Montana State University

Mountains and Minds

Jim Alderson: A Whistleblower's Odyssey November 27, 2007 by Anne Pettinger • Published 11/27/07

Jim Alderson's solitary, 13-year battle to expose healthcare fraud has saved Americans billions of dollars.

(Photo: Kelly Gorham)

On a recent summer morning, sounds of a children's sing-a-long DVD wafted from the sunny, spacious living room in Jim and Connie Alderson's home onto their back deck overlooking the 14th green of the Whitefish Lake Golf Club.

Nearby, Connie prepared coffee and ice water to serve, while Jim rearranged the deck table's umbrella to shield the sun's glare. A young man arrived to do yard work. Bright flowers in hanging baskets spilled over the deck's railing.

Meanwhile, two of Alderson's young grandchildren coaxed him to come inside, saying, "Papa, come play with us!"

Surrounded by his 3-year-old and nearly 2-year-old grandsons at his well-kept and comfortable home, Alderson's life seems like a picture of serenity. But it wasn't always that way.

For more than 13 years, Jim Alderson and his family fought a solitary battle that resulted in countless job changes and painful family sacrifices. They could tell no one for many of those years that Alderson was a whistleblower who was covertly involved in rectifying one of the largest accounting scandals in American history. In the end, the Montana State University grad's courage in standing up against a healthcare giant has changed the way hospitals nationwide do accounting and saved taxpayers billions of dollars.

A Montana fable

The roots of Alderson's unlikely story, which Alderson likens to the tortoise and the hare, run deep in Montana, as do those of the Aldersons themselves. Jim, now 61, and Connie, now 58, both grew up in the state -- Jim a descendent of the pioneering Alderson family in Bozeman, and Connie in Power, a small community near Great Falls. The couple met while attending MSU. After Jim received his degree in accounting, he and Connie married in 1970. Eventually, Jim's career brought him to the hospital job in Whitefish. There, Connie held a job that interested her and also served on the Whitefish school board. Their children participated in sports and other school activities.

"I think before (Jim's firing) we were the typical American middle-class family, without the white picket fence," Connie said.

Dual reports

(Photo: Lynon Lohof)

The Aldersons' lives are divided into before and after Jim's unexpected 1990 firing as chief financial officer at North Valley Hospital in Whitefish.

Just days before the firing, Alderson had had a conversation with Clyde Eder, the vice president of Quorum, the management team the hospital had just hired. Eder explained to Alderson that Quorum prepared two sets of cost reports: one to submit to the government and one for in-house use only, with different expenses recorded than those reported to Uncle Sam. But Alderson refused to take up that practice himself. It violated accounting codes of ethics.

Alderson had received good performance reviews for years so it didn't occur to him then that Eder would fire him for refusing to create a second set of books.

"I was absolutely devastated," Alderson said, adding Eder didn't offer a reason when he fired him five days later, other than to say the arrangement just wasn't working out.

Unable to find other work in his field in the resort town, Alderson took a job with a hospital in Dillon. Meanwhile, daughter Jennifer attended college in Missoula, and Connie and son Justin, then a teenager, stayed in Whitefish until the following spring break so that Justin could continue at his school.

The time was particularly difficult for Connie, who was forced to leave her job for one with more flexible hours. She also eventually resigned her term on the school board. With her husband living more than 300 miles away, Connie also had to endure questions and rumors about her husband's job switch.

"There was a huge stigma in the community about my firing," Alderson said. "When a CPA leaves a position like that, people assume he must have done something wrong, whether it was embezzlement or whatever."

The Rosetta Stone

In Dillon, Alderson became convinced he had done nothing wrong at North Valley. He filed a wrongful discharge action in May 1991.

As part of the suit, Alderson's attorney took Eder's deposition, and Eder confirmed that Quorum's practice was to create two cost reports.

Alderson wanted more information, so he requested to see examples of the cost reports used by Quorum's hospitals.

Quorum argued that the request was too burdensome, because in order to comply it would have to produce records going back 15 years and covering 180 hospitals.

At that point, Alderson knew that at least one other major healthcare corporation, HCA, must be involved, because Quorum had been formed as a spin-off of HCA in 1989.

Quorum eventually provided the front pages of the file reports and the cost reports submitted to the government for one year from nine hospitals in Eder's region.

Based on their agreement, Alderson was expecting to receive 18 pages of documents. Instead, he received 27. He was amazed: In addition to the cost report submitted to the government, Quorum had also included the front page of what was called the reserve analysis," which was used internally to reconcile the items claimed. Alderson hadn't known that such a document even existed.

"That was the Rosetta Stone of the case, the reserve analysis," Alderson said"By sending that, (Quorum) established a precedent that they had that for every single hospital. At that point, I knew (the fraud) was nationwide."

Solitary endeavors

(Photo: Kelly Gorham)

Alderson began to research the federal False Claims Act, also known as the whistleblower law. Qui tam, a legal provision in the act, allows a citizen to file a lawsuit on behalf of the government. If the government found merit in his suit, the government would then decide to join it.

Employing the same thorough methods that had made him a good accountant, Alderson spent hours reviewing hospital documents for the case during the nights and weekends. Having hired no lawyers to represent him in the whistleblower suit, Alderson also spent hours holed up at the law library at the University of Montana.

Family time was limited. The research essentially became a second job for Alderson, Connie said, and the demands of the case made it hard for her to stay positive.

"At times I got resentful," Connie admitted.

In the meantime, Connie and Justin joined Jim in Dillon in March 1991. The family was there for five years, and they weren't particularly happy ones, at least for Connie.

"When moves are your choice, they can be fun," she explained. "But moving out of desperation takes the fun out of (it)."

But more moves followed. Some were career moves, and some were motivated by a need to be close to a major airport so that Alderson could more easily travel to Washington, D.C., for the case. After Dillon, Jim and Connie moved to Miles City; Boise, Idaho; Vancouver, Wash.; Coos Bay, Ore.; and Plano, Texas. They also frequently moved in each town from one rental unit to the next. In all, they counted 14 different addresses.

"It was an emotional rollercoaster," Connie added. "Our everyday lives were affected."

Whistleblower shuffle

After receiving the cost reports from Quorum and carefully researching other cases, Alderson wrote a complaint and filed his whistleblower lawsuit in January 1993 at the federal courthouse in Butte. He had no idea whether the government would decide to join the suit, so when government officials contacted him in May to request more time to research the case, Alderson was simply grateful that they hadn't said no.

A week later, government officials told Alderson they were going to issue subpoenas, and in August he flew to Washington, D.C., to meet with nearly two dozen lawyers and other officials, including the head of Medicare, to tell them what he knew.

Hearing that Medicare, the government's healthcare program for the elderly, was being damaged by fraudulent claims wasn't warmly received.

"It was like walking into a bad cocktail party," Alderson said. "Everyone was looking down. No one wanted to make eye contact."

Several months later, he decided to settle the wrongful discharge action so he could focus on the whistleblower suit. And, having spent the first year of the whistleblower suit without a lawyer, in November he decided to hire a law firm in Kansas City to represent him.

Still, the case was slow going because there was no precedent for it.

In 1995, frustrated that little had happened, Alderson decided to switch law firms. Though he had a great deal of respect for the Kansas City firm, he had heard of a lawyer who he thought would be perfect for the case: Stephen Meagher, who worked for Phillips & Cohen, a respected San Francisco firm that specialized in qui tam cases.

"I had no idea what they would do, and always thought it was kind of surprising (that Meagher's firm) took the case," Alderson said. "As it turns out, they had always wondered why no one had ever taken the case."

"I have seen few plaintiffs as prepared, and as prepared to be relentless, as Alderson," Meagher later told The New York Times. "He made a very persuasive case."


(Photo: Kelly Gorham)

Meagher got in touch with an FBI agent, Joe Ford, who is now head of the FBI, and the bureau began a criminal investigation into cost-reporting fraud by Columbia Healthcare Corp., the burgeoning corporation that had purchased other hospitals named in Alderson's case.

Then, in 1996, John Schilling, who had worked as a CPA for Columbia, came forward with evidence for a case similar to Alderson's. Schilling suggested that his complaint be combined with Alderson's, and Alderson agreed.

In 1997, Schilling went back to work as a consultant for Columbia while wearing a wire for the FBI. Soon after, the bureau raided 35 hospitals in seven states looking for evidence of illegal accounting practices.

"That was a strange feeling," Alderson said. "It was all over the national news, and I knew what was going on."

The government, though, still had not joined Alderson's lawsuit.

The toll wore heavily on Alderson and his family. In July 1998, after five years of government requests for extensions, Alderson, who had kept his involvement in the proceedings secret from friends and family, said he wouldn't agree to them any more.

Unable to stall any longer, the government announced that it was joining the case.


With the government in, the lawsuit was unsealed, and Alderson's claims became public for the first time.

Stories in the The New York Times and on CBS's 60 Minutes gave the case valuable national exposure. With the hospital companies spending millions and millions of dollars to fight the suit, Alderson said, "We needed all the help we could get."

Media pressure and the government's involvement with the case apparently worked. In 2001, Quorum settled for $82.5 million, and HCA followed with a settlement in 2002. Between the two cases, Alderson and his by now 11 law firms received $70 million in settlement money, and the government was awarded hundreds of millions of dollars. HCA and Quorum spent over $300 million in litigation costs defending their actions.

After 13 years, Alderson said, he and his family finally had their lives back.

Witness protection without protection

While the case was under seal, Jim and Connie weren't allowed to tell anyone during the years after the case was filed -- even their closest family and friends -- about it.

"I felt like we were living a second life," Connie said. "You kind of feel like you're in a witness protection program without the protection."

After the case became public, a neighbor in Dillon admitted to wondering about the huge boxes that always arrived at the Alderson's via Fed Ex. They were filled with documents for Alderson to study, but their neighbor thought they looked suspicious.

"The neighbors thought I was doing something illegal, or that Connie was hooked on QVC," Alderson said, chuckling.

Still, Alderson said he wouldn't do things differently if he had a second chance, though he certainly regrets some specific incidents. Being so intensively involved in the case led him to miss a host of important events, from his son's football games to being at his mother's side on the day she died. "I went to Kansas City on a Thursday and she died that Saturday," Alderson recalled. "I think that taught me I better put some things into perspective."

"I just took them all as learning experiences," he added. "I think it toughened me up. I'm a believer that there's a reason for everything."

Ethics, work and family

Connie and Jim Alderson. (Photo: Lynon Lohof)
Connie and Jim Alderson.

People who know Alderson and the case well also emphasize his whole-hearted commitment to ethics, as well as his dedication to work and his family.

Dan Weinberg, who represents Whitefish in the Montana Legislature, said Alderson was simply "committed to the principles of employers doing the right thing by their employees. He has a sense of social responsibility."

Weinberg and Alderson have been friends for about five years.

"Jim is very open and straightforward and easy to talk with," Weinberg said. "It becomes immediately evident he takes three things very seriously: his commitment to justice, his family and golf."

Leif Erickson, a retired federal judge, first got to know Jim and Connie in the mid-1970s, when the two men were working in Whitefish. Erickson happened to be serving on the board of directors of the hospital when Jim was fired, and though he doesn't recall any inkling that Quorum was operating illegally, he did question Quorum's explanation that Alderson was fired because he didn't understand the concepts of the work.

"Privately, I thought, 'I really don't believe that,'" Erickson said.

"Alderson's story is noteworthy," Erickson said, "because it highlights how important it is to act if something is wrong."

"Quorum and HCA were apparently doing the same thing in hospitals around the country," Erickson said. "Jim stepped forward. But how many other people in Jim's position were allowing two sets of books?"

As Alderson details how life changed for his family after he was fired, it's easy to be struck by how unfairly he was treated. But Alderson doesn't dwell on that point. For him, his story is proof that one person can bring about change through persistence and hard work, and that those qualities are of utmost importance.

Giving back

The Aldersons now split their time between La Quinta, Calif., near Palm Springs, and Whitefish, where they spend five months each year.

Smiling at his grandsons, Alderson says he feels at peace with the case, even with all the sacrifices it brought on.

"I have no bitterness," he said. "I don't harbor ill-will."

Instead, he's amazed that his side actually won. He said the money is phenomenal too, and he's proud of the things his family has done with the settlement, including charitable contributions to the MSU College of Business and a new aquatics center in Whitefish.

At Montana State, the Alderson Program in Entrepreneurship, which has been ranked among the top 10 in the nation by Entrepreneur Magazine, has had a tremendous impact on students' educational opportunities, according to Richard Semenik, dean of the College of Business. "Jim and Connie's gift offers the only entrepreneurship curriculum in the state for university students," he said. "For those students with the fire in their bellies to someday run their own businesses, the Alderson Program offers the chance to develop key skills."

This spring Alderson received an honorary doctorate from Montana State University for his contributions to his university, his state and his country.

Alderson is also heartened by the positive results he sees in the healthcare industry. Because HCA used to require a showing of net income for the administrator to collect a bonus, Alderson thinks that many honest people were motivated to cheat. That has all changed, he said.

Even more gratifying to Alderson are estimates that Medicare spending costs have been drastically reduced since his case exposed a fraudulent practice.

"It feels good to have been a big part of this change," Alderson said simply. "At the end of the day, this just seemed so wrong."