Mental health care firm settles Medi-Cal fraud lawsuit

A statewide chain of mental health centers for adolescents will pay $1 million for allegedly charging Medi-Cal for treatment at a San Leandro clinic on days when the youths were home with their families, under a settlement announced Monday.

The agreement resolved a suit filed under seal in 2003 by the former regional director of Stars Behavioral Health Group accusing the company of defrauding the government. The former employee, Joseph Krzesni of Eureka, will receive $200,000 of the settlement, and the state and federal governments will get $400,000 each, lawyers said.

Stars, headquartered in Oakland, provides mental health services for youths referred by the juvenile court system in criminal cases and by family courts in cases of abuse and neglect. Krzesni, a former Humboldt County mental health director, worked for the company from 1995 until October 2003, when he left in a dispute that he said was related to his lawsuit.

The suit alleged that Stars had billed Medi-Cal, the state's health care program for the poor, for treatment seven days a week at Stars Community Services in San Leandro, even though youths often spent weekends at home with their families.

Krzesni said the company owner had rejected his requests for an internal audit and instead banished him from the Oakland office, requiring him to work at home, and ordered him not to talk to any county or state officials. Krzesni said he called in a complaint on a Medi-Cal hot line in July 2003 and negotiated a severance agreement three months later.

He filed a federal court case in San Francisco in December 2003 under state and federal laws that allow private citizens to sue contractors for defrauding the government and collect a share of the proceeds. The federal and state governments later joined the suit. The company did not admit to any lawbreaking under the settlement.

The case "shows why whistle-blowers are important," said Mary Inman, a lawyer for Krzesni. "Without an insider coming forward, the government wouldn't necessarily be tipped off."

The company's lawyers said the case was overblown.

"As soon as (Krzesni) brought this to our attention, we conducted an audit, and have been prepared to pay that money back for a number of years," said Pat Hooper, an attorney for Stars.

Another lawyer for the company, Linda Kollar, said Stars' excessive billings were the result of sloppy staff work during a period when Medi-Cal was changing its reimbursement rules. "It was a very isolated incident," she said.

E-mail Bob Egelko at begelko@sfchronicle.com.

This article appeared on page B - 2 of the San Francisco Chronicle