Fourteen hospitals located in New York, Mississippi, North Carolina, Washington, Indiana, Missouri and Florida have agreed to pay the United States a total of more than $12 million to settle allegations that the health care facilities submitted false claims to Medicare, the Justice Department announced yesterday.

The settlements resolve allegations that these hospitals overcharged Medicare between 2000 and 2008 when performing kyphoplasty, a minimally-invasive procedure used to treat certain spinal fractures that often are due to osteoporosis. In many cases, the procedure can be performed safely as a less costly outpatient procedure, but the government contends that the hospitals performed the procedure on an inpatient basis in order to increase their Medicare billings.

The Justice Department has now reached settlements with more than 40 hospitals totaling over $39 million to resolve false claims allegations related to kyphoplasty claims submitted to Medicare. These settlements follow the government’s 2008 settlement with Medtronic Spine LLC, corporate successor to Kyphon Inc., which paid $75 million to settle allegations that the company defrauded Medicare by counseling hospital providers to perform kyphoplasty procedures as an inpatient procedure even though the minimally-invasive procedure should have been done in many cases on an outpatient basis.

All of the settling facilities were named as defendants in a qui tam, or whistleblower, lawsuit brought under the False Claims Act (FCA), which permits private citizens, known as “relators,” to bring lawsuits on behalf of the United States and receive a portion of the proceeds of any settlement or judgment awarded against a defendant. In effect, the FCA provides huge incentives to private citizens for bringing suits against corporations or persons filing false claims with the government. The private citizens filing FCA claims are typically former employees or insiders with knowledge of the alleged false claims practice.

Once an FCA claim is filed, the government is required to investigate the claim within 60 days. Following the investigation, the government has the option to intervene in the case or abstain. If the government intervenes, the relators are entitled to receive 15-20% of the ultimate judgment. If the government declines intervention, and the case proceeds, the relators are entitled to 25-30% of the judgment.

By intervening in an FCA suit, the Justice Department avoids the usual criminal processes for investigating and pursuing criminal charges against those allegedly engaged in fraud. Moreover, the government can ultimately go after a monetary judgment through settlement rather than criminal restitution or forfeiture. This may be more beneficial particularly in the context of corporations.

The lawsuit above was filed in 2008 in federal district court in Buffalo, New York, by Craig Patrick and Charles Bates. Patrick is a former reimbursement manager for Kyphon, and Bates was formerly a regional sales manager for Kyphon. The relators will receive a total of approximately $2.1 million from the settlements.

The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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