The Clinton Herald, Clinton, Iowa

October 7, 2013

Trial update: Original settlement was $9.9 million

By Katie Dahlstrom
Assistant Editor

CLINTON — Timothy Schultheis asked the city for $9.9 million as the two parties negotiated an amount to settle a Medicare fraud case in 2010, attorney Michael Walker told jurors Friday. 

While the city’s initial counter offer was around $1 million, on Aug. 3, 2010, the city council agreed to settle for $4.5 million with the U.S. Department of Justice and Schultheis.

That settlement is the reason Walker is standing trial, facing a legal malpractice suit from the city of Clinton. Walker, along with his firm Hopkins and Huebner, represented the city in that case, which former firefighter and whistleblower Schultheis brought upon the city on behalf of the federal government, claiming the city had violated the federal False Claims Act by knowingly billing Medicare and Medicaid incorrectly for ambulance calls in order to receive a higher reimbursement rate.

The city claims Walker’s negligence led to the settlement and is seeking $4.67 million to recoup the settlement and other expenses incurred in the case. 

On Friday, Walker testified about the events that led to the city settling, along with the fines the city might have faced in the event it hadn’t settled.

During a closed session on April 13, 2010, the Clinton City Council authorized Walker to offer $1 million to settle the case, Walker testified. Schultheis wanted $9.9 million, Walker said. 

Beyond dwindling down the settlement amount, Walker said he also was able to negotiate some better terms from the federal government.

The U.S. government opted not to intervene in the the Schultheis suit, a point the city’s attorneys have continuously brought out during trial. Walker testified that he understood the government intervenes in only 10 percent of whistleblower cases. 

Despite the decision not to intervene, the feds did have to sign off on the settlement and claimed 70 percent of it. The other 30 percent belongs to Schultheis and his attorneys. The city made the first of 10 annual payments on Oct. 1, 2010. 

Assistant U.S. Attorney Maureen McGuire wanted the settlement to only cover Medicare and leave the potential false claims that had been made to Medicaid unsettled, Walker testified. Eventually, the government agreed to release both the Medicare and Medicaid claims. 

The feds also wanted the $4.5 million to have interest, a term of the settlement they ultimately backed away from. 

Walker, former city attorney David Pillers and former city administrator Jeff Horne talked about the savings the city realized from the $4.5 million settlement, Walker testified.

Since the settlement, the city has outsourced billing and implemented a dispatch protocol. Its ALS billing rate has dropped from 99 percent to 86 percent.

Assuming that 13 percent of calls, 1,560 calls a year, from 2002 to 2008 had been upcoded, Walker’s attorney Bob Waterman, walked through the different penalties the city could have faced.

The penalty for each improperly coded bill would have been between $5,5000 and $11,000. On the low end, the fines would be $8.58 million; on the high end $17.16 million. Those multi-million dollar penalties don’t include the amount the city could have been forced to pay in the difference between what was billed and what should have been billed.  

With more than eight hours of his testimony on the record, Walker will return to the stand today.