Hospitals – Outliers

Major Cases Involving Hospital Outlier Costs

hospital outliers

Prior to 1983, under the traditional reimbursement system, hospitals were paid by Medicare for each service that they provided to patients.  Since 1983, under the prospective payment system, Medicare pays hospitals a set amount based on the diagnosis related group that is assigned to the patient’s case.

To provide incentives for hospitals to treat cases that require unusually high costs, Congress enacted a supplemental payment system to pay for the occasional outlier case that incurs exceptional costs.  Some hospitals have been accused of assigning inflated costs to cases to qualify for outlier reimbursement that they are not entitled to receive.

Below are press releases issued by the Civil Division of the U.S. Department of Justice concerning settlements of major False Claims Act cases that involved outlier reimbursement.

June 15, 2006
Largest Health Care System In New Jersey To Pay U.S. $265 Million To Resolve Allegations Of Defrauding Medicare

WASHINGTON – Saint Barnabas Corporation, the largest health care system in New Jersey and second largest employer in the state, has agreed to pay the United States $265 million to settle allegations that it defrauded the federal Medicare program, the Justice Department and the U.S. Attorney for New Jersey announced today.

The settlement resolves allegations that the Saint Barnabas Corporation, and nine of the hospitals that it has operated, fraudulently increased charges to Medicare patients in order to obtain enhanced reimbursement from Medicare. In addition to its standard payment system, Medicare pays supplemental reimbursement to hospitals and other health care providers in cases where the cost of care is unusually high. These cases are known as “outliers.” Congress enacted the supplemental outlier payment system to ensure that hospitals possess the incentive to treat inpatients whose care requires unusually high costs.

The United States alleged that between October 1995 and August 2003, Saint Barnabas hospitals purposefully inflated charges for inpatient and outpatient care to make these cases appear more costly than they actually were, and thereby obtained outlier payments from Medicare that they were not entitled to receive.

“Today’s settlement demonstrates the United States’ determination to make sure health care providers do not overcharge the Medicare program,” said Assistant Attorney General Peter Keisler, head of the Justice Department’s Civil Division.

The civil settlement agreement resolves allegations against Saint Barnabas that were filed in two separate federal lawsuits brought by three “whistle blowers” under the federal False Claims Act. The False Claims Act permits private citizens to bring lawsuits on behalf of the United States and receive a portion of the proceeds of a settlement or judgment awarded against a defendant. …..

June 29, 2006
Tenet Healthcare Corporation To Pay U.S. More Than $900 Million To Resolve False Claims Act Allegations

WASHINGTON – Tenet Healthcare Corporation, operator of the nation’s second largest hospital chain, has agreed to pay the United States more than $900 million for alleged unlawful billing practices, Assistant Attorney General Peter D. Keisler of the Civil Division and U.S. Attorney Debra Wong Yang of the Central District of California in Los Angeles announced today.

“Today’s settlement reflects our continued resolve to hold responsible those who engage in health care fraud in any form,” said Assistant Attorney General Keisler, head of the Justice Department’s Civil Division. “The Department of Justice will not tolerate fraudulent efforts by hospitals or other health care providers to claim excessive sums from the Medicare program.”

Under the agreement, Tenet, which is headquartered in Dallas but operates dozens of hospitals throughout the United States, will pay a total of $900 million over a four-year period, plus interest, to resolve various types of civil allegations involving Tenet’s billings to Medicare and other federal health care programs. The settlement amount was based on the company’s ability to pay.

“The Medicare program currently faces great challenges, and can ill afford attempts by hospitals to manipulate and cheat the system,” said U.S. Debra Wong Yang. “This settlement demonstrates our strong commitment to recovering taxpayer funds from health care companies that break the rules in pursuit of higher profits.” Of the $900 million settlement amount, the agreement requires Tenet to pay:

– more than $788 million to resolve claims arising from Tenet’s receipt of excessive “outlier” payments (payments that are intended to be limited to situations involving extraordinarily costly episodes of care) resulting from the hospitals’ inflating their charges substantially in excess of any increase in the costs associated with patient care and billing for services and supplies not provided to patients; …..

Several of the issues resolved as part of today’s agreement arose from lawsuits filed by whistleblowers. Under provisions of the False Claims Act, whistleblowers who qualify under the statute are eligible to receive up to 25 percent of the settlement recovery in cases the government pursues. Under the civil settlement announced today, whistleblower shares remain undetermined pending further negotiations or court proceedings. …..

March 26, 2009
Houston’s Methodist Hospital to Pay U.S. More Than $9 Million to Resolve Allegations of Overcharging Medicare

WASHINGTON – Methodist Hospital in Houston has agreed to pay the United States $9.99 million to settle allegations that it defrauded the federal Medicare program, the Justice Department announced today.

The settlement resolves allegations that Methodist improperly increased charges to Medicare patients in order to obtain enhanced reimbursement from Medicare. In addition to its standard payment system, Medicare pays supplemental reimbursement, called outlier payments, to hospitals in cases where the cost of care is unusually high. Congress enacted the supplemental outlier payment system to ensure that hospitals possess the incentive to treat inpatients whose care requires unusually high costs.

The government alleged that, between January 2001 and August 2003, Methodist improperly inflated charges for inpatient and outpatient care to make its costs for providing such care appear greater than they actually were, and thereby obtain outlier payments from Medicare that it was not entitled to receive.

“Today’s settlement demonstrates the continued commitment by the Justice Department to protect Medicare when it is overcharged by hospitals,” said Acting Assistant Attorney General for the Civil Division, Michael F. Hertz. “The Department has brought numerous actions against hospitals alleged to have sought excessive outlier payments, and will remain vigilant in ensuring that hospitals do not file false claims for outlier payments in the future.”

“Our ultimate goal is to make certain that every Medicare dollar is used for the benefit of Medicare recipients,” said Tim Johnson, acting U.S. Attorney, Southern District of Texas. “We will continue in our efforts to assure that is done.” …..

February 25, 2010
Brookhaven Memorial Hospital Medical Center in New York to Pay U.S. $2.92 Million to Resolve Fraud Allegations

WASHINGTON – Brookhaven Memorial Hospital Medical Center, a Long Island, N.Y.-based hospital, has agreed to pay $2.92 million, plus interest, to settle allegations that the hospital defrauded Medicare, the Justice Department announced today.

The government alleged that the hospital fraudulently inflated its charges to Medicare patients to obtain enhanced reimbursement from the federal health care program. In addition to its standard payment system, Medicare provides supplemental reimbursement, called “outlier payments,” to hospitals and other health care providers in cases where the cost of care is unusually high. Congress enacted the supplemental outlier payments system to ensure that hospitals possess the incentive to treat inpatients whose care requires unusually high costs. The lawsuit alleged that the hospital inflated its charges to obtain supplemental outlier payments for cases that were not extraordinarily costly and for which outlier payments should not have been paid.

“Conduct like that alleged here drives up the costs of health care for all of us,” said Tony West, Assistant Attorney General for the Justice Department’s Civil Division. “The resolution announced today is the most recent in a series of settlements that illustrates the Justice Department’s continued commitment to protecting the Medicare Trust Fund from hospitals that knowingly charge more than the law allows.”

The suit was originally filed in the U.S. District Court for the District of New Jersey by a whistleblower, Tony Kite, in 2005. The United States intervened in the suit in November 2009. Mr. Kite brought his suit under the whistleblower provisions of the False Claims Act, which permit private citizens with knowledge of fraud against the government to bring a lawsuit on behalf of the United States and to share in any recovery. Under the civil settlement announced today, Mr. Kite will receive roughly $613,000, plus interest, out of the settlement proceeds. …..