ODYSSEY HEALTHCARE: A DEPARTMENT OF JUSTICE INVESTIGATION RELATED TO THE FALSE CLAIMS ACT

Journal of the International Academy for Case Studies, 2008 by Newbold, John, Sullivan, Laura

CASE DESCRIPTION

The primary subject matter of this case is the application of the False Claims Act by the Department of Justice to investigate the recruitment and patient care policies of a for-profit hospice: Odyssey Healthcare. The case provides examples of the types of marketing and management practices which could fall under the purview of the False Claims Act. Secondarily, the case gives instruction as to management practices which would help firms establish and maintain ethical and legally-compliant corporations.

This case has a difficulty level of" two" or" three", and is appropriate for undergraduate students who are being introduced to the topics of business ethics and/or business law. Through its focus on the hospice industry, the case provides a poignant backdrop for the need for ethical business behaviors. The case describes the basics of the Odyssey Healthcare business model, with an emphasis on the types of marketing and management practices which drive hospice businesses in the United States. It culminates with the investigation of the Department of Justice and sets up a beneficial discussion of why False Claims Act investigations are initiated and the specific types of corporate behaviors which are sometimes scrutinized. Finally, the case gives some instruction on the manner in which ethical and legally-compliant corporations can be established and maintained.

The case is designed to be taught in three class hours, with roughly one hour spent on understanding the hospice industry and Odyssey Healthcare, one hour spent on the specifics of the False claims Act. The final hour would be dedicated to the discussion of how to establish and maintain an ethical corporate culture and compliant operations. It is expected to take two hours of preparation by students.

CASE SYNOPSIS

Richard Burnham had major legal and public relations issues on his hands. He had stepped down as CEO of his for-profit hospice firm, Odyssey Healthcare, less than a year previously, in January of 2004. His cofounder, David Gasmire, had assumed his responsibilities, while he stayed on as Chairman of Odyssey's Board of Directors. Now, less than a year later, a Department of Justice investigation was threatening the viability of his company.

In October of 2004, Odyssey Healthcare senior management informed investors and analysts that the firm was under investigation by the Department of Justice for violations of the False Claims Act, with respect to the company's practices for patient admissions, patient retention and billing practices. Immediate action was required. The first thing Burnham needed to do was find out what had given rise to the DOJ investigation. Even if some "rogue" employees had disregarded the firm's Code of Ethics and engaged in illegal activities, could his firm really be held responsible for these actions? Going forward, what steps should the company take to create a more ethical corporate culture and maintain more compliant operations in order to avoid future investigations from the Department of Justice?

INTRODUCTION

Richard Burnham had major legal and public relations issues on his hands. He had stepped down as CEO of his for-profit hospice firm, Odyssey Healthcare, less than a year previously, in January of 2004. His cofounder, David Gasmire, had assumed his responsibilities, while he stayed on as Chairman of Odyssey's Board of Directors. Now, less than a year later, a Department of Justice investigation was threatening the viability of his company.

Founded in 1995, Odyssey Healthcare had enjoyed tremendous growth for nearly 10 years. Odyssey had grown its base of business through organic growth, acquisitions and newly constructed operations to become one of the largest for-profit hospice organizations in the United States. The number of Odyssey hospices had more than doubled from 2001 - 2003, from 30 to 74. However, as Burnham and Gasmire navigated into 2004, Odyssey began to experience some problems.

In February 2004, Odyssey released its earnings for the fourth quarter of 2003. While the numbers for 2003 came in on target, Odyssey management advised investors that their earnings estimates for fiscal year 2004 were being lowered due to operational issues. Based upon this news, the stock price dropped 26% in a single day (Yu, 2004).

In April, 2004, Barron's, a widely-read financial newspaper, wrote an unflattering article about Odyssey which strongly hinted at Odyssey engaging in less than ethical practices related to patient admissions, patient care and patient discharges (Ward, 2004).

Six months after the Barron's article, at the quarterly earnings announcement on Oct 18, 2004, Odyssey again announced that earnings would be below expectations. But this was just the beginning of the bad news. Chairman David Burnham informed investors and analysts that the firm was under investigation by the Department of Justice for violations of the False Claims Act, with respect to the company's practices for patient admissions, patient retention and billing practices. Finally, Burnham announced that CEO David Gasmire had left the company, and that Burnham would be assuming the role of CEO in addition to his role as Chairman.