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A healthcare system’s recent settlement with the Department of Justice (DOJ) illustrates a risk posed by consultants who believe they have found fraud, legal experts say. The $26 million settlement involved fraud charges brought by a consultant who said the healthcare system charged inpatient fees for what should have been outpatient treatment.
Shands Teaching Hospital & Clinics, Shands Jacksonville Medical Center, and Shands Jacksonville Healthcare (collectively Shands Healthcare), which operate a network of healthcare providers in Florida, will pay the government and the state of Florida $26 million to settle allegations that six of its healthcare facilities submitted false claims to Medicare, Medicaid, and other federal healthcare programs, the DOJ announced recently.
Allegedly, from 2003 through 2008, six Shands hospitals knowingly submitted inpatient claims to Medicare, Medicaid, and TRICARE for certain services and procedures that Shands Healthcare knew were correctly billable only as outpatient services or procedures, the DOJ reports.
The six Florida hospitals were named as defendants in a qui tam, or whistleblower, lawsuit brought under the False Claims Act, which permits private citizens to sue on behalf of the government and receive a portion of the proceeds of any settlement or judgment awarded against a defendant. The lawsuit was filed in federal district court in Jacksonville, FL, by Terry Myers, the president of a healthcare consulting firm, YPRO Corp. Of the $26 million settlement, $25,170,400 will go to Medicare and other federal healthcare payers. The settlement also resolved allegations under the Florida False Claims Act; the state of Florida will receive $829,600. Myers’ portion of these recoveries has yet to be determined. (See the story on p. 114 for Shands’ statement on the settlement. See p. 114 for more on the trend toward whistleblower claims regarding inpatient billing.)
The settlement does not necessarily mean Shands willfully committed fraud, says Gary C. Matzner, JD, a partner with the law firm of Kopelowitz Ostrow in Coral Gables, FL. He previously was outside counsel for a large hospital system. "The billing system is incredibly complex, and I think it’s more likely that this was aggressive billing but not intentional fraud," Matzner says. "It could be that this was unintentional, but it’s always going to be characterized by a whistleblower as fraud."
Noteworthy in this case is the fact that the whistleblower was a consultant, Matzner says. Hospitals should require a confidentiality agreement with consultants that would prevent such charges or at least make them less damaging, Matzner says. "And when I say confidentiality agreement, I mean the long form, not the short form," he says.
The confidentiality agreement would make it difficult for the consultant to find a situation that might sustain a fraud charge and then run with it for personal gain, Matzner says. (See p. 114 for more tips on how to prevent a consultant from becoming a whistleblower.)
Gregory Charleston, CPA, CFA, senior managing director with the consulting firm of Conway MacKenzie in Atlanta, sees two possibilities for how a healthcare system can amass $26 million in liability over six years, both equally concerning.
First, he says, healthcare reimbursement is made up of multiple complex rules. If a healthcare organization does not take great measures to hire and train adept staff and to oversee and internally audit reimbursement practices, this kind of exposure can grow quite rapidly. Even in large hospitals there usually are one or two experts in reimbursement, and the hospitals depend on those persons to keep them out of hot water, he notes.
If that person loses focus or leaves the facility, the hospital inadvertently can rack up a significant amount of incorrectly coded claims, he says. "That can carry on for years, and when it’s found it’s a $26 million problem," Charleston says. "The risk manager has to point to this area and say, `we can’t cut corners on staffing and training in this position.’"
Second is the possibility of intentional fraud. "The mounting financial pressure on healthcare organizations can lead to a breakdown of integrity and create situations where professionals look for ways to cut corners and cheat the government," Charleston says. "The board of directors of a health system has a fiduciary duty to make certain that integrity and following the rules are priorities of the leadership of the organization."
The DOJ has not imposed a corporate integrity agreement on Shands, notes Virginia Gibson, JD, partner with the law firm of Hogan Lovells in Philadelphia. That situation is a strong indication the OIG is satisfied that Shands’ current billing systems are compliant and have sufficient checks and balances to make certain these kinds of billing problems do not happen again, she says. "The allegations were that there were no protocols in place for billing, which would be unusual these days," Gibson says. "We don’t know if that is true, but if it is, that would certainly be a major failing."
Gibson also wonders why utilization review did not reveal inconsistencies with the care provided and the billing. A possible explanation is that the provider’s internal systems did not communicate sufficiently well with each other, with problems detected in utilization review not generating a report to billing or compliance, she says.
"The Shands case is a high dollar version of what we’re seeing at a lot of other hospitals," Gibson says. "The rules are not always crystal clear, and we’re learning that the government and whistleblowers are looking at admission criteria and billing criteria to see if hospitals are making an effort to follow those rules."
The $26 million to be paid by Shands Healthcare in Florida is huge, but it is no surprise that a settlement of this size involved inpatient vs. outpatient billing, says Laura F. Laemmle-Weidenfeld, JD, partner with the law firm of Patton Boggs in Washington, DC. The federal government has been watching closely for fraud in that area lately, she says.
"It is critical for risk managers to do their best to make sure they are complying with federal government inpatient billing requirements," she says. "It has always been important to do that, but knowing it is directly in the middle of the government's radar screen should provide even more motivation."
Plaintiffs' attorneys also are focusing on inpatient admissions, so Laemmle-Weidenfeld expects to see more whistleblower cases similar to the Shands allegations. Billing mistakes alone are not fraud, she notes, but the hospital must be able to show that it was doing its best to comply with the complex billing rules. To do that, the hospital must hire competent people and have policies and procedures that minimize the risk of error, she says.
"An effective compliance program will help audit and review billing, and even though that will sometimes find problems, it is a lot more effective to find those problems in process and fix them rather than allowing wounds to fester over years and find yourself in an investigation for fraud," Laemmle-Weidenfeld says. "If you identify problems and fix them, the government might still come along and say you were billing wrong for a period of time, but you can show that you weren't being deliberately ignorant or recklessly disregarding. That's the standard of the False Claims Act."
• Laura F. Laemmle-Weidenfeld, JD, Partner, Patton Boggs, Washington, DC. Telephone: (202) 457-6542. Email:
To avoid having your consultants and employees turn into whistleblowers, Gary C. Matzner, JD, a partner with the law firm of Kopelowitz Ostrow in Coral Gables, FL, advises following these steps:
1. Specify that all work done by the consultant on your behalf is "work product."
This is a legal term that means the information cannot be shared with any third party, unless otherwise required by law.
2. Require that the consultant bring any suspected fraud to your attention immediately.
The contract should include an affirmative duty for the consultant to notify the hospital in addition to and in advance of notifying any third parties of suspected fraud.
3. Use a departure affidavit regarding fraud.
Require that the consultant sign an affidavit at the end of the project declaring no knowledge of fraud or suspected fraud. This document will demonstrate that you sought any information about fraud and that the consultant did not notify you at the time. If the consultant later tries to blow the whistle, an explanation will be needed for why nothing was conveyed to the healthcare provider at the time. The departure affidavit shows you acted in good faith and tried to ferret out any suspected fraud.
4. Require a similar statement from employees.
Annual or semi-annual reviews should include a statement from the employee that he or she has no knowledge of any fraud and understands that the employer requires any suspected fraud to be reported immediately. Also require a similar statement from the employee when terminating employment.
5. Provide a comment line rather than a fraud hotline.
Some health systems provide phone hotlines and encourage employees to report suspected fraud, but that type of hotline often carries a stigma that can deter usage. Instead, provide a phone line on which people can report fraud but also make suggestions and ask questions. Reporting fraud still might be the goal, but the hotline will get more use if the employee does not feel like it is only for snitching on other employees.
Shands Healthcare in Gainesville, FL, acknowledges that its hospitals might have billed Medicare and Medicaid improperly but says the overcharges were the result of faults in its billing system and not intentional fraud.
The system recently agreed to pay $26 million to settle fraud claims brought under the False Claims Act by a former consultant. The whistleblower had been hired as an independent consultant by Shands in 2006 and 2007 to conduct a routine audit of its billing practices. The audit showed inconsistent billing processes in 2006 and 2007. Allegedly, for some patients, Shands might have billed Medicare and Medicaid for short overnight inpatient admissions rather than for less expensive outpatient or observation services. In each case of alleged overbillings, the patient received all services ordered.
"We hold ourselves accountable for the highest standards of care and service. The case in question does not involve the failure to provide high-quality patient care, but rather inconsistent billing processes," CEO Timothy M. Goldfarb, said in a statement released by the company. "We proactively initiated an independent audit that identified some opportunities to improve billing processes at Shands. We took immediate steps to make improvements."
Shands officials fully cooperated with the state and federal investigation and negotiated the settlement agreement to avoid long and costly litigation, Goldfarb says.
"Shands regularly and proactively conducts audits of its billing practices," the statement says. "It makes constant improvements to remain current with the complicated, evolving health care regulatory environment, which is subject to continued change in policy and guidelines. Shands encourages staff to be active participants in the compliance process and to identify and report potential issues and errors through employee orientation, mandatory annual in-services, year-round communications and promotion of employee compliance hotlines, and other efforts to raise awareness of compliance accountability."
Changes made to Shands' processes and procedures have included:
"As a responsible corporate citizen, our intent and practice has always been to comply with government regulations. We have conscientiously worked to create and operate an appropriate, fair and accurate billing system for all payers," Goldfarb says. "There was no intentional misconduct or callous disregard of these issues on our part."