(October 16, 2013): Healthcare providers should be on guard – a new type of whistleblower may be an individual you would least expect. Recently, the Department of Justice (DOJ) entered into a multi-million dollar settlement agreement with a Florida-based healthcare provider based on claims that the provider submitted false claims to various Federal and State healthcare programs. While efforts to expose and combat fraudulent conduct have increasingly become the norm in recent years, this situation is remarkable because of who brought the allegations to light. In this case, the whistleblower – someone who may well stand to gain millions for his part in uncovering the alleged fraudulent activities – is the president of a consulting company hired to perform services for the provider! Is a consultant qui tam merely the latest False Claims Act risk your organization must address? Hopefully, this case will motivate providers to take proactive approaches to ensure that fraudulent conduct never occurs in the first place.
On August 19, 2013, the DOJ issued a Press Release announcing that it had entered into a $26 million settlement with a private, not-for-profit health care system that operates a network of health care providers in a southern State. While most of the settlement figure would reimburse Federal healthcare programs, a portion of the settlement went to the State.
II. Overview of the Settlement:
The purpose of the settlement agreement executed by the defendant and the government was to resolve allegations that a number of the defendant’s health care facilities had submitted false claims to the Federal Medicare, State Medicaid, and the Department of Defense’s TRICARE programs for inpatient services that should have been billed as outpatient services. The claims against the defendant health care company specifically alleged that over a five-year period, the health care provider improperly submitted inpatient claims to Federal and State health care programs for certain services and procedures that the provider supposedly knew were correctly billable only as outpatient services or procedures.
III. What Are the Risks of a Consultant Qui Tam?
The allegations of fraud came to the government’s attention after a Relator filed a qui tam case against the defendant under the civil False Claims Act. As you will recall, the False Claims Act permits private citizens to sue on behalf of the government and receive a portion of the proceeds of any settlement or judgment awarded against a defendant. While whistleblower cases have become quite common, this case is noteworthy because the allegations of fraudulent claims were made by a Relator who had been engaged by the defendant as a healthcare consultant. In this particular case, the defendant health care provider had engaged this consultant to review the provider’s Federal, State, and commercial insurance billing practices at a number of its facilities. While the health care provider did not admit any wrongdoing in the settlement agreement (as is generally the case in these types of resolutions), a review of some of the more notable facts alleged in the unsealed complaint suggest that the Relator apparently felt like he had no choice but to formally levy these allegations against the defendant because the health care provider repeatedly ignored or was otherwise indifferent to the concerns that had been raised by the consultant.
IV. The “Request for Proposal” Process – Specific Issues to be Examined by the Outside Consultant:
In this case, the defendant health care provider operated a State-wide network of facilities. In 2006, the defendant issued a “Request for Proposal” (RFP), seeking to engage a reimbursement consultant to conduct on-site reviews of the provider’s Medicare and commercial insurance billing practices for observation services and one-day inpatient stays. Six of the provider’s facilities were to be examined by the consultant in this respect. The proposed review of observation services specifically included assessments of the provider’s coding, billing, and documentation practices. In contrast, the reviews of one-day inpatient stay claims were intended to verify whether the claims met all of Medicare’s requirements for coverage and payment.
The defendant provider selected the Relator’s consulting firm through the RFP process. At the time of the Relator’s engagement, the defendant provider’s Interim Chief Compliance Officer allegedly acknowledged that the two claims areas to be examined (observations reviews and one-day inpatient stays) were allegedly “deficient.” Specific issues to be examined by the outside consultant included, but were not limited to:
- Medical necessity coding;
- The number of unit charges for observation time;
- Inpatient-to-observation-status changes; and,
- Condition code usage issues.
V. Internal Audit Findings:
After completing its claims review at the defendant provider’s facilities, the consultant reportedly found that a variety of problems existed in connected with the claims reviewed:
- There was allegedly a lack of medical necessity;
- Physician documentation in the patients’ files was supposedly lacking;
- Admission orders were allegedly deficient;
- There was allegedly an overbilling of observation hours;
- Case management deficiencies were allegedly noted; and,
- In one instance, case managers were supposedly even given the authority to change physician orders when determining a patient’s status.
VI. How Did the Defendant Provider React Upon Learning of these Alleged Deficiencies?
When an "Exit Conference" was conducted with managers and representatives of the defendant provider, some of the attendees did not express any surprise when hearing of the deficiencies noted. Based on the outcome of its findings, the consulting company recommended that the provider self-disclose the billing issues to the government and refund identified overpayments made during the year in question. The consultant also offered to provide the defendant with future medical necessity training, as well as other forms of needed coding and compliance education.
The defendant chose not to retain the consultant to conduct additional training and education at that time. Instead, the provider advised the consultant that it would be preparing its “own corrective action plan internally.” Moreover, the provider supposedly indicated through a “Corrective Action Plan,” it would make appropriate adjustments on its own to address any overpayments that had been identified in the audit. Despite these assertions, the consultant alleged that it had not received any notice that the defendant had refunded the overpayments to the government.
VII. The Consultant Was Then Engaged to Perform a Second Audit:
The consultant was later engaged to perform a follow-up audit for the defendant health care provider. At that time, the consultant continued to emphasize to the defendant’s Interim Chief Compliance Officer the importance of self-disclosure and to recognize that fraudulent billing occurred – and was continuing to occur – on a very regular basis at the health care facilities.
Notably, the follow-up audit found that the defendant’s current problems were even more serious that than those previously identified. At the conclusion of the follow-up audit and at a later time, the consultant reportedly to contact the defendant’s new Chief Compliance Officer in order to re-emphasize his concerns regarding the two audits previously conducted. Allegedly, the defendant health care provider expressed no interest in allowing the consulting company to perform further follow-up reviews. According to the Complaint later filed, the consultant believed that the defendant provider was simply focused on keeping the audit results internal and effecting any amount of damage control possible.
VIII. “Hell Hath no Fury Like a Consultant Scorned.”
When the consultant became convinced that the defendant provider had not made the appropriate self-disclosures as required by law (and based on the consultant’s numerous recommendations), he filed a qui tam (or whistleblower) case against the defendant provider under the civil False Claims Act. Approximately five and a half years later, the government settled these allegations with the defendant. The defendant provider agreed to pay $26 million to resolve its liability to the Federal and State governments.
In a press release responding to the matter, the defendant noted that it had taken an active role to improve its billing practices and that is why it had hired a consulting company to perform the audits. “We hold ourselves accountable for the highest standards of care and service. The case in question does not involve the failure to provide high-quality patient care, but rather inconsistent billing processes,” said the CEO of one of the defendant’s facilities. “We proactively initiated an independent audit that identified some opportunities to improve billing processes…. We took immediate steps to make improvements.”
IX. Lessons to be Learned:
What can providers learn from this case? Clearly, providers must realize that whistleblowers can arise in a variety of ways. Many health care providers would likely not suspect that a consulting firm hired by the provider to perform compliance audits would ever report its findings to the government. Nevertheless, as the facts above reflect, the defendant above allegedly disregarded the auditor’s findings and recommendations over not one, but two years’ worth of audits, results that clearly indicated fraudulent activity was happening in its facilities.
Moreover, had the consultant observed his client doing the right thing after the initial audit and the follow-up review conducted, it is likely that no qui tam suit would have ever been filed.
So what should a provider do to ensure that it does not fall into the same circumstances above? First and foremost, a provider must ensure that it hires competent staff members and, more importantly, that it trains each one of them to perform their duties properly, within the four corners of the law. Ignoring, making light of, and / or minimizing the importance of following the rules is a quick recipe for disaster for a health care organization. As the Complaint in this case reflects, the defendant’s staff, including case managers and utilization review personnel, did not seem to know or understand the applicable Medicare rules, which likely was the initial cause of many of the errors that became systemic issues. As a result, no remedial steps were ever taken by the provider to change to its processes and procedures.
As we have discussed in previous articles, the design, implementation and adherence to an effective compliance plan can go a long way in assisting an organization in its efforts to fully comply with the letter (and the spirit) of the law.
In contrast, an organization that knowingly ignores a problem is likely to find itself liable to the government under the False Claims Act. As one of the health lawyers in our firm, Robert W. Liles has noted – although the elements of an effective compliance plan may only act as a framework and a model, they can give a provider significant guidance and can prove invaluable when seeking to adhere to applicable statutory and regulatory requirements. Mr. Liles has outlined "The Seven Elements of an Effective Compliance Plan" that can assist you in meeting your compliance requirements.
As a final lesson – it is imperative that health care providers take swift and appropriate corrective action once a medical necessity, coverage, documentation, coding or billing deficiency is identified in an organization. Any overpayment must be disclosed and returned to the appropriate government payor, private-payor and / or patient.
Robert Saltaformaggio is a rising Associate at Liles Parker, Attorneys & Counselors at Law. Liles Parker is a boutique health law firm with offices in Washington, DC, Houston, DC, McAllen, DC and Baton Rouge, LA. Our attorneys represent Physicians, Practice Groups and other health care providers around the country in connection with a full-range of health law statutory and regulatory matters and cases. For a free consultation on these and other health law issues, give us a call. We can reached at: 1 (800) 475-1906.
 The case is United States of America and the State of Florida ex rel. Terry L. Myers v. Shands Healthcare et al., Civil Action No. 3:08-cv-441-J-16HTS (M.D. Fla.).
 31 USC § 3729.