Rescuing the Cheaters

The federal government has been sending tens of billions of dollars in aid to the country’s hospitals under the Provider Relief Fund created by the CARES Act. That’s all well and good. Yet there is an awkward aspect to this: quite a few of the recipients have been accused of cheating the federal government in the past.

I’ve been working closely with the relief fund data in recent days, in order to prepare it for uploading to Covid Stimulus Watch. I’ve noticed that numerous recipients are hospital chains that have been involved in cases brought under the False Claims Act (FCA), the law that is widely used by the federal government to go after healthcare providers and contractors for billing irregularities or other improprieties in their dealings with Uncle Sam.

Matching the Provider Relief Fund recipients to the FCA data my colleagues and I have collected for Violation Tracker, I found more than 100 overlaps for the period extending back to 2010. These include both for-profit and non-profit hospital systems.

The company that has received the most from the basic Provider Relief Fund (there is a separate set of awards to hospitals that have treated large numbers of covid patients) is also the hospital chain that has paid the most in FCA penalties over the past decade: Tenet Healthcare.

In 2016 Tenet and two of its subsidiaries had to pay over $513 million to resolve criminal charges and civil claims relating to a scheme to defraud the United States and to pay kickbacks in exchange for patient referrals. The subsidiaries pled guilty to conspiracy charges.

Community Health Systems, another big for-profit hospital chain participating in the relief fund, has been involved in ten different FCA controversies over the past decade. In 2018 one of its subsidiaries had to pay $260 million to resolve criminal charges and civil claims that it knowingly billed government health care programs for inpatient services that should have been billed as outpatient or observation services; paid remuneration to physicians in return for patient referrals; and submitted inflated claims for emergency department facility fees.

Among the non-profit relief fund recipients with FCA problems is Michigan-based Beaumont Health, one of whose hospitals had to pay $84 million in 2018 to resolve allegations that it made payments to referring physicians that violated the Anti-Kickback Act as well as the FCA.

CommonSpirit Health, the large Catholic health system, has numerous affiliates receiving relief funds that have faced FCA allegations. For example, in 2014 Dignity Health had to pay $37 million to resolve allegations that 13 of its hospitals in California, Nevada and Arizona knowingly submitted false claims to Medicare and TRICARE by admitting patients who could have been treated on a less costly, outpatient basis.

Altogether, at least 103 health systems whose facilities are participating in the relief fund have paid more than $4 billion in False Claims Act settlements and fines over the past decade.

Given the magnitude of the covid crisis, it would be difficult to argue that these providers should be denied assistance. Yet there should at least be additional safeguards put in place to make sure that they do not engage in similar transgressions when it comes to CARES Act funds.

Note: A list of companies receiving $500,000 or more from the Provider Relief Fund can be found here. A list of recipients of the high-impact awards can be found here.

Should Taxpayers Aid Corporate Bad Actors?

The uproar over the participation of larger companies in the Paycheck Protection Program is a sign that the country will increasingly confront a broader issue about the massive Covid-19 relief effort: does every company deserve assistance during a crisis that affects all parts of the economy?

Apart from the issue of size, there is the question of behavior—that is, should a company with a track record of bad conduct be eligible for large amounts of taxpayer-funded aid?

This issue is behind the decision my colleagues and I made to create Covid Stimulus Watch, a website that combines available company recipient data with information on the accountability records of the corporations getting the aid. Much of the latter consists of penalty data we have previously collected for our Violation Tracker database. We also added data on issues such and tax avoidance and CEO pay.

So far, we know the recipients of only about 400 grant and loans, mostly PPP awards that publicly traded firms have disclosed in SEC filings. Yet there are already signs that corporate bad actors are getting assistance.

I took a close look at the executive compensation data we collected. In their documents known as proxy statements, firms are required to disclose how much their chief executive is paid and calculate the ratio of that compensation to the median pay of the company’s workforce, which is also disclosed. Smaller companies can opt out of the requirement to reveal median worker pay and the ratio.

Among the publicly traded firms that have disclosed PPP awards, five reported paying their typical worker an amount below the federal poverty level for a family of four ($26,200). These included three with active loans: Drive Shack ($13,902), Applied Opto-Electronics ($15,620) and Trans World Entertainment Corporation ($17,346). The two others are among the larger firms that are returning their loans in response to public pressure: Fiesta Restaurant Group ($14,241) and Shake Shack ($17,032). 

The restaurant employers tend to complain in their proxies that they have to include part-timers in their calculations, while Applied Opto-Electronics tries to downplay its low figure by noting that it includes employees in China and Taiwan. The company provides a separate figure for U.S. workers only — $43,427 — which is still below the national median income level.

Many of the low-wage employers are much more generous when it comes to CEO pay. Drive Shack, for instance, paid its CEO more than $7 million, which is more than 500 times what the median employee received.  

Problematic corporate recipients can be found in other covid stimulus program. Take the Higher Education Emergency Relief Fund. There was a great deal of criticism among Republicans, including Trump, over the fact that Harvard University, with its immense endowment, was participating in the program.

Yet, it turns out that for-profit colleges are also among those institutions getting aid. Looking through the list published by the Department of Education, I found 11 awards going to the likes of the University of Phoenix, owned by the Apollo Education Group, and Chamberlain University, owned by Adtalem Global Education. The largest amount I found (looking only at the maximum portion schools are allowed to use for institutional costs) was $11.2 million going to Grand Canyon Education Inc.

This industry has been embroiled in numerous scandals based on allegations of unfair and deceptive practices, especially that of luring students with deceptive claims about the value of the degrees they offered. For example, Perdoceo Education Corporation, the parent of two schools receiving the stimulus aid, used to be known as Career Education Corp., which in 2019 had to pay $493 million to resolve fraud allegations by state attorneys general.   

Or consider the Provider Relief Fund set up by the Department of Health and Human Services. Those providers include for-profit hospital chains such as Tenet Healthcare, which has reported receiving $370 million so far from the fund. Tenet has had to pay out hundreds of millions of dollars to resolve regulatory violations and False Claims Act cases brought by the Justice Department, including a 2016 settlement in which the company paid $513 million and two of its subsidiaries pleaded guilty to criminal charges relating to bribes and kickbacks.

We are thus left with the question of whether companies that pay poverty-level wages, have excessive CEO compensation levels, routinely cheat their customers or plead guilty to criminal bribery charges should qualify for aid amid a pandemic. There is no easy answer.

The executives of those firms may not deserve help, but lower-level employees should not suffer because of the sins of their bosses. The solution might be to attach some strings to the aid they receive, requiring them, for example, to pay a living wage and to deal honestly with their customers and the government. Failure to adhere to those provisions should trigger an obligation to refund all the aid and other serious consequences.

Getting such a system enacted would be a longshot, and even if it happened, an administration like the current one could undermine it with weak enforcement. Yet it is worth imaging how well-structured covid stimulus programs might not only provide relief from the effects of the pandemic but also promote better corporate behavior now and in the future.