Judge rejects WakeMed deal

A federal judge has put a temporary hold on a settlement that would bring to a close the government's first-ever attempt to criminally penalize a major hospital system for making false statements to rip off Medicare.

Government prosecutors and North Carolina's WakeMed Health and Hospitals attempted to settle charges last week that cardiac departments in the hospital system submitted at least $1.2 million in falsified bills.

Officials with WakeMed, the seventh-largest system in the state with $1.1 billion in revenue, publicly admitted in the 116-page draft settlement and deferred-prosecution agreement that staff members routinely billed the CMS for expensive acute care even though patients at the system's Raleigh heart-care center did not spend a night in the hospital. The proposed $8 million agreement included a $6.8 million civil penalty.

Breaking from a national practice of using only civil litigation against hospitals for overbilling, prosecutors with the U.S. attorney's office in Raleigh on Dec. 19 charged the health system with a single count of submitting materially false statements in conjunction with Medicare benefits. The crime carries fines and possible prison time for individuals. Lawyers say hospitals convicted of “program-related offenses” can also be excluded from Medicare for five years.

Late last week, U.S. District Judge Terrence Boyle refused to approve the settlement, which he called a “slap on the hand” in light of the serious penalties faced by people engaged in fraud, including prison time. While government officials reserved the right to charge WakeMed officials in the future, all criminal charges against the health system would have been erased after two years if the system complied with the terms of a proposed deferred-prosecution agreement.

“There are lots of corporations that steal from the government,” Boyle said in open court, according to an account in the Raleigh News and Observer. “Most of them are convicted, fined and banished.”

Several healthcare lawyers said WakeMed is the first health system criminally charged with making material false statements in order to inflate Medicare bills. Many hospitals over the years have been accused of submitting false Medicare bills, but those have all been civil cases in which settlements—typically under the False Claims Act—have not forced hospitals to admit wrongdoing.

“What this is saying is that (WakeMed) knew they were cheating when they were doing what they were doing, which is pretty serious,” said Gabriel Imperato, a managing partner with Broad and Cassel and a former HHS attorney.

The system was targeted after a Medicare contractor noted in 2007 that the system had the highest rate in the state—and one of the highest in the nation—of “zero-day” hospital stays. A zero-day stay is billed at the higher Medicare Part A daily rate even though the patient never spends a night in the hospital.

A subsequent investigation found many of the patients between 2000 and 2008 even lacked physician orders for hospital care. Yet WakeMed employees billed the care that way and, in some cases, even fabricated patient records, according to the proposed settlement and deferred-prosecution agreement.

Boyle lashed out at the proposal in court. He said such deferred-prosecution agreements are more commonly used against teenagers caught smoking marijuana on the beach, rather than for large corporations admitting to complex financial crimes against a government program.

Officials with WakeMed and the U.S. attorney's office in Raleigh declined requests for comment on the ongoing criminal case.

Experts in healthcare law differed on whether the criminal case was an aberration based on the seriousness of the activity or a sign of things to come. Cases where patients stay two or fewer nights have come in for particular scrutiny by government-contracted auditors such as the one that discovered WakeMed's zero-day billing pattern.

Lisa Noller, a partner with Foley & Lardner in Chicago and a former federal prosecutor, said she knows of other cases where investigators are examining patterns of zero-day stays, but WakeMed is apparently the first such case to lead to criminal charges. “There is no question in the government's mind that if an entity submits a bill for an overnight stay and the patient did not stay overnight, that that would be a incorrect claim,” she said.

Other legal experts argued most short-stay investigations focus on whether doctors had enough clinical evidence to justify inpatient care over than less-expensive outpatient treatments, not fraud. “WakeMed is more of a one-off situation,” said Mark Polston, an attorney with King & Spalding and former CMS lawyer.