Dismissal of fraud investigation ends five-year ordeal

Questions about what led to the settlement remain. But Montana physician Patsy Vargo, MD, is lobbying for a change in the way the government does business.

By Tanya Albert, amednews staff. Sept. 17, 2001.

Life has been a roller coaster for Patsy Vargo, MD, a Shelby, Mont., family physician, but the ride has finally ended.

For more than five years, she has been jolted by the bumps and twists of two federal fraud inquiries -- a wild journey that captures the fears that many physicians have of government persecution.

Dr. Vargo's odyssey
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It began with a 1995 audit that led in 1997 to federal criminal charges of upcoding and seeing more patients than possible. Before the year ended, the government dropped the charges.

Dr. Vargo's life in rural Montana returned to normal for two years. Then came the $37 million civil lawsuit. The government charged that she upcoded and didn't have documentation to support many claims.

She turned down offers to settle for $500,000, then $300,000. Her community rallied around her by taking out newspaper ads supporting her and by calling local congressmen requesting that they intervene.

Now, the series of ups and downs is finally over for the physician.

Just weeks before Dr. Vargo was set to go to trial to fight the government's civil lawsuit, the two sides reached an agreement.

According to court documents in the U.S. District Court for the District of Montana, Great Falls Division, the case was dismissed with prejudice last month. That means neither side will be able to pursue the matter in court again.

"It went from $37 million to nothing in a day," Dr. Vargo said.

But what finally brought the locally high-profile case to an end is unclear. And it will likely remain that way.

Dr. Vargo and the assistant U.S. attorney pursuing the case agreed to keep the negotiations that led up to the dismissal confidential. They would not comment on whether Dr. Vargo paid anything to the government or whether the government paid anything to Dr. Vargo.

But Dr. Vargo said there are no restrictions on whom she can treat. "My life as a physician goes on as normal," she said. "There's no liability. No fault. I can see Medicaid and Medicare patients and CHAMPUS patients."

The only comment from the government: "We're satisfied with the outcome," said Leif Johnson, assistant U.S. attorney in Billings, Mont.

Other physicians look on

Dr. Vargo's experience was watched closely and emotionally by other physicians in Montana.

"It was an awful thing to see her treated as a bank robber or drug runner," said Missoula, Mont., otolaryngologist James E. Jarrett, MD, who heard updates from Dr. Vargo at Montana Medical Assn. meetings. "I can remember sitting there with tears in my eyes and my hands all wet."

Throughout the government's probe of how she billed the Civilian Health and Medical Program of the Uniformed Services for patients she saw at Malmstrom Air Force Base in Great Falls, Dr. Vargo adamantly denied any wrongdoing.

Dr. Vargo said her troubles started after she testified against a military superior accused of sexually harassing female employees at the Air Force clinic. She said the government, in trying to prove its charges of upcoding, unfairly compared her work in rural Montana to work by doctors in suburban areas. She said the comparison is flawed because patients in rural areas are less likely to run to the doctor for minor aches and pains because it's more difficult to get there. Consequently, the patients she saw often required more services than patients in suburban settings where physicians are nearby.

The criminal charges and civil suit came after several audits. One audit examined Dr. Vargo's records for December 1994. The government said she was overpaid by more than $7,800 for that month because she billed at higher levels than she should have. The government completed a second audit that looked at her records from 1991 to 1995 and said she had overbilled the government 7,400 times.

The government dropped the criminal charges shortly after a CPT code expert it hired reviewed the case. The expert, Pasadena, Calif., gastroenterologist Glenn D. Littenberg, MD, said some of the billings may have been overcoded, but that there was no indication of fraud. The government then pursued a civil suit, which has a lower standard of proof.

The civil suit sought $37 million -- a figure calculated using provisions in the federal False Claims Act that allow the government to recover between $5,000 and $10,000 per false claim, plus triple damages.

The expert the government called in to review the criminal case was scheduled to testify as a witness for Dr. Vargo's defense in the civil case.

Dr. Littenberg said prosecutors didn't have a good grasp of coding and didn't understand what standards physicians were being held to at the time that the billings occurred.

"I am very happy to see the Vargo case cleared up," he said. "Dr. Vargo went through a lot of agony and personal loss for something that ended up being nothing."

Advocating change

After being left with more than $300,000 in legal bills, going through a divorce and dealing with a pulmonary embolism that doctors attributed to stress, Dr. Vargo is working to ensure that other physicians don't find themselves unjustly in her position.

She has written and talked to more than a dozen lawmakers about changing federal law. Dr. Vargo believes physicians should undergo a billing analysis by a peer review board before any grand jury subpoenas can be issued in cases of suspected fraud. That, she said, would prevent physicians from being wrongly prosecuted.

"Peer review is the way to go," Dr. Vargo said. "This was such a waste of taxpayers' dollars."

Dr. Jarrett agreed that something needs to change. "Physicians are angry," he said. "We feel like we're not being treated fairly."

Lawyers who specialize in health care fraud said Dr. Vargo's idea would likely meet opposition in Washington. But, they said, they understand the point she is trying to get across.

She is raising as an issue physicians' concern that the government causes extreme cost and difficulty when there may be no reason to accuse a doctor of fraud, said Philadelphia health care lawyer Alice G. Gosfield. A good way to address the concern, Gosfield said, would be to have the Dept. of Justice designate a division focused on health care issues. That way, investigators would have a good understanding of how the laws should be interpreted, and the interpretations would be applied the same way nationwide.

Still, she said, a compliance program is the best way for physicians to protect themselves.

Gosfield said it is important to look at billing. When there are mistakes -- and everyone makes honest mistakes -- pay the money back, she said.

"If you have a compliance program in place and you've paid money back, the government is very hard pressed to bring a case against you," Gosfield said.

ADDITIONAL INFORMATION:

Dr. Vargo's odyssey

February 1996: Government subpoenas the medical records of Montana family physician Patsy Vargo, MD.
June 1997: Dr. Vargo is indicted on criminal fraud charges.
December 1997: A CPT coding expert reviews the case for the government, and the criminal charges are dropped.
December 1999: The government files a civil complaint against Dr. Vargo seeking $37 million.
August 2001: The civil case, The United States of America v. Patsy Vargo, MD, is dismissed from the U.S. District Court for the District of Montana, Great Falls Division. Terms are not disclosed.