2021 Recap: Hospitals’ Significant False Claims Act Settlements

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Each year, the Department of Justice (DOJ) recovers millions of dollars through False Claims Act (FCA) settlements, and 2021 was no exception. Some of the most sizeable or otherwise noteworthy settlements from 2021 were with hospitals and health systems. We’ve summarized a few below.

Numerous Hospital Systems Resolved Kickback Allegations

FCA allegations premised on Anti-Kickback Statute (AKS) and Stark Law violations continued to result in sizeable settlements in 2021, particularly claims related to compensation in excess of fair market value.

In July, Akron General Health System agreed to pay $21.25 million to resolve FCA allegations that from 2010-2016 it compensated local physician groups in excess of fair market value in exchange for the referrals of patients, in violation of the AKS and Stark Law. Cleveland Clinic Foundation acquired the hospital system in 2015. According to the DOJ press release, it disclosed its concerns about the physician compensation arrangements to the government and received cooperation credit in the settlement, underscoring the importance of proactively addressing compliance issues.

The settlement also resolved related allegations made by a former director of internal audit in a qui tam action filed in the District Court for the Northern District of Ohio in December 2015. The relator alleged that Akron General and related entities used an “aggressive strategy” of purchasing physician practices and employing physicians, compensating them in excess to control referrals. The relator pointed to the fact that Akron General lost money on the physician practices and employed physicians as evidence that the health system intended to realize downstream revenue from their referrals. The relator also alleged that each physician was treated as a cost center, and Akron General tracked each physician’s “contribution margin.”

The same month, California-based Prime Healthcare Services, along with its CEO and a cardiologist, agreed to pay $33.725 million, $1.775 million, and $2 million, respectively, to resolve federal and state FCA allegations related to multiple fraudulent schemes. The settlement resolved allegations raised in two qui tam lawsuits, in which the government declined to intervene. In one, a former Prime executive alleged that Prime paid above fair market value to purchase the physician’s practice and affiliated surgical center to secure his referrals to one of its hospitals because he was a major competitor of the hospital’s heart center. The relator, who had been tasked with managing the acquisition’s financials, alleged that he calculated $8.7 million in “good will” associated with the transaction, reflecting the difference between the price paid and the actual value of the practice. The relator alleged that this premium reflected the value of the procedures Prime expected the cardiologist to perform at the hospital. After the acquisition, the cardiologist—then employed—was also allegedly compensated more than twice as much as the other cardiologists at the hospital.

The settlement also resolved allegations that the hospital and the cardiologist used his billing number to submit claims to Medicare and Medi-Cal for services that were actually provided by a physician whose billing privileges they knew had been revoked and that system hospitals submitted inflated invoices for implantable medical hardware to Medi-Cal and other government payors.

Closing out the year, in December, Flower Mound Hospital Partners in Texas agreed to pay $18.2 million to resolve FCA allegations that it repurchased shares from physician-owners who were 63 or older and resold the shares to younger physicians based on the volume and value of the physicians’ referrals, in violation of the AKS and Stark Law.

The relator in this qui tam action, one of the hospital’s physician-owners who was over age 63, alleged that in determining which physicians would purchase the redistributed shares and how many each would be able to purchase, the hospital considered how many “Patient Contacts”—particularly high-revenue surgical procedures—each physician had. The relator also alleged that when he tried to curtail conditioning ownership on case volume, the hospital and certain high-volume physicians retaliated by clawing back his ownership shares.

Health System Paid $90 Million to Resolve Medicare Advantage Fraud Allegations

California-based Sutter Health and affiliated entities agreed to pay $90 million to resolve FCA allegations that they submitted unsupported diagnosis codes for Medicare Advantage (MA) Plan beneficiaries to receive inflated reimbursements. Under Medicare Part C, the government compensates MA Plans on a capitated basis to provide benefits for enrolled Medicare beneficiaries. Plans generally receive larger payments for sicker beneficiaries based on a risk adjustment. Sutter Health contracted to provide services to beneficiaries enrolled in certain MA Plans in exchange for a portion of the capitated payments. Partially intervening in a qui tam complaint, the government alleged that Sutter Health submitted unsupported risk-adjusting diagnosis codes to inflate the payments the MA Plans would receive and then pay to Sutter Health.

The government pointed to an alleged “aggressive campaign” to increase the number of risk-adjusting diagnosis codes assigned to MA patients. This campaign included, among other things, closely tracking the diagnostic coding of network physicians; identifying “Physician Champions” who “encouraged aggressive coding” as liaisons between the coding team and other physicians, and who were paid extra for this role; scheduling wellness exams for MA patients who lacked risk-adjusting diagnosis codes “to ensure the capture of every possible code that could increase CMS’s payments;” allowing coders to add risk-adjusting diagnosis codes to medical records that had not been identified by physicians during the patient encounters; providing physicians with cheat sheets of common, lucrative diagnosis codes to pressure the physicians to add these codes to patient records during encounters that were focused on other healthcare issues; and later pre-populating the encounter with risk-adjusting diagnosis codes. In addition to being noteworthy for its high dollar value, this settlement underscores the government’s continued interest in investigating alleged fraud in the managed Medicare space.

Government Has Continued to Pursue Recovery for Medically Unnecessary and Non-Covered Services

With eight-digit price tags in some settlements, it is essential to note that the government has continued to investigate more typical allegations of billing for unnecessary or non-covered services.

In August, San Mateo County Medical Center and the county agreed to pay $11.4 million to resolve FCA allegations that they billed Medicare for inpatient or observation admissions that were not reasonable or necessary, including “social admissions”—patients who were admitted or placed in observation for social reasons and lack of safe, available placements after discharge, rather than, for example, referring these patients to shelters. The qui tam relator, a director of resource management at the county medical center, alleged that as a result, the county medical center was billing for non-covered services.

In November, Geisinger Community Health Services, located in central Pennsylvania, agreed to pay more than $18.5 million to resolve allegations that it submitted claims to Medicare for home health and hospice services that violated rules and regulations regarding certification of terminal illness, patient election of hospice care, and physician face-to-face encounters with home health patients. After discovering these issues and taking corrective action, Geisinger self-disclosed the issues to the U.S. Attorney’s Office for the Middle District of Pennsylvania.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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