Genesis Medical Center in Davenport, Iowa has reached a settlement with the Department of Justice related to improper hospital admissions from January 1, 2013 to December 31, 2016. According to the DOJ, Genesis “improperly retained Medicare overpayments for certain [Medicare] hospital inpatient admissions . . . when those admissions were medically unnecessary and should have been billed at the lower reimbursement rate for outpatient or observation services.”  Genesis has agreed to pay $1.88 million in settlement.

Genesis has also agreed to review its TRICARE, Medicaid, and Federal Employee Health Benefit Plan accounts to identify similar unallowable costs. If identified, HHS will seek to recoup associated overpayments with interest, in addition to penalties.

The settlement agreement did not specifically detail what inpatient requirements Genesis allegedly violated. However, the settlement agreement does make clear that Genesis is resolving potential False Claims Act liability for claims submitted between January 1, 2013 and December 31, 2016. This time period is significant because the Centers for Medicare & Medicaid Services (CMS) significantly revised its inpatient admission standards for dates of service on or after October 1, 2013 with the Two Midnight rule. Under that rule, Medicare Part A payment is appropriate only when, at the time of admission, the admitting physician (or non-physician admitting practitioner) has a reasonable expectation that the patient will require hospital services for a period of time that crosses two midnights. See 42 C.F.R. § 412.3. Evidence supporting the physician’s reasonable expectation must be documented in the medical record. Id. In contrast, inpatient stays that last more than two midnights following the patient’s admission pursuant to a valid inpatient order are presumed to be medically necessary. Id.

At the same time that it adopted the Two Midnight rule, CMS also adopted as a condition of Part A payment a requirement that each beneficiary must be admitted pursuant to a valid, written order. See 42 C.F.R. § 412.3. That order must be signed and authenticated prior to the patient’s discharge. See Medicare Benefit Policy Manual (BPM), Ch. 1, § 10.2.B. Nonetheless, CMS has recognized in sub-regulatory guidance that, in rare circumstances, missing or defective orders may be overcome if the intent, decision, and recommendation of the physician to admit the patient is clear in the record. Id.

CMS adopted the Two Midnight rule in an effort to “clarify” its previous inpatient admission standard, which required physicians to exercise their medical judgment to determine whether a complex set of factors, such as the patient’s clinical history and likelihood of adverse events, required inpatient care for 24 hours or more. BPM, Ch. 1, § 10 (2013). This amorphous standard had led to increasing numbers of Medicare beneficiaries spending longer hours in observation and allegedly high error rates identified by Recovery Audit Contractors (RACs). CMS adopted the Two Midnight standard, which purports to focus not on the physician’s judgment of the level or type of care required, but instead on the overall length of time the physician predicts the patient will require hospital services, including outpatient services the patient may have already received in the ED or observation. 78 Fed. Reg. 50496, 50950 (Aug. 19, 2013).

Despite its promise of clarity, the Two Midnight rule and the written inpatient order requirement have proven challenging for providers to implement, particularly in the context of short inpatient stays. Soon after these rules were promulgated, CMS adopted the so-called “Probe and Educate” program. Under Probe and Educate, CMS imposed a RAC moratorium on inpatient status reviews for claims after October 1, 2013. It also directed the Medicare Administrative Contractors (MACs) to conduct limited “probe” samples to determine compliance with the new patient status rules and educate those providers on their failings. Congress required CMS to extend Probe and Educate until March 31, 2015. See Protecting Access to Medicare Act of 2014, § 111. Neither CMS nor the MAC contractors extrapolated the results of the Probe & Educate reviews.

In 2016, CMS adopted two new, significant policies in connection with the Two Midnight rule. First, it recognized an important “case-by-case” exception. Pursuant to this exception, providers could still request Part A payment for inpatient admissions for which the admitting physician, exercising her medical judgment, believed the patient required an inpatient level of care even though the physician, at the time of admission, did not believe the patient required hospital care for a period of time extending beyond two midnights. 80 Fed. Reg. 70298, 70541 (Nov. 13, 2015); 42 C.F.R. § 412.3(d)(1). Second, CMS announced that its Quality Improvement Organization (QIO) contractors would have primary responsibility for reviewing short stay patient status claims for compliance with the Two Midnight rule and inpatient order requirement. Id. at 70545. The QIOs now conduct reviews of limited samples (25 claims) of inpatient claims for the top 175 providers in each QIO contracted area who have increasing numbers of inpatient short stays. Providers who continue to have “major concerns” (error rates greater than 20 percent) will be recommended for referral to the RACs, although representatives for CMS has stated that no providers have, as yet, been referred. See, e.g., Short Stay Reviews, https://www.keproqio.com/twomidnight.

Although the precise allegations against Genesis are not detailed in the settlement agreement, the False Claims Act settlement of apparent inpatient status claims that were submitted during the period of time following the promulgation of the Two Midnight rule should be of great interest to other providers. Thus far, CMS’s focus in enforcing the Two Midnight rule has been through educational efforts following limited probe samples, rather than widespread overpayment recovery through the RAC program or use of extrapolation of audit results, largely out of a recognition that the Two Midnight rule is more difficult to implement in practice than in theory. The fact that the Medicare program itself appears to recognize that the Two Midnight rule still requires educational support and fine-tuning raises questions as to whether the rule is so clear as to meet the standards for False Claims Act enforcement.

CMS does not control the enforcement priorities of either the HHS OIG or the Department of Justice. The Genesis settlement could indicate a willingness on the part of those authorities to pursue Two Midnight short stay cases as FCA violations despite CMS’s more lax policy of educating providers before moving to widespread overpayment recover by the RACs. The fact that the Genesis settlement does not appear to be the product of a qui tam whistleblower complaint further suggests that DOJ authorities may be more aggressive in enforcing the Two Midnight rule than CMS has been in the recent past. Because the written order is a condition of Medicare payment, claims for payment knowingly submitted without such an order could give rise to False Claims Act liability. Although the precise allegations against Genesis are unclear, this settlement indicates that improper inpatient admissions may be the target of enforcement actions.

The settlement agreement is available here. The press release from the U.S. Attorney’s Office in the Southern District of Iowa is available here.