Hospital Medicare Cost Reporting Alert: Hospital and Investors Allegedly Attempt to “Game” Inpatient Prospective Payment System (IPPS) and Lose, Settling for $30.6 Million

Last week the Department of Justice (“DOJ”) issued a press release[1] touting a settlement with Silver Lake Hospital (“Silver Lake”) and Silver Lake Investors.  The DOJ alleged that Silver Lake attempted to game the Inpatient Prospective Payment System’s (“IPPS”) so-called “outlier payment program.[2]” (“OPP”).  Specifically, the DOJ alleged that Silver Lake artificially and “rapidly increas[ed] [Silver Lake’s] charges for inpatient care such that, when adjusted to costs pursuant to the cost outlier statute and regulations . . . these charges no longer reasonably reflected or approximated Silver Lake’s actual costs . . .”[3]

OPP is a critically important program for hospitals participating in Medicare, designed to serve as a safety net for “extraordinarily high cost[]” patients. 42 C.F.R. 412.84. At a high level, the OPP program functions as follows: First, hospitals receive a baseline, fixed and prospective payment set by the Centers for Medicare and Medicaid Services (“CMS”) for specific categories of services and treatments that is risk adjusted and increased or decreased accordingly under CMS’s “diagnosis-related groups” risk adjustment methodology. See 42 C.F.R. 412.308; § 412.312; § 412.60; Billings Clinic v. Azar, 901 F.3d 301, 303 (D.C. Cir. 2018). Next, a hospital who believes that its “charges, adjusted to cost, exceed the sum of the applicable [diagnosis-related group] prospective payment rate plus any amounts payable under [the payment adjustment provisions] plus a fixed dollar amount determined by the Secretary[,]” may request an OPP payment to hedge against such “extraordinarily high” costs. 42 U.S.C. § 1395ww(d)(5)(A)(ii). Broadly, OPP payments are triggered pursuant to the following formula: “[actual] Charges, Adjusted to Cost > (Generic Prospective Payment + Any Payment Adjustments + Additional Buffer Amount (set by Secretary))[.]” Billings, 901 F.3d at 304.

It is the actual, cost-adjusted charges component in the above formula that, by all appearances, Silver Lake is alleged to have artificially inflated or “turbocharged,” a term used in past outlier payment program False Claims Act (“FCA”) matters[4]. Doing so pushed those charges – i.e., the cost-adjusted actual charges – above OPP loss thresholds, triggering payment under the program. It is unclear precisely how the government determined the prices were inflated here – as the government does not appear to have ever filed a Complaint or Indictment against Silver Lake. It could have easily been a disgruntled corporate insider, or even a random Office of the Inspector General (“OIG”) audit. Whoever or whatever the source may have been, they created tremendous potential FCA liability for the hospital and its investors, as evidenced by the scale of the eight-figure settlement.

It would behoove hospitals to take a hard, inward-facing look at the charges for items and services furnished in connection with OPP payment requests before submitting them to the federal government. Experienced healthcare counsel can assist in determining whether inflated costs and charges may pose a risk of FCA liability and, if so, guide the hospital in mitigating that risk. Early detection coupled with a thoughtful OIG self-disclosure could potentially save hospitals millions.

Frier Levitt has a growing risk adjustment compliance and litigation team with experience in litigation and litigation avoidance within the Medicare risk adjustment space. Contact us today for a consult.

[1] https://www.justice.gov/opa/pr/new-jersey-hospital-and-investors-pay-united-states-306-million-alleged-false-claims-related

[2] See, inter alia, 42 U.S.C. § 1395ww(d)(5)(A) et seq.; 42 C.F.R. 412.84.

[3] See https://www.justice.gov/opa/media/1333626/dl?inline.

[4] See, e.g., United States ex rel. Monahan v. Robert Wood Johnson Univ Hosp. at Hamilton, 2009 U.S. Dist. LEXIS 38898 at * 1, 3-4 (D.N.J. May 6, 2009)

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