[co-author: Edward Smith]

The Northern District of Illinois recently denied a hospital reimbursement consultant’s motion for summary judgment, finding that the consultant could be held liable under the FCA based on the theory that the consultant’s solicitations of fees-for-recommendations could be found to violate the Federal Anti-Kickback Statute (“AKS”).

In United States ex rel. Graziosi v. R1 RCM, Inc., relator Cherry Graziosi, a former hospital employee, filed an FCA action alleging that R1 RCM, Inc.—a Medicare reimbursement consulting firm for the hospital—caused its clients to submit false claims when R1 recommended that physicians convert the admission status of Medicare patients from “outpatient” to “inpatient” or “observation.” As background, when a Medicare beneficiary arrives at a hospital, a treating physician must decide whether to admit the patient for inpatient care or assign the individual to “outpatient” status based on their clinical decision-making including the patient’s anticipated length of stay. Medicare reimburses a hospital a greater amount if that hospital seeks reimbursement for “inpatient” rather than “outpatient” services.

Graziosi alleged that R1 recommended that its clients “bill insurers for a (higher-paying) ‘inpatient admission’ even though the hospitals’ physicians (who had examined, and prepared a plan of care for each patient) had earlier determined that each patient was only in medical need of a (lower-paying) ‘observation’ (or other ‘outpatient’) service.” When soliciting clients, R1 represented that it could provide a “payment lift” or “return on investment” to hospitals.

While Graziosi argued that R1’s solicitations of fees-for-recommendations violated the AKS, R1 maintained that it services were designed primarily “to improve the accuracy of hospital-clients’ initial admission.” The court denied summary judgment, holding that a reasonable juror could conclude that R1’s fees constitute “remuneration in return” for recommending that R1’s hospital clients “upgrade” patients to inpatient status. The court went on to explain that it “accepts that at least part of the purpose of R1’s [] program was to help its hospital clients comply with Medicare rules for classifying patients.” With all this in mind, the court concluded there is sufficient evidence in the record—from which a reasonable juror could conclude that another motivation for all of the cases in which patients were ‘upgraded’ to inpatient status was boosting the amount that R1’s hospital clients could collect from Medicare—around $5,000 per case.”

In light of Graziosi, billing and other management companies need to continue to be vigilant at monitoring how they advertise their services and ensuring that their compliance plans are carefully vetted to ensure compliance with the fraud and abuse laws.