Judge re­jects set­tle­ment in WakeMed case as too le­nient

$8 mil­lion set­tle­ment called ‘slap on the hand’

Modern Healthcare - - NEWS - Joe Carl­son

Afed­eral judge has put a tem­po­rary hold on a set­tle­ment that would bring to a close the government’s first-ever at­tempt to crim­i­nally pe­nal­ize a ma­jor hospi­tal sys­tem for mak­ing false state­ments to rip off Medi­care.

Government pros­e­cu­tors and North Carolina’s WakeMed Health and Hos­pi­tals at­tempted to set­tle charges last week that car­diac de­part­ments in the hospi­tal sys­tem submitted at least $1.2 mil­lion in fal­si­fied bills.

Of­fi­cials with WakeMed, the sev­enth-largest sys­tem in the state with $1.1 bil­lion in rev­enue, pub­licly ad­mit­ted in the 116-page draft set­tle­ment and de­ferred-pros­e­cu­tion agree­ment that staff mem­bers rou­tinely billed the CMS for ex­pen­sive acute care even though pa­tients at the sys­tem’s Raleigh heart-care cen­ter did not spend a night in the hospi­tal. The pro­posed $8 mil­lion agree­ment in­cluded a $6.8 mil­lion civil penalty.

Break­ing from a na­tional prac­tice of us­ing only civil lit­i­ga­tion against hos­pi­tals for over­billing, pros­e­cu­tors with the U.S. at­tor­ney’s of­fice in Raleigh on Dec. 19 charged the health sys­tem with a sin­gle count of sub­mit­ting ma­te­ri­ally false state­ments in con­junc­tion with Medi­care ben­e­fits. The crime car­ries fines and pos­si­ble prison time for in­di­vid­u­als. Lawyers say hos­pi­tals con­victed of “pro­gram-re­lated of­fenses” can also be ex­cluded from Medi­care for five years.

Late last week, U.S. District Judge Ter­rence Boyle re­fused to ap­prove the set­tle­ment, which he called a “slap on the hand” in light of the se­ri­ous penal­ties faced by peo­ple en­gaged in fraud, in­clud­ing prison time. While government of­fi­cials re­served the right to charge WakeMed of­fi­cials in the fu­ture, all crim­i­nal charges against the health sys­tem would have been erased af­ter two years if the sys­tem com­plied with the terms of a pro­posed de­ferred-pros­e­cu­tion agree­ment.

“There are lots of cor­po­ra­tions that steal from the government,” Boyle said in open court, ac­cord­ing to an ac­count in the Raleigh News and Observer. “Most of them are con­victed, fined and ban­ished.”

Sev­eral health­care lawyers said WakeMed is the first health sys­tem crim­i­nally charged with mak­ing ma­te­rial false state­ments in or­der to in­flate Medi­care bills. Many hos­pi­tals over the years have been ac­cused of sub­mit­ting false Medi­care bills, but those have all been civil cases in which set­tle­ments—typ­i­cally un­der the False Claims Act— have not forced hos­pi­tals to ad­mit wrong­do­ing.

“What this is say­ing is that (WakeMed) knew they were cheat­ing when they were do­ing what they were do­ing, which is pretty se­ri­ous,” said Gabriel Im­per­ato, a man­ag­ing part­ner with Broad and Cas­sel and a former HHS at­tor­ney.

The sys­tem was tar­geted af­ter a Medi­care con­trac­tor noted in 2007 that the sys­tem had the high­est rate in the state—and one of the high­est in the na­tion—of “zero-day” hospi­tal stays. A zero-day stay is billed at the higher Medi­care Part A daily rate even though the pa­tient never spends a night in the hospi­tal.

A sub­se­quent in­ves­ti­ga­tion found many of the pa­tients be­tween 2000 and 2008 even lacked physi­cian or­ders for hospi­tal care. Yet WakeMed em­ploy­ees billed the care that way and, in some cases, even fab­ri­cated pa­tient records, ac­cord­ing to the pro­posed set­tle­ment and de­ferred-pros­e­cu­tion agree­ment.

Boyle lashed out at the pro­posal in court. He said such de­ferred-pros­e­cu­tion agree­ments are more com­monly used against teenagers caught smok­ing mar­i­juana on the beach, rather than for large cor­po­ra­tions ad­mit­ting to com­plex fi­nan­cial crimes against a government pro­gram.

Of­fi­cials with WakeMed and the U.S. at­tor­ney’s of­fice in Raleigh de­clined re­quests for com­ment on the on­go­ing crim­i­nal case.

Ex­perts in health­care law dif­fered on whether the crim­i­nal case was an aber­ra­tion based on the se­ri­ous­ness of the ac­tiv­ity or a sign of things to come. Cases where pa­tients stay two or fewer nights have come in for par­tic­u­lar scru­tiny by government-con­tracted au­di­tors such as the one that dis­cov­ered WakeMed’s zero-day billing pat­tern.

Lisa Noller, a part­ner with Fo­ley & Lardner in Chicago and a former fed­eral pros­e­cu­tor, said she knows of other cases where in­ves­ti­ga­tors are ex­am­in­ing pat­terns of zero-day stays, but WakeMed is ap­par­ently the first such case to lead to crim­i­nal charges. “There is no ques­tion in the government’s mind that if an en­tity sub­mits a bill for an overnight stay and the pa­tient did not stay overnight, that that would be a in­cor­rect claim,” she said.

Other le­gal ex­perts ar­gued most short-stay in­ves­ti­ga­tions fo­cus on whether doc­tors had enough clin­i­cal ev­i­dence to jus­tify in­pa­tient care over than less-ex­pen­sive out­pa­tient treat­ments, not fraud. “WakeMed is more of a one-off sit­u­a­tion,” said Mark Pol­ston, an at­tor­ney with King & Spald­ing and former CMS lawyer.

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