Light shines on HCMF lawsuit

More than six years ago, a former executive at HCMF Corp. filed what is commonly known as a whistle-blower lawsuit against the company and 14 other defendants, including Richard Cranwell, then a prominent state legislator.

Until recently, that lawsuit, which is known as a qui tam (KEE tam) case, remained unavailable to the public. The allegations and the identity of who filed it were under seal.

But since the lawsuit was filed in 1998, indications have periodically bubbled up that HCMF Corp. - a privately held company that operated 18 nursing homes across Virginia and had affiliated partnerships that owned much of downtown Blacksburg -had legal and financial problems.

• In 1999, news leaked that the company was under investigation. Later, it was learned that the company had hired Washington, D.C., lawyer Robert Bennett, a former attorney to President Clinton. In 2001, HCMF Corp. Chairman William Cranwell, treasurer Pendleton Smith and the company itself pleaded guilty and were convicted for health care fraud.

• At the sentencing for the criminal case, a lawyer revealed that a separate whistle-blower lawsuit existed, though the lawyer did not address the allegations or the identity of the person who filed it. He did say that the defendants in the whistle-blower suit had already agreed to pay $2.55 million to settle the case.

• In 2002 and 2003, most of the real estate in downtown Blacksburg and other places affiliated with HCMF Corp. was sold at auction, including the Lyric Theatre.

• Earlier this year, the Office of the Inspector General in the Department of Health and Human Services announced that it planned to seek the largest civil penalty ever - $21.8 million - from a Florida company called Pharmerica in connection with a deal made when HCMF Corp.-affiliated businessmen sold the company a pharmacy in 1997.

The developments attracted attention because the company had deep political and business ties in Southwest Virginia. The company was founded in the 1970s by William Cranwell; his friend, John Hardie; one of William Cranwell's brothers, Robert Cranwell; Hardie's daughter, future state legislator Joan Munford; Hardie's son, Thomas Hardie; and Richard Frizzell, an early business partner of William Cranwell's, according to a document filed in court by defense attorneys in the criminal case. The company went on to establish Heritage Hall nursing homes across the state.

The company also expanded into other health care-related facilities and other businesses, including assisted-living facilities, extensive real estate acquisition, restaurant franchises, an air service and other holdings.

HCMF Corp. also drew attention because of its family connection to Richard Cranwell, a Democrat who served as majority leader of the Virginia House of Delegates and announced his retirement from politics in July 2001 after 30 years of service. He is a brother of William and Robert Cranwell and Mary Ellen Deemer, who were all affiliated with HCMF Corp.

But Richard Cranwell was not an owner or a shareholder in HCMF Corp. from 1992 to 1998, the time covered by the whistle-blower lawsuit, according to a settlement agreement in that case signed by all the parties in 2003.

The agreement does not address, however, whether Cranwell was a member of HCMF Corp.'s executive committee. The whistle-blower lawsuit contends the group made business decisions at HCMF Corp.

Recently unsealed documents showed the lawsuit was filed by William Van Thiel, a former executive and chief operating officer for HCMF Corp. who was hired in 1993 and admits he was fired in 1999.

It is not clear whether his termination had anything to do with the filing of the whistle-blower lawsuit in 1998. Roanoke attorney Bill Hopkins Jr., who is representing the defendants in the case, said the company was never served the lawsuit and only learned about it later from attorneys for the government.

The Roanoke Times sought the unsealing of the court file in the case this summer. Though the judge in the case had previously ordered the court file to be partially unsealed, a prosecutor said in court documents that she continued to file documents in the case stamped "sealed" by mistake. The case was partially unsealed last month.

Documents in the case show what the allegations were, who they were against and the identity of the whistle-blower. Now that the case has been made public, it has also been possible to find out how much Van Thiel got paid for bringing allegations to the government's attention that resulted in a successful settlement.

And the documents make clear that some of the allegations HCMF Corp. has faced closely resemble the essential claims in the whistle-blower lawsuit.

The lawsuit centered on two main allegations:

• HCMF Corp. submitted cost reports to Medicaid and Medicare and received reimbursement for salaries, benefits and perks for employees who were either not working full time on nursing home-related business or working for the company at all.

• Businessmen affiliated with HCMF Corp. allegedly made a deal with Pharmerica in 1997 to sell the company a pharmacy for the inflated price of $7.2 million in exchange for the referral of patient business for seven years. The men implicated are William Cranwell, Robert Cranwell, Frizzell, Richmond businessman Charles Walker; and former HCMF Corp. chief executive officer Keith Green. Pharmerica is one of the nation's largest institutional pharmacies and the company has denied the charges.

Defendants in the case, however, vigorously deny the allegations in Van Thiel's lawsuit, Hopkins said. And defense attorneys in the criminal case argued in 2001 that the lawsuit was filed by an angry former company executive who they did not name.

The way a whistle-blower lawsuit works is that people who claim they have inside knowledge of fraud against the government can sue on behalf of the government, according to Timothy Jost, a professor at Washington and Lee University Law School and an author of "Medicaid and Medicare Fraud and Abuse."

The Department of Justice is notified about the case and has to decide whether or not to intervene, said Jost. In most cases, federal prosecutors don't, in part because many claims are brought by disgruntled employees and lack merit, he said. Prosecutors also have limited resources, Jost said.

But if prosecutors decide to intervene, the cases usually settle quickly, Jost said. And if the case results in a successful outcome, under federal law, the person who brought the allegations to the government's attention is entitled to a percentage of the settlement, he said.

Federal prosecutors went after health care fraud aggressively in the late 1990s, Jost said. One of the largest settlements has been in the case of hospital chain Columbia/HCA, which Jost said agreed to pay about $1.7 billion to settle whistle-blower claims.

Today, Van Thiel, 53, maintains that "everything I alleged in the suit is accurate."

He currently runs the Virginia Veterans Care Center on Shenandoah Avenue Northwest in Roanoke. He only responded to a limited number of questions about the case.

Prosecutors won't confirm whether Van Thiel's allegations spurred the action they took. But the core of allegations Van Thiel made in 1998 have since been pursued by federal prosecutors in Roanoke, and Washington, D.C., on both the criminal and civil tracks.

Defense attorneys in the criminal case acknowledged in court documents that the whistle-blower lawsuit led to the criminal prosecution of HCMF Corp. It also may have spurred the Office of the Inspector General in the Department of Health and Human Services to seek its largest penalty ever under federal anti-kickback laws against Pharmerica.

HCMF Corp. received about $49 million a year in reimbursements from Medicaid and Medicare to care for patients, according to court documents filed in the criminal case. And HCMF Corp. was reimbursed about $4 million between 1992 and 1998 for 34 people listed on the payroll who prosecutors said were not working on reimbursable business.

Van Thiel's lawsuit also depicts a company populated in part by relatives, old friends and business associates. It also makes clear that even as chief operating officer of HCMF Corp., it was not always clear to him the full extent of the company's holdings and exactly who owned what. He thought one of the owners might have been Richard Cranwell, according to his lawsuit.

When Van Thiel filed his lawsuit, the company had 2,000 beds in its 18 Heritage Hall nursing homes throughout Virginia and assisted-living facilities in Virginia and North Carolina that contained about 800 beds. None of Van Thiel's allegations related to patient care.

HCMF Corp. was doing well financially, at least in 1997, according to Van Thiel. That year, the various businesses that were part of the corporation took in almost $62.4 million in revenue, according to his lawsuit.

And from 1992 to 1999, William Cranwell earned more than $21 million in salary, bonuses and benefits as chairman of HCMF Corp. and from the affiliated partnerships he was part of, according to court documents filed by federal prosecutors in the criminal case.

Van Thiel claimed in his lawsuit that business decisions at HCMF Corp. were made by a central executive committee, which he said was made up of Richard Cranwell; his former law partner and former HCMF Corp. chief executive officer, Tyler Moore; Cranwell's sister, Mary Ellen Deemer; company treasurer Pendleton Smith; and a member of the HCMF Corp. Board of Directors, Ann Linden.

Federal prosecutors intervened and chose to pursue Van Thiel's allegations about owners' and relatives' compensation; home office salaries and benefits; costs associated with commissions paid to Mary Ellen Deemer's husband, Bill Deemer; the purchase of three laptops in 1996 that the allegations say were given to employees for personal use and the company was reimbursed for; airplane travel costs that were billed to federal health care programs; and the Pharmerica case.

Ultimately, the parties in the case -Van Thiel, the federal government, the defendants -finalized settlement and corporate compliance agreements in the summer of 2003.

HCMF Corp. no longer has any assets, Hopkins said. American HealthCare, which has several of the same owners as HCMF Corp., including William Cranwell, has been paying the civil and criminal penalties that have come out of the prosecution and the litigation.

Through Hopkins, American HealthCare issued a statement that the defendants in the case admitted no liability by American HealthCare, its employees or previous executive committee.

"Even though AHC believed there was no wrongdoing committed on the part of its employees, AHC agreed to settle this lawsuit because of the tremendous amount of time and money it would have to spend to defend this matter," the statement said. "AHC believed that it was in the best interests of the company and the residents it served to put this matter behind it, and this is what AHC has done."

The settlement agreement in the whistle-blower case also makes clear that Richard Cranwell was neither a shareholder nor an owner of HCMF Corp. from 1992 to 1998, the period covered by the settlement.

The agreement does not, however, address whether or not Richard Cranwell was a member of HCMF Corp.'s executive committee, as Van Thiel alleged. But he was also never linked to the criminal case.

Lawyers in the criminal case argued in court documents that the lawsuit was filed by a former chief operating officer -they did not name Van Thiel - who was angry that HCMF Corp. did not provide him with a severance package of a year's salary that lawyers said he claimed he was promised. They acknowledged that the lawsuit spurred the criminal investigation.

But Van Thiel says he was not fired until 1999. He pointed out that "I filed the lawsuit before I was a disgruntled ex-employee" - in 1998. According to records in the criminal case, he made about $470,800 working for HCMF Corp. between 1992 and 1998.

As is typical when these types of lawsuits end in a successful settlement, Van Thiel has been paid as the person who brought the allegations to the government's attention.

Van Thiel is slated to receive $482,508.50 of the settlement, according to Charles Miller, a spokesman for the civil division of the Department of Justice. That amounts to about 19 percent of the $2.55 million civil settlement.

People who bring a successful qui tam case usually receive between 15 percent and 25 percent in the case, Miller said. But the federal government did not make a separate payment for attorneys' fees in this case, according to Miller. And that also doesn't include what will be taken out in taxes, which could be as high as 40 percent.

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