So in a move more common in the pharmaceutical industry and among large U.S. corporations in general, U.S. District Judge Terrence Boyle granted prosecutors' request to let WakeMed enter a deferred-prosecution agreement that will erase the felony charge after two years of successful compliance with the law.
Scott Taebel, an attorney with Hall Render in Milwaukee, said the hospital industry is likely to see more such agreements in the future in “extreme situations.”
“I would hope, though, that … those situations remain very rare, because, really the potential consequences are far beyond the hospital,” Taebel said.”
At the heart of the situation is Section 1320a-7 of the Social Security Act, which requires the CMS to revoke a hospital's ability to care for Medicare patients if the provider is convicted of a felony related to the provision of federally funded healthcare services.
“You get excluded, and that is effectively the death sentence, because hospitals can't operate without federal program monies,” said Michael Clark, an attorney with Duane Morris in Houston.
WakeMed, for example, received $263 million from Medicare in 2011—that was 42% of all the revenue the system received for hospital care that year, according to the publicly available IRS tax filings for the not-for-profit healthcare provider.
Thomas Walker, the U.S. attorney in Raleigh, said prosecutors ought to be able to wield that kind of leverage in situations that require a greater deterrent than civil settlements, which are far more common in hospital cases and typically do not require the provider to admit wrongdoing.
“Healthcare providers should recognize that their Medicare ticket is not guaranteed and beyond reproach,” Walker wrote in an e-mail. “After all, it is the taxpayers' money, and the integrity of the healthcare system that is ultimately at stake.”
In addition to WakeMed's two-year deferred prosecution agreement, the system agreed to pay $8 million in a False Claims Act settlement and enter into an extensive five-year corporate integrity agreement with HHS' inspector general.
Prosecutors and legal experts said the WakeMed case is the first time a community hospital has been charged criminally with making false statements to Medicare.
However, it was not the first hospital criminal case resolved through deferred prosecution agreement.
The University of Medicine & Dentistry of New Jersey in Newark received such an agreement in 2005 after it admitted to knowingly double-billing for certain services, as did Los Angeles Doctor's Hospital last year, after the hospital was charged with paying kickbacks to recruit patients for medically unnecessary services.
Clark said the agreements may be a kind of “intermediate sanction” that will be used more frequently, falling between civil penalties that don't hold anyone accountable and criminal cases that can close down a hospital. But ultimately, the agreements point to flaws in the law, he said.
“At some point, you have to kind of question the law, and does it need to be that far-reaching?” Clark said. “If it's too far-reaching, and we have to find ways not to use it, then it makes you wonder if we've gone too far.”