ATLANTA -- Two former executives of Healthmaster Inc. lost their bid to overturn Medicare fraud charges Friday in a case that brought down a leading Democratic Party fund-raiser.
The U.S. 11th Circuit Court of Appeals upheld fraud, conspiracy and money-laundering convictions against Dennis J. Kelly and David W. Suba, former top financial managers with the Augusta-based home care chain.
The appeals court did, however, drop one count each of bank fraud and money-laundering against Mr. Kelly after prosecutors conceded the evidence didn't support a conviction.
That means Senior U.S. District Judge Anthony A. Alaimo will have to resentence Mr. Kelly on his remaining 102 felony counts. Mr. Kelly, a certified public accountant who was Healthmaster's chief financial officer, began serving a 12 1/2 -year prison term in 1995.
He and Mr. Suba, an insurance risk manager who is serving an eight-year sentence, were accused of siphoning $1.7 million from Healthmaster through bogus premiums to a worker's compensation fund they set up in the Cayman Islands. The fund collected premiums but provided no coverage, essentially leaving Medicare to cover the claims of injured workers.
The appeals court's unanimous decision turning down their appeal was rendered by a three-judge panel and written by Senior Judge James C. Hill, who added an unusual footnote to the ruling.
"This case reminds one of the prisoner who sued the county when he was hurt during his escape because the county left the jail door open. Apparently, viewing Medicare as a cash cow, the temptation for these co-conspirators was just as great," the judge wrote.
Healthmaster grew from a one-room, husband-and-wife company into a five-state chain with 125 offices sending nurses and aides into the homes of bedridden patients. At its peak, the company was receiving $100 million a year from Medicare, the federal health program for the elderly.
The company's founder, former nurse Jeanette G. Garrison, served as co-chairwoman of President Clinton's 1992 campaign and was appointed to a state convention center board by the governor.
But investigators found that Ms. Garrison had falsely collected Medicare reimbursement for hundreds of thousands of dollars in campaign contributions, vacations and other personal expenses.
She pleaded guilty to 10 felony counts and testified against Mr. Suba and Mr. Kelly. Recently, she was furloughed from prison to speak at a U.S. Senate hearing about how easy it is to rip off Medicare, which doles out $16 billion a year for home care.
Healthmaster filed for bankruptcy in 1995 after its executives were indicted. The company was sold to a Macon hospital, which renamed the Augusta location CareSouth and sold its remote offices.
Ms. Garrison is in a Texas prison completing her 33-month sentence. Her attorneys appealed the conviction in November 1996, but the 11th Circuit hasn't released a decision.
Defense attorneys claimed the $1.7 million pocketed by Mr. Kelly, Mr. Suba and Ms. Garrison was not for workers' comp coverage but was a share of the savings Mr. Suba realized by lowering Healthmaster's insurance costs.
Further, they argued Mr. Kelly and Mr. Suba couldn't be guilty of defrauding Healthmaster because Ms. Garrison, the owner, got a cut of the money and approved everything they did.
Lawyers for Mr. Suba, who was implicated in only 73 counts of the indictment, argued he was a late-arriving tag-along who was ignorant of Medicare reimbursement rules and of Ms. Garrison's secretive web of corporations.
In addition to the workers' comp scheme, Mr. Kelly was found guilty of embezzling money from Healthmaster accounts to prop up other Garrison companies and to buy South Carolina resort property for his personal use.
Also, Mr. Kelly was convicted of helping Ms. Garrison conceal her buyout of an Albany, Ga., home care agency in the form of consulting payments to the former owners that were charged to Medicare.
Medicare reimburses home health care agencies according to their self-reported costs of doing business, verified through occasional audits.
As a result of the Healthmaster case and others across the country, the Clinton administration last year slapped a six-month moratorium on licensing new home health agencies, ordered reimbursement rates cut and required owners to post a $50,000 bond to show their financial stability.