‘No money left.’ Coast hospital suffered while owner was paid millions, prosecutor says.
The owner of Stone County Hospital, his wife and others defrauded Medicare of more than $13 million, federal prosecutors claimed during opening arguments in a civil case Wednesday in U.S. District Court.
“This case is about exploitation and greed,” Assistant U.S. Attorney Angela Williams of Jackson told jurors. “This case is about taking advantage of the system.”
Patient services suffered while Ted Cain drew a salary totaling $15.2 million from the small rural hospital from 2004-13, Williams said. Cain did little work for the money but still managed to collect $10.4 million of the total as Medicare reimbursements, she said.
The hospital paid Julie Cain $2.3 million over the same period, Williams said, with almost $1.7 million reimbursed by Medicare.
“Millions and millions in Medicare fraud,” Williams repeated.
The Cains’ lead attorney, former Mississippi Gov. Ronnie Musgrove, said the government’s case amounts to a “witch hunt” instigated by the hospital’s short-time Chief Operating Officer James Aldridge.
“The government basically looked at Mr. Cain with this thought: ‘You made too much money and Mrs. Cain made too much money as (hospital) administrator.’ ”
Also on trial are Tommy Kuluz, chief financial officer for the hospital’s management company, Corporate Management Inc., also owned by Cain; Starann Lamier, the chief operating officer at CMI; Stone County Hospital and CMI, which is based in Gulfport.
CMI oversaw hospital operations and at least 15 other businesses owned by Ted Cain. Lamier, prosecutors say, actually ran the hospital.
Kuluz and Lamier received nothing beyond standard corporate salaries, Musgrove said, even though the government accuses them of participating in the fraud by signing off on reports that went to Medicare.
The defendants are being prosecuted under a federal whistleblower law. Aldridge filed the original lawsuit under seal in May 2007. The government had taken up an investigation by 2010 and ultimately decided to prosecute.
If prosecutors prevail, the Cains could be forced to pay around $39 million, which includes the Medicare reimbursements plus triple damages. As the whistleblower, Aldridge would be awarded a portion of any money recovered.
The trial is expected to last up to three weeks. U.S. District Judge Henry T. Wingate has come down from Jackson to preside.
Cain salaries climb at debt-ridden hospital
Cain bought and reopened Stone County Hospital in late 2001. The hospital had been closed for almost two years and had previously closed at least two times because of financial problems.
Gulfport Memorial Hospital now leases and operates the 25-bed hospital and emergency room as Memorial Hospital at Stone County and is not associated with the lawsuit.
Musgrove described 66-year-old Ted Cain as “a workaholic” who rises at 3:15 a.m. and is in bed by 9 p.m. Cain started out in health care at age 15 working in a nursing home owned by his father, and branched out over the years into a variety of businesses, including cattle farming, advertising and property management.
Julie Cain, 60, is a nursing home administrator. Both Cains have served on boards related to their respective specialties, with Ted Cain at one time serving on the board for the Mississippi State Department of Health.
Prosecutor Williams said the Cains took advantage of Stone County’s designation as a Critical Access Hospital. Medicare reimbursements are generally higher for CAHs, designed to provide care in under-served areas.
“The more costs go up,” Williams told the jury, “the more Stone County (Hospital) profits off Medicare.”
She said Ted Cain’s exorbitant salary constituted most of the fraud, but the hospital also did business at inflated prices with other Cain companies, charging Medicare.
Under Lamier’s direction, she said, Medicare also was charged for services duplicated by hospital and CMI management. Kuluz signed off on most of the cost reports submitted for Medicare reimbursement.
The Cains’ salaries, she pointed out, increased year after year. For example, Ted Cain’s hospital salary was $907,649 in 2004 and rose to a high of almost $2.8 million in 2009, the year before the Cains learned they were under investigation.
Also, Medicare reimbursed Ted Cain more than $47,000 in costs associated with two luxury BMW automobiles.
Williams said there was some evidence Julie Cain did work at the hospital between 2004-12, but none that met Medicare reimbursement rules. Julie Cain’s hospital salary, which reached a high of $279,000 for 2011, far exceeded the average for a hospital administrator, Willliams said.
“In 2006,” she said, “the hospital was rundown and in dire need of updates, renovations or a new hospital. As Ted Cain’s salary continued to climb, there was no money left for needed work to the hospital.”
In fact, Williams said, the hospital was deeply in debt.
Exorbitant salaries or approved Medicare costs?
Musgrove described the Cains as a homegrown couple working long hours on the hospital’s behalf. He said they were committed to stabilizing the rural hospital with 25 beds and an emergency room.
He said none of the original allegations from whistleblower Aldridge’s case are part of the case the government is now prosecuting. Aldridge worked at the hospital for only two months in 2006, Musgrove said, and was bitter over his termination.
He said the Cains did not try to hide their salaries. The salaries were included on annual cost reports submitted to the private contractor who oversees Medicare reports and reimbursements. The contractor could have disallowed any portion of the salaries that were found to be excessive, he said.
Musgrove also said Medicare has no standards for CEO salaries, either for the hospital or at companies like CMI, known as home offices for Medicare purposes. Home offices, he said, are used nationwide.
He said the evidence will also show Ted Cain has spent a considerable sum on the hospital — including loans, cash and debt payments. He spent more, in fact, than he was paid, Musgrove said.
Musgrove concluded, referring to the Cains, Kuluz and Lamier: “They did their job. They followed the rules. They filed their cost reports . . . They told the government everything they were spending.”
Williams said it is telling that the bulk of Cain’s salary from CMI came from the hospital, even though CMI managed his other companies, too.
She said, “The defendants can’t act as ostriches with their heads in the sand about the costs they were submitting to Medicare.”
This story was originally published January 16, 2020 at 5:00 AM.
