Healthcare Business News
Wayne Smith, CEO of Community Health Systems

CHS to pay $97 million to settle short-stay investigation

By Bob Herman
Posted: August 4, 2014 - 7:45 pm ET

For-profit hospital operator Community Health Systems has agreed to pay more than $97 million plus interest to the federal government, settling allegations that it submitted false claims for short-stay admissions that should have been billed as outpatient charges.

CHS and the Department of Justice announced the settlement late Monday. It came with “no finding of improper conduct by Community Health Systems or its affiliated hospitals, and the Company has denied any wrongdoing,” the Franklin, Tenn.-based system said in announcing the settlement.

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The settlement figure was close to the $102 million reserve CHS set aside earlier this year for a possible settlement.

“Having a regulatory cloud over you is never pleasant,” said Frank Morgan, an analyst with RBC Capital Markets who follows CHS. “At the end of the day, it turns into a business decision. A settlement rather than a protracted process is the best outcome here. When companies start talking reserves like that, it sends a message to Wall Street that they are very far along.”

At issue were the billing practices of 119 CHS hospitals between January 2005 and December 2010. Several whistle-blowers alleged CHS admitted patients through its emergency departments and then billed Medicare, Medicaid and Tricare for “medically unnecessary” inpatient stays or procedures, when patients should have been treated as outpatients or placed on observation. The whistle-blowers—including ED physicians and case managers—also contended CHS established certain admissions benchmarks to improve profitability, since inpatient stays pay more than outpatient care.

The settlement also resolved separate allegations of inappropriate cardiac and hemodialysis services and self-referrals at CHS’ Laredo (Texas) Medical Center.

However, an attorney representing the whistle-blowers said the result merely resolves a dispute, and more needs to be done to improve patient care and safety.

“I take the $97 million and the framed allegations and the settlement agreement as a catalyst for Congress to launch a broader investigation into how the private sector has corrupted our healthcare delivery system,” said Reuben Guttman, an attorney at Grant & Eisenhofer, which represented several whistle-blowers in the case.

Wayne Smith, CEO of Community Health Services, said the rules for admission have complicated clinical decisions, and the company hopes to work more closely with the government to determine what constitutes appropriate inpatient care.

“The question of when a patient should be admitted to a hospital is, and always has been, a matter of medical judgment by the individual physician responsible for a patient’s care,” Smith said in a statement. “Unfortunately, shifting and often ambiguous standards make it extremely difficult for physicians and hospitals to consistently comply with the regulations. We are committed to doing our best, despite these challenges.”

CHS also agreed to a five-year corporate integrity agreement, which essentially subjects providers to enhanced oversight from HHS’ Office of Inspector General to avoid getting booted from Medicare and Medicaid.

Matt Organ, a partner with Goldberg Kohn who represented two whistle-blowers, said he believes the resolution is a microcosm of the growing whistle-blower movement. Indeed, qui tam cases have increased over the past several years, and the government has shown a propensity for jumping on cases that have a strong sense of alleged healthcare fraud.

“I think that there are a number of people in the healthcare industry who have a growing concern about corporate pressure influencing medical decision-making,” Organ said. “I think when this case gets a little bit of attention, people might recognize this may be happening at their medical facility, and (it may) give them the courage to come forward.”

The settlement does not end scrutiny on CHS. The government is still investigating billing practices at Health Management Associates hospitals, the former North Naples, Fla.-based hospital chain that CHS bought earlier this year. CHS said it is still working with the DOJ to reach a resolution on those investigations.

Follow Bob Herman on Twitter: @MHbherman

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