Date: 1994/06/30


One of the nation's largest psychiatric hospital chains yesterday pleaded guilty to kickback and health care fraud charges and agreed to pay a record $379 million in penalties for illegal conduct in hospitals in New Jersey and 29 other states.

Attorney General Janet Reno said National Medical Enterprises, which owned Fair Oaks Hospital in Summit, pleaded guilty to six counts of making illegal payments to induce doctors and other professionals to refer Medicare and Medicaid patients to their hospitals for psychiatric and substance abuse treatment.

The government said the illegal payments also were used to induce the doctors to unnecessarily prolong the hospital stay of patients. The corporation, in addition, pleaded guilty to one count of conspiracy to defraud the United States and to make unlawful patient referrals.

In legal papers, the government said National Medical paid some $22 million as an incentive bonus from 1986-91 to an unidentified New Jersey medical group that was providing services at Fair Oaks.

The government said a portion of the money represented improper payments to induce the doctors to refer patients to Fair Oaks. The government also said some of the payments represented ''more than the fair market value for the services provided.''

In the criminal complaint, a specific count referred to a $300,000 bonus check written Dec. 20, 1990, to a corporation owned by the group of New Jersey psychiatrists operating at Fair Oaks. The complaint alleged this was part of an illegal remuneration or kickback.

U.S. Attorney for New Jersey Faith Hochberg yesterday refused to identify the Garden State psychiatrists involved in the case. She said that the investigation is continuing.

Fair Oaks, a psychiatric hospital offering drug and alcohol rehabilitation programs, has been under investigation by state and federal authorities for several years.

A state Department of Insurance fraud inquiry led more than a year ago to a consent agreement in which Fair Oaks paid $350,000 and its affiliate, Psychiatric Associates of New Jersey, paid $50,000 to settle charges. In March, it was announced that Fair Oaks and 46 other hospitals owned by National Medical Enterprises had been sold.

At a press conference yesterday, Attorney General Reno said the nationwide case centered on bribes, kickbacks, unnecessary medical treatment and false billings.

She said such actions hurt patients and emphasized that the costs were passed onto to taxpayers by excessive billings to Medicare, Medicaid, the Civilian Health and Medical Program of the Uniformed Services and the Federal Employees Health Benefits program.

Reno said the fines, civil damages and penalties totaling $379 million ''amount to the largest ever obtained in a health-care case.''

The attorney general said National Medical has agreed to cooperate with ''ongoing criminal and civil investigations of other entities and individuals.''

''Today's settlement resolves the criminal and civil liability only of National Medical and its subsidiaries,'' said Reno. ''The government is continuing to investigate other entities and individuals, including officers and employees of National Medical, as well as doctors who were paid to refer business to National Medical.''

Jeffrey C. Barbakow, National Medical chairman and chief executive officer, said in a prepared statement the settlement signifies that his company ''is taking full responsibility for past conduct in certain of its businesses.'' The settlement follows a series of other actions taken throughout the country.

On Monday, former National Medical regional vice president Peter Alexis pleaded guilty in Dallas to arranging up to $40 million of the payments to gain patient referrals at the hospitals. He faces up to 10 years in prison and $500,000 in fines.

One of the company's psychiatric hospitals in San Antonio, Texas, pleaded guilty in November to making false claims and was fined $2 million. Earlier this year, indictments against officials connected with the company were returned in Kansas and Missouri.

In addition, National Medical over the past year has settled dozens of civil lawsuits filed by insurance companies and individuals who said they were defrauded by the company's psychiatric hospitals. Some people said they were held against their will so that the company could collect fees from their insurance companies.

The former owners of Fair Oaks Hospital in Summit have agreed to pay a record fine for financial misdeeds