection of internal information concerning the alleged fraud, ‘invoices for our oral contraceptives purchases,’ pending consultation with legal counsel.”

The whistleblower’s suit was filed by Victor Gonzalez, who served as chief financial officer at Planned Parenthood of Los Angeles from December 2002 to March 2004, when he says he was fired for warning his superiors of the illegal overbilling. Named in the suit, filed under the federal False Claims Act, were all nine Planned Parenthood affiliates in California, along with the organization’s political lobbying arm in Sacramento known as Planned Parenthood Affiliates of California (PPAC), its president, Kathy Kneer, and Mary Jane Wagle, chief executive officer of PPLA, and Swiller.

Although Judge Matz ruled against Gonzalez, finding that he did not qualify as a whistleblower under federal law because he was not the “original source” of bringing the alleged wrongdoing to light, his ruling contained references to emails by various players in the alleged fraudulent overbilling, PPAC’s Kneer in particular. The emails reveal how Kneer plotted a strategy, with the help of state Secretary of Health and Human Services Kim Belshé, to keep the billing controversy out of the public eye, halt the audits in their tracks and change the law to allow Planned Parenthood to legally bill over cost – even though it was the federal government paying the lion’s share of the excess charges. Belshé, a longtime bureaucrat in state health agencies dating back to the administration of Gov. Pete Wilson, was named to her current post by Gov. Arnold Schwarzenegger in November 2003, just months before Salo sent out his email alarm over the DHS audits.

In that email, Salo said he had contacted Lily Spitz, Planned Parenthood’s lawyer in Sacramento, who then contacted Kneer. The judge makes mention of a Feb. 5, 2004 email from Kneer to the executives of all Planned Parenthood affiliates in the state in which Kneer wrote, “I want to reiterate that Kim (Belshé) is willing to discuss the policy implications of requiring clinics to bill the acquisition cost -- however, she did state that DHS legal office has advised her that the law requires us to bill at acquisition cost… We have asked each affiliate to provide our office with information about your affiliate's billing practice for nominal and 340B priced contraceptive methods. I will assure you that this information will not be used publicly except in a state aggregate and to assure we are accurately reflecting the depth of the impact and to insure we are fully covering ourselves with any statute change... At this time we are asking that no further public action be taken -- quietly resolving this as a policy issue within the administration is the best strategy at this time.”

Said Judge Matz of the Kneer email, “…the Planned Parenthood CEOs who received the e-mail had ‘a strong economic incentive to protect the information from outsiders, [so] revelation of information to [them] does not trigger the potential for corrective action presented by other forms of disclosure…’ Indeed, instead of triggering corrective action, the e-mail alert set off a coordinated defense against the audit under the leadership of PPAC, the affiliates’ political action committee in Sacramento.”

In the meantime, on Feb. 16, 2004, Gonzalez, then chief financial officer at Planned Parenthood of Los Angeles, sent an email to Wagle and Swiller, his bosses. He expressed concern about the over-billing and recommended that other attorneys review the matter. Gonzalez had been asked to assess the impact of over-billing at PPLA, and concluded that the Los Angeles affiliate alone was overcharging by $2 million per year. “The issue that has the largest impact for the Agency is the DHS audit started mid-January 2004,” wrote Gonzalez. “The audit focused on the markup for the Medications being sold and dispensed. Our supply contracts enable us deep discounts, and therefore the markups constitute not only a significant Revenue item, but virtually the only reason PPLA has been able to stay in business. This applies to all affiliates conducting business the same way PPLA does… I would also add that PPAC obviously did not handle this issue well and as a result left the entire system exposed.” On March 9, 2004, Planned Parenthood Los Angeles fired Gonzalez -- and continued with the strategy set in motion by Kneer.

As Kneer had noted in her email to Planned Parenthood CEOs, Belshé was sympathetic, despite legal advice that billing over cost was not permitted, and apparently put up no fight for what was about to happen next. Kneer turned to powerful allies in the state legislature, specifically then-Sen. Deborah Ortiz, a liberal pro-abortion Democrat from Sacramento who had received political campaign support from Planned Parenthood and, in the summer of 2004 was chairwoman of the Senate Health and Human Services Committee. According to a history of the bill, AB 2151, the measure’s “source” was Planned Parenthood Affiliates of California, and its supporters included, among others, NARAL Pro-Choice California, Planned Parenthood Golden Gate, Planned Parenthood Los Angeles, Planned Parenthood Mar Monte, Planned Parenthood of Orange and San Bernardino Counties, Planned Parenthood of San Diego & Riverside Counties, Planned Parenthood of Santa Barbara, Ventura, and San Luis Obispo Counties, and Planned Parenthood of Shasta-Diablo.

In effect, the bill undid the regulations requiring Planned Parenthood to bill the state and federal governments at cost. Nowhere in the bill’s legislative analysis, however, was any mention made of the over-billing discovered by DHS auditors – only the financial harm that would befall Planned Parenthood should the measure not pass. In a rushed summer session, the last-minute bill cleared the legislature and was signed into law by Gov. Schwarzenegger. Ortiz, who has since left the legislature, is now vice president for public affairs of Planned Parenthood Mar Monte, working out of their regional office in Sacramento. According to Planned Parenthood Mar Monte’s 2008 annual report, $39,458,481 of the organization’s annual budget of more than $70.4 million comes from FPACT.

On Nov. 19, 2004, Belshé subordinate Stan Rosenstein, deputy director of medical care services for DHS, wrote to Bob Coles, chief financial officer for Planned Parenthood of San Diego and Riverside Counties, with some good news and some bad news. The bad news: state auditors had determined that Planned Parenthood of San Diego and Riverside Counties had over-billed the government more than $5.2 million between July 1, 2002 and June 30, 2003. The good news: Planned Parenthood would not have to pay back a penny of the overcharges. Rosenstein said in his letter that the regulations were not clear about the meaning of “at cost.” As a consequence, said Rosenstein, “no demand will issue pursuant to the audit…”

At the same time, DHS ordered a halt to audits at all other Planned Parenthood affiliates in California.

Despite the judge’s ruling, which was opposed by the U.S. Attorney’s Office in a friend of the court brief, Gonzalez’s federal whistleblower suit is not over. Attorney Jack Schuler, who represents Gonzalez, said he has already begun preparing an appeal based on errors in Judge Matz’s ruling. “The federal government was the one defrauded and the federal government was not noticed until Mr. Gonzalez blew the whistle,” he said. “This was a scheme by Planned Parenthood and its allies to cover up a fraud and Mr. Gonzalez blew the whistle.” Gonzalez also filed a wrongful termination civil suit against Planned Parenthood of Los Angeles in state court that was settled before trial by Planned Parenthood. Schuler said a non-disclosure agreement that was part of the settlement prevented him from providing details, but did say, “It was very favorable to Mr. Gonzalez.”

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