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James DeVage wanted relief from back pain when he went to a HealthSouth Corp. physical therapy center in San Antonio in 1996. He came out convinced that HealthSouth overcharged the U.S. government. Now, at 83, he stands to collect $8.1 million for helping uncover a much larger fraud.

HealthSouth, the largest U.S. operator of rehabilitation hospitals, agreed Dec. 30 to pay $325 million to settle Medicare fraud claims, including some first made by DeVage. The U.S. Justice Department took up his case and added accounting fraud claims similar to criminal charges against company founder Richard Scrushy, whose trial began Tuesday in Birmingham, Ala.

DeVage, a U.S. Army veteran and retired tax examiner, sued HealthSouth in 1998 under the False Claims Act, alleging fraud. In 2002, the Justice Department joined suits filed by DeVage and three other whistleblowers and expanded the case against HealthSouth. The case stalled after an accounting scandal almost bankrupted HealthSouth in 2003 and Scrushy was indicted. DeVage says he feared he would die before the case was resolved.

"I'm very pleased about it because I was the one who started it," said DeVage in a Jan. 12 interview at his home in San Antonio. "The money is nice. The real reason was to stop the fraud, and we did stop it. When something's wrong, I like to do something about it."

The settlement resolves civil claims that HealthSouth defrauded Medicare, the insurance program for the elderly and disabled, through false accounting and other means. Prosecutors in Birmingham, where HealthSouth is based, today asked jurors to convict the former chief executive officer for his role in overstating income by $2.7 billion.

Fifteen other executives at HealthSouth pleaded guilty.

In signing the civil settlement, HealthSouth's new management admitted no wrongdoing and agreed to a five-year program of reforms in a "corporate integrity agreement." The company will repay the U.S. government over three years.

DeVage, who has five grandchildren and two hearing aids, didn't set out to expose overbilling. He spent 30 years in the Army, serving in World War II, the Korean War and the Vietnam War, where he survived two helicopter crashes and won a Bronze Star. He retired as a lieutenant colonel in 1972 and settled in San Antonio, working as an agent for the Internal Revenue Service for 17 years.

DeVage's doctor referred him to a HealthSouth clinic for back pain caused by a deteriorating disc. He began workouts in a gym and a pool to increase his strength and flexibility. The therapists worked with him alone in the beginning, he said. After that, he said, he joined a group that got no special attention.

"I would go in, and the therapist would say, 'Good morning, Mr. DeVage, how are you?'" he said. "I would say, 'Fine,' and that was the extent of the contact."

When DeVage got his benefits explanation form from Medicare, he noticed that the billing rate seemed high. He went to the company and got a detailed printout showing that HealthSouth billed Medicare for one-on-one therapy at a higher rate than the group therapy he received.

HealthSouth also billed for longer blocks of time than he spent at the facility, he said. For his 22 sessions in May and June 1996, HealthSouth billed $5,385.

None of the money came out of DeVage's pocket, because Medicare paid 80 percent of those costs and his supplemental insurance covered the rest. Still, he complained to both the company and Medicare. He had no success.

He eventually found three San Antonio lawyers: Glenn Grossenbacher, a sole practitioner; John Clark with Goode Casseb Jones Riklin Choate & Watson; and Richard Tinsman, founder of Tinsman, Scott & Sciano. The three accepted the case on a "contingency" basis, meaning payment was dependent on success.

"This case was different in that Jim was a patient and not someone who had come from inside the organization," Clark said. "He was really an outsider looking at the company."

DeVage was never motivated by money and didn't even know initially that he might be able to collect under the False Claims Act, Grossenbacher said.

"He's a little bulldog who's got a very clear sense of right and wrong," Grossenbacher said. "To him, it was just about stopping the fraud."

DeVage's suit was filed under court seal in April 1998 in San Antonio, as provided for by the False Claims Act. Whistleblowers in Florida, Alabama and New York sued later, making similar claims and alleging that unlicensed providers treated HealthSouth patients.

Government lawyers studied the claims for four years before suing. They said that from 1996 to 2002, HealthSouth systematically submitted Medicare claims without proper physician-care plans. For a decade, HealthSouth also improperly billed for services that weren't provided or were done by physical-therapy aides, athletic trainers or student trainees, not licensed physical therapists, the suit said.

The case was picking up steam until the Federal Bureau of Investigation raided HealthSouth headquarters in March 2003. U.S. District Judge Fred Biery halted the civil lawsuit while the criminal probe proceeded. The 15 executives pleaded guilty and Scrushy, who was also the chief executive officer, was indicted. Scrushy denied wrongdoing, blaming any fraud on his subordinates.

DeVage began to lose hope. "I was afraid I was going to die," he said. "Finally, I just gave up on it. It just went on and on and on."

Last summer, talks to settle DeVage's lawsuit began. At a court hearing July 15, Biery told government lawyers that he wanted DeVage's family to collect an award if he died before the matter was resolved. In some False Claims Act cases, the survivors of whistleblowers haven't collected.

"Am I correct that Mr. DeVage was the one who began to peel back the layers of this company?" Biery asked John Henebery, a Justice Department lawyer.

Henebery said that was correct "with respect to the issues" in DeVage's lawsuit.

Of the $325 million that HealthSouth agreed to pay, $169 million went to resolve claims about overbilling for physical therapy and improper plans of care. The DeVage case represented $49.6 million of the settlement, an agreement filed Jan. 5 with the U.S. Securities and Exchange Commission shows. DeVage must pay his lawyers and taxes out of his $8.1 million award and pay an unspecified amount to another whistleblower, Clark said.

The settlement values the accounting fraud claims at $65 million. It says HealthSouth paid bonuses to executives pegged to fraudulent accounting, inflated the value of assets by $1.1 billion and sought improper reimbursement for airplane expenses.

The settlement also includes $89 million to resolve claims HealthSouth submitted to Medicare unallowable costs, including "lavish entertainment and certain travel costs for HealthSouth's annual administrators' meeting at Disney World," the Justice Department said in a Dec. 30 press release.

DeVage is a son of Greek immigrants who grew up poor in Reading, Berks County. His father was a steelworker, and DeVage briefly worked in a steel mill. Today, he has paid off the mortgage on the house where he lives with his second wife, Queta. His first wife, to whom he was married for 40 years, Viola, died in 1989 of cancer.

He displays photographs of his son, an accountant at Ernst & Young LLP, and his daughter, a nurse who married a doctor. In his upstairs "war room," he muses at photos, medals and ribbons from an Army career that began when he was a teenager and ended when he was 51. He still plays golf on municipal courses and drives a 12-year-old Lexus with 115,000 miles.

"If I get $1 million, I'll be satisfied," he said. "I'm retired; I'm comfortable. It has nothing to do with money. I wanted recognition for somebody who's not a rocket scientist. I wanted to make the public aware that they can do the same thing."

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