Hospital agrees to pay $89 million in False Claims Act settlement

Large payout holds lessons for risk managers

A False Claims Act (FCA) settlement totaling $89 million is ringing alarm bells in health care institutions across the country, reminding risk managers that improper billing and coding — or even carelessness that gives the impression of fraud — can result in a huge monetary loss when all is revealed to the feds. And the recent settlement highlights another reason to lay awake at night: Now the states have an incentive to dig deeper and get their own slice of the settlement pie.

In what the Justice Department says is one of the largest civil fraud recoveries ever against a single U.S. hospital, Staten Island University Hospital (SIUH) has agreed to pay the United States $74,032,565 to settle claims that the hospital defrauded Medicare, Medicaid, and the military's health insurance program, TRICARE. The settlement was announced by Benton J. Campbell, JD, U.S. attorney for the Eastern District of New York, and Gregory G. Katsas, JD, assistant attorney general for the Justice Department's Civil Division.

In addition, the hospital will pay the State of New York $14,883,883, representing damages sustained by the state's Medicaid program. In total, SIUH will pay $88,916,448.

The biggest lesson from the case is that state governments are now going to be much more involved in FCA prosecutions, says Christopher DeMeo, JD, an attorney with the law firm of McGlinchey Stafford PLLC in Houston. That is partly the result of an incentive program the federal government instituted in 2007 that encourages states to enact their own FCAs to piggyback on the federal law, he explains. When properly constructed, the state law will provide the state with 10% more of any recovery from Medicaid fraud than the state would otherwise receive.

The new state incentive could be particularly dangerous for hospitals or nursing homes that have a large Medicaid population, he says.

"This is the proverbial sleeping dog that's been kicked. Now you have to watch out for it," DeMeo says. "With state budgets being squeezed and the potential for big revenue from the False Claims Act, you're going to see this kind of thing being litigated a lot more. This is the sign of things to come, as states have more financial incentive to become involved, and they become more aggressive in rooting these things out."

DeMeo notes that in Texas, the state attorney general's office has shown more interest lately in increasing funding and staff to investigate fraud and abuse in the Medicaid program.

"The False Claims Act had plenty of power before, but it was only the Justice Department that came after you, and they had a limited number of U.S. attorneys who could focus on fraud," DeMeo reports. "Now, you've essentially doubled that law enforcement potential by adding the states."

So far, 13 states have passed their own FCAs, and other states are in the process of doing so, DeMeo says.

Corporate integrity agreement, also

The SIUH settlement, in part, resolves suits filed on behalf of the government in the U.S. District Court for the Eastern District of New York by two individuals, Campbell says. He says risk managers should beware falling prey to similar actions.

"Those who defraud and jeopardize the nation's vital, federally funded health care programs will be aggressively investigated and held to account," Campbell says. "Only by ensuring that the billing and cost guidelines of Medicare and Medicaid are scrupulously followed can we have confidence that affordable healthcare will continue to be available for those in need."

Katsas says the resolution of these claims against SIUH "demonstrates the federal government's continuing commitment to protect federally funded health care programs from any and all attempts by those who would knowingly seek improper payments."

HHS Inspector General Daniel R. Levinson notes that, in addition to the financial payout, SIUH has agreed to enter into a Corporate Integrity Agreement with the Office of Inspector General, Department of Health and Human Services (OIG-HHS) under which the hospital will maintain a compliance program to help ensure against a recurrence of fraud.

"Settlements such as this demonstrate yet again that submitting fraudulent claims to Medicare and Medicaid artificially raises health care costs and in turn steals from those who depend on these government medical programs," he says. "The Office of Inspector General, working with our federal and state law enforcement partners, will continue to aggressively investigate and prosecute such fraud."

Malpractice case could evolve to qui tam

Because the payouts are the result of a negotiated settlement rather than a court ruling, there are no bright lines defined by the case, no clear indications that certain actions are legally permissible or impermissible, DeMeo says. But, he says, risk managers still can read between the lines and glean lessons in how to avoid similar trouble.

"It's clear that some of the things that were alleged in this case should not happen at any hospital. Like having a secret, locked ward of detox for alcohol and substance abuse that was deliberately hidden from state investigators, so they wouldn't have to fulfill licensing requirements and could still bill Medicaid," he says. "That is something that was wrong before, is wrong now, and is going to be wrong in the future."

DeMeo also points out that one of the qui tam lawsuits arose from a medical malpractice claim, so he says risk managers always should consider that possibility when dealing with patient and family complaints.

"Even if that complaint doesn't have merit as a malpractice claim, it could lead to an investigation or a lawsuit by an individual. It doesn't have to be the government that files the lawsuit against you," he says. "When the individual files a qui tam suit, it hits the hospital a lot harder than the malpractice would have. There's more money involved potentially, and it might not be covered by insurance."

In addition, DeMeo says, attorneys will be motivated to use the FCA in addition to or instead of pursuing the malpractice case that started the ball rolling. For one thing, attorneys' fees can be recovered with an FCA case, whereas they typically cannot be in a malpractice case.

"With this news coming out, I think a lot of lawyers who have malpractice cases pending are going to include things in their discovery requests to see if there are any types of Medicaid violations that they can hook onto," he says. "They will be looking to either increase pressure for settling the malpractice claim, or they will be hoping to increase their recovery."

Lack of documentation at fault?

One attorney points out that SIUH may have created some of its problems, or made them worse, by failing to document medical care carefully. Russell Hayman, JD, head of the health department in the Los Angeles office of the law firm McDermott Will, currently represents a number of health care providers under active criminal and civil investigation by OIG-HHS, the U.S. Department of Justice, and various U.S. Attorneys' Offices. The SIUH case involved essentially three allegations, he says. The lawsuits asserted that the hospital provided care in unlicensed beds, miscoded uncovered cancer therapies as covered therapies in order to obtain payment, and claimed an inflated number of medical residents in order to obtain graduate medical education expenses.

Hayman notes that the allegation concerning miscoded cancer therapy could have been a documentation problem.

"The therapy provided might not have been covered, or it might not have been reimbursable because it was not adequately documented. We can't tell from the news reports," he says. "Many of these types of cases involve lack of documentation. Better training in documentation and monitoring can catch a lot of those problems."

The unlicensed beds and inflated residency counts could have some explanation as well, Hayman says. Perhaps some beds were taken out of licensure or the size of the residency program was reduced, he says. Residents also could have been sent on more residency rotations.

"So it could be that the residency data that was reported to Medicare was not accurately changed to reflect those evolving facts," he says. "The failure to change the data and make sure what was being reported was accurate and current could result in overclaiming reimbursement in those programs."

If something like that happened at SIUH, that could show that the excess claims were more the result of carelessness than a conspiracy to defraud the government, but Hayman says in the end that will be just a footnote, because prosecutors still won't be forgiving if you ended up with too much state and federal money. The lesson for risk managers, Hayman says, is that virtually any change in a hospital's operations requires reassessing the data that are used for reimbursement. Any time you start or end a program, expand or downsize anything, even remodel a facility, those changes must be reflected in what you submit to the government — promptly.

Resolve problems quickly, before they grow

Brian D. Roark, JD, an attorney with the law firm of Bass Berry in Nashville, TN, says the SIUH settlement is significant due to its size, which makes it one of the largest settlements ever by a single health care institution.

"Additionally, the settlement is of note in that it follows on the heels of a $76.5 million settlement by the hospital in 2005 relating to clinic services and a $45 million settlement in 1999 relating to therapy services," he reports.

Roark notes that the huge settlement came from two unrelated qui tam lawsuits, as well as additional unrelated violations that had been self-disclosed by the hospital. The hospital had a lot going wrong and apparently did not respond aggressively enough at the first signs of trouble, he says.

"The settlement highlights the importance to organizations of, when possible, resolving allegations of misconduct in one fell swoop to promote closure, allow the organization to move forward with its business, reduce legal expenses, and avoid return visits from the government," he says.

The lesson, Roark says, is that risk managers must be ready to move quickly when trouble arises. Don't freeze up. Don't panic. Don't wait until things get so bad that you can't fight the momentum of qui tam lawsuits and multiple government investigations.

"When an organization learns of alleged fraudulent conduct, whether through an internal audit report, an employee hotline call, or a subpoena from the government, it is of utmost importance for the organization to conduct a thorough investigation of sufficient scope to discover any instances of wrongdoing and then to respond appropriately," he says.

Hayman also points out that it is important for a health provider to have a culture in which employees are willing to come forward and report fraud, or at least their concerns, without fear of retribution. Otherwise, those same people may pursue FCA lawsuits instead.

DeMeo agrees that the SIUH case must be a wake-up call for risk managers. Expect more scrutiny of Medicaid claims, and remember that your state FCA may be even more strict than federal rules. With more prosecutors looking for fraud, risk managers may need to reassess their priorities.

"Whereas maybe some tasks may not have merited the effort in an overtaxed system, now you have to look at that in light of there being more publicity and more oversight by more authorities," DeMeo says. "The stakes just got higher."


For more information on the False Claims Act, contact:

  • Christopher DeMeo, JD, McGlinchey Stafford PLLC, Houston. Telephone: (713) 335-2132. E-mail:
  • Russell Hayman, JD, McDermott Will & Emery, Los Angeles. Telephone: (310) 551-9334. E-mail:
  • Brian D. Roark, JD, Bass, Berry and Sims, Nashville, TN. Telephone: (615) 742-7753. E-mail: