‘Big Four’ Accounting Firm

Expert Testimony

A “Big Four” public accounting firm was the named defendant in a certified class action lawsuit by the shareholders of a large public hospital management company for allegedly failing to conduct its examination of the company’s financial statements in accordance with generally accepted auditing standards (GAAS), in that the audited financial statements failed to adequately disclose alleged overbilling of Medicare by the company. HMP was engaged as the defendant accounting firm’s healthcare industry and accounting expert.

Issues

  • The company, which was originally named in the suit, had already settled the case with the class actors for several hundred million dollars.
  • Additionally the company had made substantial settlement on the same or related issues with CMS and the SEC; these two settlements aggregated almost $1 billion.
  • The alleged misconduct by the company took place at more than 100 hospitals over a four-year period.
  • The accounting firm was aware of the Medicare reimbursement practices followed by the company and strongly maintained its presentation in the company’s financial statements was in accordance with then-existing generally accepted accounting principles (GAAP) for hospitals and healthcare providers.

Approach

  • Using publicly available hospital data and HMP’s expertise in Medicare reimbursement and hospital finance, HMP developed a proprietary statistical model to analyze more than 50,000 Medicare cost reports filed during an eight-year period to definitively determine if other hospitals or health systems had engaged in Medicare reimbursement strategies similar to those employed by the company.
  • Through its statistical modeling, HMP determined that the alleged overbilling of Medicare by the company was in fact commonly practiced by approximately 20% of all hospitals during the relevant period. 
  • HMP then selected the “Top 200” hospitals that it identified as having practiced the alleged overbilling and examined their audited financial statements and/or SEC Form 10K (in the case of publicly traded hospital management companies) to determine if their independent accountants had treated the matter differently than the company. A total of almost 800 sets of financial statements were examined.
  • HMP produced an expert report supporting its findings, including providing a detailed explanation in “layman’s terms” of the applicable Medicare rules and regulations.
  • An HMP managing director attended the depositions of the plaintiff’s experts and was himself examined by plaintiff’s counsel.

Results

  • Almost 2,000 different hospitals, including some of the best known in the country and many owned by publically traded hospital management companies, were documented to have practiced the same billing practices as those of the company.
  • Of the almost 800 sets of audited financial statements examined by HMP and audited by national accounting firms other than our client, none reported on the matter differently than our client accounting firm.
  • During the relevant period, not a single publically traded hospital management company that participated in like conduct was found to have disclosed the matter differently in its form 10K filed with the SEC.
  • The client and its outside counsel successfully negotiated the matter out of court for a fraction of the estimated defense costs.