7 Notable Developments in Hospital Fraud & Abuse Enforcement

2012 was a big year for hospital fraud and abuse enforcement, as the Justice Department set a new record for healthcare fraud recoveries with the $4.9 billion it collected in settlements and judgments. This record of high recoveries is on track to continue into 2013, and there are some recent trends and developments in enforcement and litigation so far this year that hospital legal teams may want to note.

Matthew Curley, JD, and Brian Roark, JD, attorneys with Bass, Berry & Sims in Nashville, Tenn., practicing within the firm's Compliance and Government Investigations Practice Group, have observed several interesting events in fraud enforcement, particularly in cases involving alleged violations of the False Claims Act, Stark Law and Anti-Kickback Statute, and cases questioning medical necessity. There have also been some noteworthy settlements, proposed rules and federal investigations that may shape the government's enforcement efforts in the next few years.

1. The government is demonstrating more willingness to bring claims alleging unnecessary care. Historically, the government has been reluctant to bring cases alleging unnecessary care. The government looked at these cases as potentially second-guessing physicians' decision-making and clinical processes, which could involve a considerable amount of ambiguity and debate about what is appropriate treatment. Recent cases, however, suggest the government's reluctance is fading. The government has new aptitude in pursuing these cases both civilly and criminally, largely due to success in using analytical data and expert witnesses to challenge the care being provided.

In January, EMH Regional Medical Center in Elyria, Ohio, and North Ohio Heart Center agreed to pay the government a combined $4.4 million to resolve allegations they submitted false claims to Medicare from 2001 through 2006. The Department of Justice claimed EMH and NHOC performed medically unnecessary angioplasty and stent procedures on Medicare patients.

More recently, federal officials arrested Edward Novak, the owner and CEO of Sacred Heart Hospital in Chicago, along with the hospital's CFO and several physicians. The case involved physicians allegedly receiving more than $225,000 in cash and other forms of payment for referring Medicare and Medicaid patients to the 119-bed hospital, as well as a federal inspection report that quoted Sacred Heart staff recalling the provision of allegedly unnecessary tracheotomies on patients. The extraordinary evidence amassed by investigators along with the egregiousness of the allegedly unnecessary medical treatments and alleged threats to patient safety made this case criminal, according to Mr. Curley.

"More than ever, the government is proactively looking at data concerning issues of medical necessity. It would seem very prudent for providers to audit their own data and medical records, and address any issues that arise. The government is focused particularly on cases where medical records don't support treatment provided to patients," says Mr. Curley.

2. The government is scrutinizing the medical need for and hospitals' billing of certain medical procedures — and seeing big returns from doing so. The government has also narrowed its focus on specific medical services for potential penalties under the FCA, such as implantable cardioverter defibrillators (ICDs) and kyphoplasty, a minimally invasive surgical procedure to treat spinal compression fractures. Medicare claims for kyphoplasties or ICDs that do not accurately meet CMS' National Coverage Determination guidelines could trigger liability under the FCA, even if providers performed the procedures with sound clinical reasoning.  

Recently, 55 hospitals across 21 states agreed to pay more than $34 million combined to resolve resolving allegations that they billed Medicare for kyphoplasties on an inpatient basis rather than outpatient to inflate their Medicare reimbursements. With this latest settlement, the DOJ has now reached agreements with more than 100 hospitals totaling approximately $75 million to resolve allegations they mischarged Medicare for kyphoplasties.

In addition to substantial monetary recoveries for the government, the fact that many well-known health systems were involved in the kyphoplasty settlements may sound the alarm for other providers to enhance their compliance efforts, particularly around this specific procedure.  

 "If you know there is a particular type of procedure under the government's focus, it may be necessary to look at those statistics more closely," says Mr. Curley. "Providers should proactively look at how their facility compares to other facilities in terms of that particular procedure. The government is looking at procedures for which they can readily establish providers as outliers."

3. Whistleblowers could earn even larger rewards from CMS if they report Medicare fraud. Qui tam lawsuits have increased in prevalence, largely due to robust incentives for whistleblowers to report fraud. The DOJ saw a record 647 qui tam suits filed across all industries and recovered a record $3.3 billion in suits filed by whistleblowers during fiscal year 2012. Interestingly, potential rewards for relators in qui tam lawsuits may continue to grow.

A recently proposed rule would reinforce what is already a rather robust incentive program for whistleblowers. If it is finalized, this would make the prevalence and filing of qui tam lawsuits continue to increase, as people would be even more inclined to file actions on behalf of the government.

In late April, HHS proposed a rule that would significantly raise the rewards available to whistleblowers who provide information that leads to the recovery of improper Medicare payments. The rule would expand how much CMS can reward whistleblowers under its Medicare Incentive Reward Program, which is separate from the FCA.

Under its Medicare Incentive Reward Program, CMS can currently pay whistleblowers 10 percent of the amount recovered, which is capped at $1,000. The rule would expand that amount to 15 percent of the recovery for up to the first $66 million recovered, meaning a person could earn up to $9.9 million if CMS recovers $66 million or more from their tip.

This reward would be supplementary to FCA rewards for whistleblowers, as the act awards of 15 to 30 percent of recoveries for whistleblowers bringing cases. Relators are entitled to rewards of 15 percent to 25 percent of what the government recovers if the government decides to pursue the case. The reward can grow from 25 percent to 30 percent of the recovery if the government declines intervention and the relator continues to pursue the case.

4. Recent FCA cases suggest an increased need for hospital peer-reviews in addition to internal reviews. Since the government is looking for clear outliers, hospitals may find it more pressing to compare their data around Medicare services to that of other comparable hospitals and address any aberrant patterns. If an entire department is admitting patients in a questionable fashion, for instance, it will not stand out in a hospital's internal compliance review.

In February, Englewood, Colo.-based Catholic Health Initiatives agreed to pay $4.9 million to resolve allegations that it overbilled Medicare and Medicaid by keeping patients in its St. Joseph Medical Center in Towson, Md., longer than necessary. The hospital allegedly admitted and kept patients in the hospital for unnecessary "short stays," or one- to two-day admissions, from 2007 through 2009. Those allegedly unnecessary admissions were not tied to any one physician or department, which could have made them difficult to identify with an internal review," says Mr. Curley.  

Hospitals should review their admissions and other clinical metrics to see where they fall on the spectrum compared with their peers. One effective tool for hospitals to compare their Medicare data for services vulnerable to improper payments is Program for Evaluating Payment Patterns Electronic Reports, which are produced by a company under contract with CMS. "PEPPER reports are a way for hospitals to see how they rank on either particular types of procedures or particular DRGs billed," says Mr. Roark. These or similar tools are important preventive tools to detect problems, since some cases of allegedly unnecessary patient admissions are not tied to any one physician or hospital department.

5. There are more Stark Law and AKS cases centered around physician employment arrangements. Stark Law and AKS cases increasingly involve hospitals' terms of employment or financial relationships with physicians. Whether it is teaching arrangements, leasing agreements, bonus payments or subleases for medical equipment, the government is keeping a close eye on hospital-physician ties. "This is a result of living in a time when hospitals are employing more and more physicians, with a lot of increased competition to go out and employ doctors," said Mr. Roark. "As a result, you're seeing some enforcement actions where the government believes the terms of employment exceed the bounds of what's appropriate."

Looking back on settlements involving physician arrangements this year, Roseville, Calif.-based Adventist Health System paid $14.1 million for alleged FCA, Stark Law and AKS violations in May. The system allegedly paid physicians to teach at its family practice residency program for above-fair-market-value rates and transferred medical and non-medical supplies to referral sources for rates that less than fair market value.

Salt Lake City-based Intermountain Healthcare agreed to pay $25.5 million to resolve allegations that it violated the FCA and Stark Law through improper relationships with referring physicians. The settlement stemmed from Intermountain's disclosure of alleged employment agreements under which Intermountain physicians received bonuses that improperly took into account the value of some of their patient referrals. Intermountain's office leases and compensation arrangements with referring physicians also allegedly violated other requirements of Stark Law.

But one of the largest cases involving physician employment and compensation was centered around Sumter, S.C.-based Tuomey Healthcare System and its allegedly indirect compensation arrangement with physicians. In May, a jury ruled that, from 2005 through 2006, the system violated Stark Law by submitting $39 million in illegal Medicare claims through kickbacks to 19 specialists.

Tuomey created a for-profit entity to own four specialty limited liability companies that employed part-time physicians to perform outpatient surgeries and procedures at Tuomey Hospital. This was done in response to competition from a nearby ambulatory surgical center, and Tuomey allegedly paid the physicians improperly to discourage them from referring lucrative cases to competing facilities. In its defense, Tuomey said it relied on CMS guidance when creating its contracts with physicians.

Mr. Roark said the case still involved some "red flags." For instance, the contracts in question were for 10 years, which is a lengthy amount of time. "There is nothing per se wrong with a 10-year contract, it just means you have to give it even closer scrutiny that the terms are reasonable if parties are tied to [the agreement] for that length of time," says Mr. Roark. Contracts with shorter terms have built-in mechanisms to examine the reasonableness of the terms more frequently. Tuomey also required employed surgeons to perform outpatient surgeries at Tuomey facilities, which "is not typical and is normally left to the discretion of physicians," according to Mr. Roark.

6. There are questions about whether Stark Law liability can apply to Medicaid claims. Since its enactment in 1989, the plain language of the Stark Law has only addressed Medicare claims. No final regulations have been issued to implement the Stark Law with respect to Medicaid claims, which creates a legal quagmire. It poses the question of whether a Stark Law violation could be actionable under the FCA if only Medicaid reimbursement is involved in an allegedly improper action.

While there is little guidance on the issue, it is becoming increasingly likely that that the federal government and relators will pursue recovery under the FCA based on allegedly improper Medicaid referrals under the Stark Law, according to Mr. Curley and Mr. Roark. In two recent cases, the DOJ has staked out just such a position: U.S. ex rel. Baklid-Kunz v. Halifax Medical Center and United States ex rel. Osheroff v. Tenet Healthcare Corp.  

"The Halifax case, in particular, bears watching," says Mr. Curley.  "If the DOJ is successful in its effort to convince courts that false claims could result from prohibited referrals of Medicaid beneficiaries, that would be a significant development for providers."

7. Courts are becoming increasingly skeptical when it does not appear that entities are held accountable for the conduct at issue. The government may pursue enforcement with the anticipation that criminal actions against hospitals and health systems could result in their exclusion from federal healthcare programs, which could have significant repercussions if it is a major provider in the community. The government is also likely to pay more attention to how courts treat these cases, as some judges have expressed frustration with the "too big to fail" nature of some hospitals' alleged fraud.

This was evident in the recent case involving Raleigh, N.C.-based WakeMed Health & Hospitals. The case centered on allegations that WakeMed, an 870-bed system, billed Medicare for millions of dollars in overnight care when patients had actually received treatment and were released within the same day.

U.S. District Judge Terrence Boyle voiced frustration about the lack of criminal charge against WakeMed. He initially rejected WakeMed's proposed deal for deferred prosecution in January, reportedly shredding the 116-page proposal in less than half an hour and calling it "a slap on the hand." Judge Boyle finally approved a deal in February, in which federal prosecutors will provide the court with all reports tracking WakeMed's compliance with an $8 million settlement. Prosecutors also agreed to defer prosecution against WakeMed for two years. 

Judge Boyle based his approval on the reasoning that a conviction could harm patients. If the hospital were convicted of a felony, it would become ineligible for Medicare and Medicaid and would likely shut down.

"When there is a resolution of a criminal case, I think the government is sensitive to the fact that courts are becoming increasingly skeptical when it does not appear that the individual or entity is held accountable for the conduct at issue. That's what happened here. The court compared this case to other types of cases where individuals were sentenced for long periods of time and did not see comparable consequences for the defendant in the WakeMed case," says Mr. Curley.

Mr. Curley said it remains to be seen whether the government will increase efforts to hold individuals accountable when criminal prosecution is a possibility. It would be very difficult for the government to pursue a criminal conviction of a provider like WakeMed because of the possibility of exclusion from federal healthcare programs, and how the potential loss of a major healthcare provider could put patients and community members in jeopardy.

With 2013 a little more than half over, there are bound to be more noteworthy enforcement and litigation actions to round out the year. Some major cases are still in progress, such as that of the government against Daytona, Fla.-based Halifax Health. The government claims Halifax's contracts with nine physicians were improper and potential damages and penalties in the suit could hit $1 billion, making it one of the largest of its kind. Along with Stark Law cases such as this, FCA actions are expected to increase, as well. There is little reason to think last year's record-setting rate of qui tam suits or those filed by relators will slow in 2013.

More Articles on Legal Issues for Hospitals:

5 FTC Challenges to Hospital Mergers: Key Concepts for Today's Antitrust Environment
Report: Feds Collect $3B Under False Claims Act in 2012
Shock to the Heart: Who’s To Blame? That ICD Could Mean a False Claim

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