Woman of Courage

Evelyn Knoob's Story
 
Blue Cross whistle-blower reaps rewards

CONSEQUENCES  of destroying records.
 
"No Case" to  $144,000,000 court ruling. 
 
WHISTLEBLOWER'S JOURNEY  -  Blue Cross - Blue Shield case
 
Courageous tenacious woman prevails.
 
Start with above articles.  Then study below summary.

KNOOB.TXT or KNOB.HTM files on DOWNLOAD

KNOOB PRESS INFORMATION -  Ronald E. Osman



 

INTRODUCTION:

Below is OCR derived TEXT obtained from a 12 page document.
 

KNOOB PRESS INFORMATION    INTRODUCTION

On Friday, October 23, 1992, Evelyn Knoob's ninth anniversary of
employment with Health Care Service Corporation, a/k/a Blue
Cross/Blue Shield of Illinois ("HCSC"), she was forced to
witness her supervisor shred medicare beneficiary claims.

This single event eventually led Mrs. Knoob to the law offices of
Ronald E. Osman and Associates, Ltd. in Marion, Illinois. After
an extensive investigation by Attorneys Ronald E. Osman and
Timothy Keller which disclosed massive fraud which HCSC had
committed against the government, a Qui Tam complaint was
filed against HCSC in the Southern District of Illinois
in March of 1995.

Today, we announce that as a result of Mrs. Knoob's actions,
the dedication and perseverance of the investigating agents,
the Government Attorneys and Attorneys Osman and Keller, and
the recovery vehicle provided by the Federal False Claims Act
which President Abraham Lincoln pushed through Congress in 1863,
HCSC has agreed to pay $140,000,000.00 to the government in full
settlement of the Qui Tam action.

WHISTLE BLOWER

Evelyn Knoob is a 54 year-old resident of Herrin, Illinois.
Evelyn and her husband, George, have been married for 36 years,
have five children, ranging in age from 27 to 35 years,
and six grandchildren.

Evelyn began her employment with HCSC on October 24, 1983 as a
claims examiner. Evelyn worked in several different departments
during her career with HCSC. She was promoted to Supervisor in
February, 1986, a title which she held proudly and competently
until August 16, 1993.

On September 21, 1992, Evelyn became the supervisor of the HCSC
Mail Room at Marion, Illinois and reported to and received
instructions from her manager Don Heinle (hereafter "Heinle").

On Friday, October 23, 1992, three mailroom employees found a
large box of three-month old retired railroad worker beneficiary
claims (hereafter the "Claim") which had not been forwarded to
Travelers Insurance Company as required. The box contained
approximately 10,000 Claims. Evelyn immediately contacted
Heinle, informed him of the discovery of the Claims, and
requested his direction in handling the situation.

At approximately 3:30 p.m., after all other Mail Room employees
had left for the day, Heinle contacted Evelyn and directed her
to bring the box of Claims to his office. Both the Mail Room
and Heinle's office were located at HCSC's Site Two in the
Town and Country Shopping Center in Marion, Illinois.

Because the box was full and extremely heavy, Evelyn was only
able to carry the box part of the way and was forced to push it
the rest of the way. When she reached Heinle's office, she
noticed a paper shredder was sitting over a waste basket.

Heinle informed Evelyn that the two of them were going to shred
the Claims. Evelyn emphatically stated she would not assist him
in shredding the Claims and that it was wrong. She suggested
they contact HCSC officials Bill Gowan, the HCSC Director
of Operations, (hereafter "Gowan") or Barbara Harrigan
for instructions on how to proceed.

Heinle refused and instructed Evelyn that she was never to tell
anyone about the Claims shredding. If she did, he said he would
say she was the one who had actually shredded the Claims
and everyone would believe him rather then her.

Evelyn responded by again stressing that she did not want
to be involved with the shredding because it was wrong.

Evelyn attempted to leave Heinle's office, but was
told to consider herself fired if she did.

Accordingly, Evelyn had no other choice but to watch as Heinle
began shredding the Claims. During the next three hours of
shredding, Evelyn again requested several times that Heinle
contact HCSC officials concerning the Claims but he refused.

After shredding the last claim, Heinle placed the Claims scraps
in ten to twelve green lawn-size garbage bags which he discarded
in a dumpster located at the back of the building.

When Evelyn reported for work the following Monday, October 26,
1992, she went to Heinle to discuss her concerns about the Claim
shredding. She told Heinle that destroying the Claims was
improper and illegal and would prevent the beneficiaries from
receiving their Medicare benefits. In response, Heinle again
threatened that if Evelyn ever reported his actions he would tell
everyone that she had been the one who did the shredding and he
personally would insure that she went to prison.

Evelyn ultimately went directly to Mr. William Gowan, HCSC's
vice-president of Medicare Part B operations and former Director
of Operations, to report the destruction of the Claims.

Gowan, however, participated in the cover-up of the shredding
and declined to take any action against Heinle for his actions.
He instructed Evelyn that she should cease worrying about the
Claims because he had found out, through HCFA and Travelers,
that the Claims had been resubmitted. Evelyn knew however,
this was not true. Since the Claims had not been controlled
or microfilmed, there was no way of verifying whether
the Claims had actually been resubmitted.

Prior to the Claim shredding, Evelyn had been an exemplary
supervisory HCSC employee receiving several commendations
and superior performance evaluations. After the shredding
this changed dramatically. The evidence indicates that HCSC,
through its managerial employees, embarked on a concerted
and intentional effort to malign her work performance and
place her in stressful work positions with which they
were aware she was not comfortable.

Prior to the shredding, Evelyn had consistently received
favorable employee evaluations annually pursuant to HCSC policy.

After the shredding, however, over two years elapsed before she
received her next performance evaluation. HCSC supervisory
employees also began placing derogatory memorandums into Evelyn's
employee file. Interestingly, at least seven of these negative
memos were drafted on October 11, 1994 by Marjorie Wright.

On this same day, Wright informed Evelyn she was being placed on
stress leave. That was Evelyn's last regular day of work at HCSC.
Evelyn sums up how HCSC has affected her life as follows:

          "The shredding of the claims was the
           beginning of the end, it destroyed my life."

MEDICARE

Overall responsibility for the administration of the Medicare
program resides with the Secretary of the Department of Health
and Human Services ("HHS"). Within HHS the responsibility for
administration of the Medicare program has been delegated to the
Health Care Financing Administration ("HCFA"). In accordance with
Title XVIII of the Social Security Act as amended, 42 U.S.C.
Section 301 et seq., HCFA contracts with private insurers to
process Medicare claims and to make benefit payments on
behalf of the Government. Medicare claims are divided
into Part A and Part B claims depending on the
type of services and/or the type of provider.

Part A claims generally involve payment for Medicare covered
inpatient facility services. Part B claims involve payment for
items such as, but not limited to, Medicare covered outpatient
services, physician services and a Medicare beneficiary's use of
home medical equipment in their home. Private insurers which
contract with the government to process and pay Part B Medicare
claims are known as Carriers, while those contracting entities
processing Part A Medicare claims are known as Intermediaries.

HEALTH CARE SERVICE CORPORATION

Health Care Service Corporation ("HCSC"), the official corporate
name for Blue Cross Blue Shield of Illinois, is an Illinois
mutual legal reserve company. HCSC was initially organized as a
not-for-profit service corporation on October 1, 1936.

HCSC is the largest health care insurer in the State of Illinois
which, with over 2.7 million members, provides coverage to
approximately 22% of the State's insured population. HCSC is
ranked as the 368th largest enterprise in the United States with
annual sales in excess of $4,478,400,000.00.

HCSC's annual report for the year ended on December 31, 1997
indicates a total policyholders surplus of $991,654,131.00
which is in addition to the required reserves for accident and
health policies. HCSC's net income for 1997 was $71,115,663.00
resulting in total reported assets as of December 31, 1997 of
$2,074,149,825.00. HCSC is currently attempting to merge with
Texas Blue Cross/Blue Shield which would make in the third
largest Blue Cross plan in the nation.

ILLINOIS CARRIER CONTRACT

By contract dated March 31, 1984, the government contracts
division of HCSC, was awarded the Carrier contract to process
Medicare Part B claims for the State of Illinois. The initial
contract was a fixed price contract periodically renewed and
amended through March 30, 1989. HCFA's decision to replace the
previous carrier, Electronic Data Processing ("EDS"), was based
in part upon EDS's below average performance as measured by the
annual Contractor Performance Evaluation Program ("CPEP").

CPEP is an evaluation program utilized by HCFA to gauge a
Carrier's conformance with the standards and criteria published
annually in the Federal Register by HCFA, which HCSC is required
to meet as established by section 1842(b)(2) of the Social
Security Act. The results of the OPEP are reported annually for
the fiscal year beginning on the 1st day of October and ending on
the 30th day of September of each year. Through fiscal year 1991
the annual HCFA report summarizing the CPEP results was known as
the Annual Contractor Evaluation Report ("ACER") and thereafter
the Report of Contractor Performance ("RCP").

HCSC's initial performance as the Illinois Carrier was dismal.
Its overall efficiency rating as reported in the 1985 ACER was
79% while 1986 only improved to 88%. Likewise the 1985 and 1986
ACER reported beneficiary services of 86.5% and 87% respectively.
Correspondence from HCFA and HHS both indicate HCSC was in dire
jeopardy of losing its Carrier Contract had performance not
significantly improved. HCFA had a practice of ranking its
Carrier's nationwide by performance. For fiscal year 1985, HCSC
was in the bottom 10%. In 1987, it ranked 17 out of 48. In 1986
it improved to 11 out of 48. Its evaluations continued to improve
and eventually it received the number 2 ranking nationwide out of
48 Carriers for fiscal year 1991. As explained later, however,
HCSC had only learned how to take the test. Other HCSC in house
criteria unavailable to HOFA at the time, indicates actual
performance continued to be substandard.

As a result of its alleged outstanding performance, HCSC was
awarded a special section 6215 cost reimbursement contract
beginning March 31, 1989 under which it continued to operate
through 1998. In this regard the ACER for the 1988 fiscal year
reported that: "In view of HCSC's level of performance, in FY
1988 HCFA decided to negotiate a cost reimbursement contract
with HCSC to succeed the fixed-price contract scheduled
to expire March 31, l989."

The cost reimbursement contract awarded HCSC varied

     "from the standard cost reimbursement contract in that
     it will contain provisions for incentive payments for
     superior performance in key pre-determined tasks, and
     HCSC will receive a bottom line level of funding with
     the previous restrictions on fund transfer between line
     items removed."

ACER for 1990 fiscal year, Unit Cost Functional
Criterion-Comments, page 2.2. For fiscal year 1991,
HCSC was the only carrier nationwide allowed to operate
under the special section 6215 reimbursement contract.

ACER for 1991 fiscal year, page iii.

In 1994, HCSC was also awarded the Carrier Contract for the State
of Michigan. The previous Carrier, Blue Cross Blue Shield of
Michigan, Inc. had foregone renewal of its contract in connection
with a False Claims Action filed against it alleging fraud.

HCSC continued to operate pursuant to the cost reimbursement
contract through 1998 at which time it voluntarily resigned. As
the Illinois Carrier, it paid out in excess of 13.3 billion
dollars in Medicare benefits beginning in fiscal year 1985
through fiscal year 1996. For its administrative services HCSC
allegedly provided, it was paid approximately 350 million dollars
by the government through the end of fiscal year 1995. During
this same period, HCSC also received incentive payments of
approximately 2.8 million dollars due to its alleged superior
performance.

THE QUI TAM ACTION

The office of Ronald E. Osman and Associates, Ltd., filed a
complaint pursuant to the Federal False Claims Act, 29 U.S.C. S
3729 et seq. (hereafter "FCA"), on behalf of the Relator, Evelyn
M. Knoob, on March 14, 1995 in the United States District Court
for the Southern District of Illinois in Benton, Illinois.

The original complaint consisting of 7 counts contained 74 pages
of allegations. Simultaneously with the complaint filing,
Mr. Ronald Osman, Relator's attorney, forwarded to the Attorney
General and United States Attorney's, W. Charles Grace's,
offices, a Disclosure of Substantially All Material Evidence
and Information in accordance with the FCA. Thereafter, the
Government began its investigation while Relator's attorneys,
Ronald Osman and Timothy Keller, continued theirs.

The FCA only provides the government 60 days in which to
investigate the complaint allegations and determine whether or
not to intervene and take over prosecution of the action. In
almost all cases, this is not sufficient time to complete the
investigation and the Government usually moves for an extension
of the statutory seal. In this case, the government sought and
was granted extensions keeping the case sealed through July 16,
1998 during which an extensive investigation and settlement
negotiations continued.

Department of Justice ("DOJ") guidelines requires all FCA
complaints be forwarded to the criminal division to determine
whether or not the alleged fraudulent conduct is criminal.

At the time of the initial filing of Relator's +suit against
HCSC, the criminal division of the DOJ had received and reviewed
the original complaint and determined, based upon the information
available at that time, that no criminal action was involved.

Therefore responsibility for the prosecution of the case rested
primarily with the DOJ civil division and Relator. Assistant
United States Attorney Laura J. Jones was responsible for the
civil prosecution on behalf of the U. S. Attorney's office,
while Patricia Hanower and Stephanie Jackson were
the DOJ attorneys handling the matter.

The HHS Office of Inspector General ("HHS-OIG") issued its first
subpoena in the case on August 15, 1995. The subpoena sought
information on 60 Part B claim reviews which had been selected
for grading in connection with the 1993 CPEP. Relator's
attorney's had developed evidence indicating that 17 of the
60 reviews had been manipulated in an attempt to pass CPEP.

The documents produced by HCSC in response to the subpoena
verified the review documents had been altered.

The government or relator often request a partial unsealing of
the FCA complaint to allow disclosure to the defendant for
purposes of settlement discussions. In this case, the Court
granted the Government's motion seeking a partial unsealing of
the complaint on September 26, 1995. On October 12, 1995, a
meeting was convened at the HHS-OIG office in Chicago, Illinois
attended by government investigators, the Department of Justice
civil attorney, Sally Strauss, Attorney Hanower's predecessor ,
and Relators' attorneys, to discuss the complaint allegations
and the ongoing government investigation.

Mr. Osman and Mr. Keller related the evidence they had gathered
in support of the allegations of the complaint. Specific aspects
of the investigation were discussed such as persons to interview
and documents which should be requested.

A second HHS-OIG subpoena was issued to HCSC on October 20, 1995
requesting specific documents relating to the complaint
allegations. Investigator Gary Klos, HHS-OIG, conducted
 the initial interviews of fourteen HCSC employees during the
week of March 6, 1996.

HCSC hired the national law firm of Kirkland and Ellis to
coordinate its defense of the FCA action. Larry Urgenson, a
former assistant U5. Attorney from the Eastern District of
New York and Acting Deputy Assistant Attorney General,
Criminal Division of DOJ from 1990 to 1992,
spearheaded the defense.

Attorney Kathleen Buck another Kirkland and Ellis Partner, former
Department of Defense General Counsel, Department of Air Force
General Counsel, Assistant General Counsel for the Department
of Defense, and an expert in government contract debarment,
was also brought in on the defense team.

By early 1996, Kirkland and Ellis had completed its own
investigation into the allegations of Relator's complaint
and prepared a report summarizing its findings.

A meeting was held on March 12, 1996 in Washington, D.C. to
discuss settlement of the action attended by Attorneys Ronald
Osman and Timothy Keller on behalf of the Relator, Attorney
Patricia Hanower on behalf of the DOJ civil division, an HCFA
representative, an attorney on behalf of HCSC, and Attorneys
Urgenson and Buck. HCSC's attorneys summarized the results
of their investigation into the complaint allegations
and offered a minimum amount to settle the action.

In response, Attorney Hanower indicated the government would
have to conduct its own damage analysis before it could
formally respond to the offer. Attorney Ronald Osman,
however, left no doubt in anyone's mind that HCSC's
offer was not even in the ball park.

Although DOJ had initially refused to take the case criminally,
the Relators' Attorneys uncovered evidence of what Mr. Osman felt
constituted criminal activity including the falsification of
government reports. Mr. Osman therefore requested a meeting
with United States Attorney W. Charles Grace and his staff
to specifically bring the evidence to the United States
Attorney's attention.

On March 21, 1996 a meeting was held in Benton, Illinois
attended by Attorneys W. Charles Grace, Laura Jones, Mike Carr,
Bob Simpson, Ronald Osman, and Timothy Keller. Attorney Grace
agreed the matter required further attention and instituted a
criminal investigation from his district, the Southern District
of Illinois. Additional agents from the Federal Bureau of
Investigation ("FBI"), the HHS-OIG, and the Postal Service
were assigned to the criminal investigation. The top notch
investigative team assembled to inquire into the complaint
allegations included Jan Burris, John Durso, Clinton Binghiman
and Greg Holston with the FBI, Gary Holst, David Groupner, and
Gary Klos with HHS-OIG, and. Dana Kimbrough, a Postal Inspector
agent. Assistant United States Attorney Thomas M. Daly, assisted
by Assistant United States Attorneys Robert T. Coleman and
Michael J. Quinley, led the criminal prosecution on behalf of the
government while Assistant United States Attorney Laura J. Jones,
head of the civil division for the Southern District of Illinois,
prosecuted the civil action.. An attorney from the criminal
division of DOJ, Mr. Michael F. Ruggio, was also assigned to
assist in the criminal prosecution.

Ongoinq meetings were held with the investigators, government
attorneys, Relator, and her attorneys for the purpose of
coordinating the continuing investigations. Relators' counsel
alone conducted 32 in person witness interviews and 208 witness
phone conferences, attended 34 government meetings and
participated in over 515 phone conferences with government
investigators and/or attorneys. Additional HHS-OIG subpoenas
were served on HCSC which resulted in the production
of 268 banker boxes of documents.

Relator's counsel were allowed access to those portions of the
subpoenaed documents which the government deemed did not contain
confidential information. Based on their detailed review of these
documents, Attorney Osman and Keller were able to prepare
detailed graphs and charts summarizing HCSC's actual contractual
performance based upon its own internal evaluations and HCSC's
reported contractual performance. The difference between these
criteria referenced as HCSC's substandard performance, was
utilized extensively in development of the Relator's
and later the government's damage analyses.

The extensive investigation conducted by the government personnel
and Relator's attorneys revealed HCSC's performance of the
Carrier contract was replete with fraudulent activity. The
evidence indicated the fraud involved the following actions:

1.   Beginning in April 1989 HCSC did not send Medicare Secondary
     Payor ("MSP") first claim development letters to new
     medicare beneficiaries for use in ascertaining whether or
     not Medicare was primarily responsible for payment of the
     beneficiaries' health costs.

2.   On October 23, 1992, Evelyn Knoob was forced to witness her
     manager, Don Heinle, shred an entire box of retired railroad
     worker beneficiary medicare claims consisting of
     approximately 10,000 claims.

3.   HCSC was required to report its level of phone service to
     HCFA on a monthly basis. From at least 1986 through 1993
     HCSC submitted false phone records in which the service
     level and the down time were intentionally misreported.

     HCSC also installed a shut off switch on the beneficiary
     lines which supervisors would utilize to disable the phones
     during times of high volume. This action resulted in the
     beneficiaries receiving a busy signal when calling the
     Carrier for assistance.

4.   Since at least 1984, HCSC instructed certain of its claims
     examining employees to pay all submitted medicare claims
     under $50.00 regardless of whether or not the claim should
     have been developed for payment.

5.   HCSC requested employees to take medicare claims home to
     pre-code, however claims were not properly accounted for or
     controlled which, in one instance, resulted with a
     terminated employee retaining 20,000 to 30,000 claims in her
     basement.

6.   From 1986 through 1992, HCSC deleted medicare claims which
     contained incorrect Health Insurance Claims ("HIC") numbers
     and other information rather then contacting the physician
     or beneficiary and requesting the correct information as
     required by the regulations.

7.   In preparation for the 1993 CPEP, HCSC changed or otherwise
     manipulated 17 claims review files which contained errors
     out of the sample of 60 that HCFA had selected for auditing.
     HCSC also altered and rewrote correspondence which was
     purportedly sent to physicians, beneficiaries and others
     so the letter would comply with HCFA regulations.

8.   HCSC falsified documents and manipulated other information
     submitted to HCFA in relation to the weekly Post Payment
     Quality Assurance Program "PPQA". The PPQA program was the
     primary method by which HCFA estimated the incorrect
     payments made by the Carrier. In 1992 the fraud was further
     refined when Don Heinle discovered the formula HCFA used in
     selecting the PPQA subsample. This allowed HCSC to determine
     which PPQA cases HCFA would select for review which were
     then altered and/or submitted to HCFA as error free
     processed claims when in fact they were not. The submission
     of false reports and adulterated PPQA subsamples resulted in
     HCSC receiving unwarranted incentive payments.

9.   HCSC intentionally manipulated the manner in which it
     processed medicare claims during the annual CPEP. The
     actions included:

     a.   Allowing only its best claims examiners and reviewers
          to process claims during the CPEP period.

     b.   Preparing an adulterated sample containing only
          uncomplicated reviews and claims from which HOFA
          auditors selected the CPEP sample documents.

     c.   Hiding unprocessed claims resulting from backlogs
          in employee vehicles or HCSC warehouses during
          the HCFA CPEP on site visits.

     d.   Only prepared responsive correspondence to the
          beneficiaries during the CPEP period.

     e.   Placing "blackdots" on incorrectly processed financial
          files which were hidden from the CPEP auditors.

10.  HCSC submitted false monthly timeliness reports on which it
     was required to relate the age of its unprocessed claims
     inventory and the processing timeliness of the previous
     month's processed claims.

11.  HCSC submitted false MSP savings reports in which it
     inflated the actual savings resulting from the MSP program.

12.  Instructed claims examiners to improperly process durable
     medical equipment ("DME") claims for items such as
     wheelchairs in times of high claims inventory. Employees
     were instructed to forego portions of the processing and
     development required by the Medicare regulations.

13.  Instructed its employees to place the incorrect Julienne
     date on telephone review inquiries so the documents appeared
     to be in compliance with timeliness processing requirements.

14.  Turned off the computer edits and audits designed to
     automatically suspend defective or improper claims resulting
     in the erroneous payment of claims.

15.  Improperly manipulated the annual computer systems test
     utilized by HCFA to evaluate the effectiveness of computer
     edits and audits.

16.  Utilized dummy beneficiary names and HIC numbers in order to
     reconcile the number of issued internal control numbers with
     the number of actual telephone inquiries for mandatory HCFA
     reports.

17.  Utilized dummy provider numbers on nonassigned medicare
     claims rather then developing the claim and acquiring the
     missing information.

18.  Falsified information relating to issuance of provider
     numbers in the provider certification unit.

As a result of additional evidence Relator's counsel uncovered
during their investigation, an amended complaint was filed with
the Court on July 22, 1997 by Relator. The amended pleading was
expanded to include 12 different counts addressing different
areas of alleged fraud totaling 142 pages. Notably, the scope of
the fraud allegations were further expanded to include
improprieties relating to HCSC'5 Michigan Carrier contract.

On October 1, 1997, the court granted Relator's motion seeking a
partial unsealing of the amended complaint allowing Relator's
attorney to forward a copy of the amended pleading to HCSC so
settlement discussions could continue.

During the second week of November, 1997, FBI and HHS-OIG agents
traveled to HCSC's processing center at the Illinois Centre Mall
in Marion, Illinois and made an unannounced seizure of additional
documents relating to the Carrier's provider certification unit.

Documents from this surprise raid indicated HCSC was
continuing to falsify certain government reports
as late as September of 1997.

On December 31, 1997, HCFA announced that HCSC had voluntarily
decided to not renew its Illinois or Michigan Carrier contracts.
HCFA later announced that Wisconsin Physician Services
had been awarded the Illinois Carrier contract.

SETTLEMENT NEGOTIATIONS

Serious settlement negotiations began during the fall of 1997.
Meetings to which the Government and Relator attorneys invited
HCSC's counsel occurred on October 22, 1997 in Washington, D.C.,
November 12, 1997 in Fairview Heights, Illinois, and February 12
and 24, 1998 in Fairview Heights, Illinois. A global settlement
was tentatively reached in April 1998 in which HCSC agreed to
pay the government $140 million dollars pursuant to the FCA
and four million dollars in criminal penalties.

Attorney Daly's criminal prosecution led to the corporation's
agreeing to plead to one count of conspiracy, one count of
obstructing a federal audit and six counts of filing false
statements with the United States.

HCSC also agreed to enter into an extensive voluntary
compliance plan with HOFA which requires periodic
and specialized reports and audits.

On April 30, 1998, Nancy Lea Martin, a former HCSC manager,
pled guilty to conspiracy and obstruction of a Federal Audit in
the Southern District of Illinois. Donald Heinle, another former
HCSC manager, likewise pled guilty to conspiracy, wire fraud,
and obstruction of a federal audit on April 30, 1998.

Due to the cooperation of Ms. Martin and Mr. Heinle, the
government entered into a plea agreement with both Defendants.
Sentencing of the these defendants has not yet occurred.

Additionally, on July 8, 1998, Attorney Grace's office
filed a 14 count criminal indictment against
key HCSC management level employees.

Those charged in the indictment include:

*    Thomas F. Bartels-Director for Michigan Medicare B
     Operations through May of 1996;

*    Barbara G. Harrigan-Director for Illinois Medicare Part B
     Operations through June 30, 1996; Bruce W. Davis - Manager
     of Medicare Part B Technical Services through July 8, 1998;

*    Barbara J. Hardcastle - Manager over the Medicare Part B
     Provider Assistance Unit through March 1, 1995; and,

*    Joan R. Davis - Manager for Claims and Appeals in Mattoon,
     Illinois through July 8, 1998.

The indictment involves charges of conspiracy, obstruction of a
federal audit, mail fraud, wire fraud, and, making false
statements. It is anticipated that additional criminal
indictments will be filed by Attorney Grace's office.

The Amended Complaint also sought compensation for the emotional
distress Relator suffered as a result of HCSC's actions. No
settlement has been reached on Mrs. Knoob's personal claims,
however, negotiations are ongoing with HCSC.

The Government elected to intervene in Counts I through VII
and XI through XII on April 24, 1998 leaving Relator
free to prosecute the remaining counts.

The court subsequently granted extensions of the seal for the
purpose of finalizing the tentative settlement. Settlement
agreements were duly executed on July 16, 1998.

The FCA provides that a Relator is entitled to receive
between 15 to 25 percent of the proceeds the government
realizes in qui tam actions in which it intervenes.

The Settlement Agreement provides Relator will initially receive
15% of the $140,000,000 settlement, the statutory minimum.

The Government and Relators' counsel continue to negotiate the
additional amounts to be paid Relator as a result of the large
amount of work and assistance Relator and her counsel devoted
to the investigation and prosecution of this case.

CONCLUSION

HCSC engaged in fraudulent performance of its Medicare
contract unbeknownst to the Government for at least
ten (10) years prior to Evelyn Knoob's qui tam filing.

Due to the consistency of the fraudulent information being
submitted by HCSC, the Government was of the opinion that HCSC
was one of the top Medicare Carriers in the nation.

The Government had shown its appreciation for HCSC's
"outstanding" performance through incentive payments,
contract renewals and the. award of the Michigan Medicare
Contract over the ten (10) year period.

Had Mrs. Knoob not filed her qui tam complaint, it is likely
HCSC's corrupt practices would be continuing today.

This case is a textbook example of how effective the Federal
False Claims Act can be in discovering and prosecuting fraud.

The symbiotic relationship which the statute creates between the
government and the private sector has, as of October of 1997,
resulted in the recovery of over $1.8 billion dollars since the
1986 amendments to the Act co-sponsored by Senator Charles
Grassed and Representative Glickman.

During 1997, health care fraud was involved in approximately 54%
of the filed qui tam cases. The Act is under attack by special
interest groups however, such as the American Hospital
Association, who seek to carve out safe-harbor fraud
exceptions applicable only to the health care industry.

Due to Mrs. Knoob's actions, the perseverance of her attorneys,
Ronald Osman and Timothy Keller, the government attorneys
and investigators, and especially the leadership of
United States Attorney W. Charles Grace, the
rampant fraud of HCSC has been halted.

A new Carrier has replaced Blue Cross/Blue Shield which
will treat Illinois and Michigan medicare beneficiaries
and providers fairly as intended by Congress.

Over $140 million dollars has been returned and a clear and
important message has been sent to the health care industry
and its individual employees HEALTHCARE FRAUD WILL NOT
BE TOLERATED IN THE SOUTHERN DISTRICT OF ILLINOIS.

For further information, contact

Ronald E. Osman or Timothy Keller at Ronald E. Osman and
Associates, LED, Marion, Illinois at (618) 997-5151.