January 03, 2013

High Number of Short-Stay Inpatients Leads to Criminal Enforcement Against Health System

By Jesse A. Witten and Tiffany Carr Forte

The United States Attorney's Office for the Eastern District of North Carolina (the USAO) announced December 19, 2012, that WakeMed Health and Hospitals (the Hospital) agreed to settle parallel criminal and civil investigations into whether the Hospital improperly billed Medicare for inpatient claims that should have been submitted as outpatient claims.

The government has previously investigated many hospitals and healthcare systems for similar allegations, and multiple investigations are pending.  In the past, these matters have been resolved through civil False Claims Act settlements.  The largest such settlement was a $26 million settlement in 2007.

Criminal prosecution is a rare course of action for the government to take because a hospital convicted of Medicare fraud would be mandatorily excluded from Medicare and other federal health programs pursuant to 42 U.S.C. § 1320a-7(a).  We believe this to be the first time that the Department of Justice has criminally pursued a hospital for submitting inpatient claims to Medicare for patients who allegedly did not satisfy inpatient criteria.

Under the settlement, the Hospital agreed to pay $8 million for a release of civil False Claims Act liability and entered into a five-year Corporate Integrity Agreement with HHS-OIG.  As to the criminal investigation, the USAO filed an Information charging the Hospital with making false statements in connection with the submission of Medicare claims, and the Hospital and the USAO entered into a two-year deferred prosecution agreement.  Under the deferred prosecution agreement, the Hospital is required to maintain certain internal controls and compliance commitments, cooperate with the government’s continued fact finding efforts and ongoing monitoring, and refrain from making any public statements contradicting its responsibility for any aspect of the conduct described in the deferred prosecution agreement.  Failure to satisfy these conditions could result in the Hospital being subject to criminal prosecution.

In addition, as part of the deferred prosecution agreement, the Hospital admitted to a statement of facts that the USAO submitted to the court and also acknowledged that it was responsible for the acts of its officers, employees and agents.  As described in the statement of facts, the inquiry into the Hospital's billing practices was instigated by a Medicare program safeguard contractor that identified the Hospital as the North Carolina provider with the largest percentage of "zero-day billings," i.e., claims billed in a diagnostic related group that had an expected length of stay of two or more days, when in fact the patients did not stay in the hospital for even one full day.  The contractor initiated its own investigation by reviewing a sampling of the Hospital's zero-day stay records from 2003-2006 and interviewing certain Hospital employees who explained their processes for admission, coding, and billing.  In the interviews, Hospital staff reportedly stated that the Hospital relied upon physician orders to determine whether a patient was to be admitted as an inpatient or outpatient and that, in the absence of written orders, the attending physician's office would call the Hospital with the patient’s correct status.  Written policies and procedures provided by the Hospital during these interviews indicated the same.  However, according to the agreed statement of facts, the audited records indicated that the Hospital admitted and billed hospital visits as inpatients when there was no inpatient admission order from the physician.  Following its audit, the contractor referred the case to the HHS-OIG.

The ensuing HHS-OIG and USAO investigations confirmed the contractor's findings.  According to the agreed upon statement of facts, between 2000 and 2008 the Hospital frequently admitted patients to its Raleigh Campus for routine, non-emergency cardiac treatments as inpatients, without, or in contravention of, physician orders.  Specifically, the HHS-OIG and USAO concluded that the Hospital did not always admit patients based on physicians' orders, but rather classified patients as inpatients based on a list of procedures disseminated by one of its directors.

The deferred prosecution agreement is specifically limited to the Hospital and does not apply to any current or former officer, director or employees for violations committed by them individually, even though such violation accrued only to the benefit of the Hospital.  Thus the USAO has left open the possibility that responsible individuals can be prosecuted. 

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