CCMSD alleges management company committed fraud

After reviewing its own finances, Crook County Medical Services District has amended its counterclaim against Health Management Services, the management company with which it severed ties earlier this year. CCMSD now alleges that the company deliberately committed fraud against the district.

HMS filed a second lawsuit against the district in August after the original complaint was withdrawn because it did not meet the standards of the Governmental Claims Act. The new suit is essentially identical to the first and repeats HMS’s claims that the company is still owed payment after the sudden termination of its contract.

CCMSD originally responded to the suit with its own allegations that HMS overbilled the district and repeatedly breached its contract. In an amended answer filed with District Court, however, the district now claims it has been determined that, “HMS intentionally overbilled CCMSD for management fees.”

HMS also, according to the claim, intentionally failed to reconcile its management fees in order to avoid issuing refunds to CCMSD in cases where its estimates for payment were too high; and failed to issue refunds that were owed.

The contract with HMS specified that the management company would be paid a fee representing 5% of the district’s gross operating revenue. CCMSD’s revised counterclaim lists several alleged incidents in which HMS apparently included items in the gross operating revenue that should not have been there.

By doing so, CCMSD alleges that HMS artificially increased the district’s gross operating revenue. This, in turn, would have increased the dollar figure charged by HMS for its 5% management fee.

The first example given in CCMSD’s new counterclaim was the proceeds of an insurance settlement for hail damage. This amounted to $293,002, which led to HMS allegedly overstating its management fee by $14,650.10; CCMSD alleges that HMS never trued-up its management fee to refund that amount.

The second example given was credits from a company called Athena related to the implementation of electronic health records. This, according to the counterclaim, artificially increased the gross operating revenue by $350,000, which led to HMS overstating its management fees by $17,500.

CCMSD claims that its certified public accountant provided HMS with the correct journal entries to account for these credits, but they were disregarded.

“Only when CCMSD’s auditor made entries to correct HMS’s journal entries as part of the fiscal year 2017 audit…did HMS finally true-up its management fees for 2017,” says the counterclaim.

HMS’s failure to true-up its management fees for 2016, according to the claim, caused an overstatement of the company’s fees of $1389.90.

The third example also related to Athena, in this case “amounts that Athena inadvertently pushed to CCMSD as revenue, but that Athena later pulled back”. In April, 2018, the counterclaim specifies that Athena contacted the district to advise that they had pushed across records overstating patient revenue for 2017 by $230,531.14.

Because this was never resolved, CCMSD claims that HMS failed to refund the $11,526.56 it was overpaid in management fees.

The fourth example was that HMS included investment income from the district’s investment in Bear Lodge Rehabilitation Services in the amount of $73,773, overstating its management fee by $3388.65.

CCMSD also claims that HMS failed to subtract out bad debt in the amount of $1,514,199.84, overstating its fee by $75,705.99 between October, 2015 and May, 2020.

According to the counterclaim, HMS did not issue a refund for overbilling its management fee for 2018, despite conducting a reconciliation that revealed CCMSD was entitled to a refund of $15,583.64.

“HMS knew that insurance settlements, credits from Athena, amounts inadvertently pushed to CCMSD by Athena, investment income and amounts for bad debt were not includable in calculating the ‘Total Gross Operating Revenues of the Facilities,’” says the counterclaim.

“Nevertheless, HMS included these amounts in calculating its management fees, thereby intentionally overstating its management fees.”

As to whether the management company did these things deliberately, CCMSD points out that HMS oversaw all accounting for CCMSD, including collecting revenues, issuing bills and collecting monies owed, maintaining bank accounts and preparing cost reports and financial statements.

“HMS knew that its representations as to the amounts of the management fees to which it was entitled were false when made,” says the counterclaim, noting that the total overpayment was an amount no less than $122,235.84.