The Business: A hospice
Founded: 1992
Closed: 1998
Causes of Death: Partial freeze of Medicare reimbursements during a federal review triggered by alleged fraud; sloppy paperwork

Corny as it sounds, Hartline Hospice Inc. was a dream come true for Dottie and Richard Hart. Having worked in nursing-home administration for 29 years, Richard longed to run his own business. His wife, a registered nurse for more than 40 years, yearned to operate her own hospice. "What fulfills me is the need to be needed," she explains, "and those dying patients needed me more than anyone."

With a bank loan of $150,000 and with $50,000 in seed capital from private investors, the Harts relocated their home from Dallas to Springfield, Mo., and launched Hartline Hospice in April 1992. Richard, now 63, had identified the Springfield area as a promising market: there were only two other hospices, with a total capacity of 285 patients, within a 100-mile radius of Springfield, which had a potential patient base of 3,000, according to his calculations. From day one, Dottie, who is now 62, displayed a knack for attracting patients and staff. By the time Hartline hit its peak, in 1997, it boasted 132 patients, 88 employees, and revenues of $5 million.

But to produce the income, Hartline relied heavily on Medicare reimbursements. By 1997 the federal Department of Health and Human Services had begun an intensive nationwide review, Operation Restore Trust. Its purpose: to sift for fraud among the improper payments estimated to account for 11% of the $177 billion in fee-for-service Medicare claims paid to hospitals, home health-care services, medical schools, and hospices in the fiscal year that ended September 1997. When one of Richard Hart's employees reportedly tipped off officials about possible fraud at Hartline, says former administrative aide Ruth Cossairt, the business became ensnarled in a dispute with federal investigators.

Medicare payments constituted 92% of Hartline's total revenues. A so-called focused medical review that began in April 1997, conducted by federal investigators, froze funds for 54% of Hartline's claims over nine months. What triggered the review was "just a misunderstanding" between Richard and the employee who alerted officials, says Cossairt. "When he told her to assign numbers to charity patients for internal purposes, she thought he meant to illegally assign Medicare numbers to those patients."

With Medicare withholding more than $250,000 of the company's claims and with patient referrals plummeting, the Harts filed for bankruptcy protection on December 12, 1997. If they were strangled by federal red tape, one source nonetheless faults Richard for not alerting his investors to his troubles until it was too late.

Also compounding and prolonging the Harts' troubles were paperwork errors, such as doctors' forms that certified a patient as eligible for hospice care but lacked required dates. "Certain claims were not paid because Hartline did not provide sufficient information to substantiate that the services met the coverage requirements of the regulations," says Judy Saale of the Health Care Financing Administration's regional office in Kansas City, which oversaw the review.

The ultimate finding that the hospice had not committed fraud was not enough to restore it to health. It closed down on March 20, 1998, leaving assets of $183,573 and liabilities of $1.2 million. Besides the hospice, Dottie and Richard Hart lost their car and their house. Jobless, they say their dream has turned into a nightmare. "We've lost everything," says Richard. "The utter helplessness is crippling." --Esther Wachs Book