A whistle-blower lawsuit accusing two North Carolina hospitals of using their managed-care organization to fraudulently boost Medicare reimbursements shows complications that can arise as hospitals increasingly move into the insurance business.
According to the lawsuit, North Carolina Baptist Hospital, Winston-Salem, and Charlotte-based Carolinas HealthCare System co-owned a managed-care organization, MedCost, which they used for their self-funded health plans. MedCost, the lawsuit alleges, imposed excessive costs on hospital employees and drove up what's known as the wage index, which helps determine Medicare payments.
The inflated wage index allegedly led to tens of millions of dollars of fraudulent Medicare payments to the MedCost owners as well as other hospitals in the region.
The U.S. Justice Department declined in August to get involved in the lawsuit. In False Claims Act cases, whistle-blowers are entitled to a percentage of whatever money is recovered for the government.
Wake Forest Baptist Medical Center, which includes North Carolina Baptist, said in a statement that it fully cooperated with the government's investigation into the allegations. “We never believed the allegations had any validity and we are pleased that the government has declined to intervene in this matter.”
Carolinas HealthCare did not respond to a request for comment.
Legal experts say the case illustrates that health systems must be wary as they increasingly jump into the insurance business, triggering regulations under Medicare and the Employee Retirement Income Security Act that invite a new set of questions providers should be prepared to answer.
“Sometimes, entities in an effort to do things more effectively and more efficiently may trip up over these important rules,” said Harvey Cotton, a principal at Ropes and Gray who advises clients on employee health plans. “As health plan design evolves as much as it is—as people think about new ways of delivering care and benefits—these are questions that really ought to be considered.”
The North Carolina whistle-blower alleges the hospitals violated Medicare regulations requiring Medicare providers with a self-funded health plan to have an independent fiduciary administer the plan. Baptist employees made a similar claims against the hospital in a previous lawsuit alleging the hospital violated ERISA, the federal law regulating employer-provided benefits, because MedCost was a “party of interest” to the hospitals.
Under ERISA, employers may use companies they own to provide benefits to employees only if they can show they're doing so in the employees' best interest.
That previous case was settled for nearly $5.4 million in 2011. The hospital denied liability as part of the agreement.
“It's not that you can't use your own company, but you have to show it's competitively beneficial to your employees,” said Robert Zaytoun, an attorney for the employees in that case.
Hospitals with their own insurance plans must be careful not to run afoul of Medicare and ERISA regulations, experts say.
David Thornton, a member of the law firm Bass Berry and Sims who works with employers, said when hospitals control their employee healthcare networks, it can raise potential conflicts of interest—such as whether to negotiate low prices for employees or leave margins of profit for the system—if not handled correctly.
If a hospital is using employees' money to pay above-market prices or the plan is designed to push employees into networks that benefit the hospital, “you have some real ERISA problems there,” Thornton said. “You need to know that these duties do exist, and there are penalties involved if you are not able to establish that you have acted in the best interest of the participants.”
The whistle-blower in the case is named in court documents as Complin, which is described as a Delaware general partnership. The Charlotte Observer recently reported that Joe Vincoli, a former manager at Baptist, is the plaintiff behind Complin.
A website titled the Joe Vincoli Website on Hospital Domestic Care/Wage Index Medicare Fraud Scheme describes allegations like the ones in the North Carolina lawsuit and asserts that the scheme is “being used by many hospitals across the country.”
Philip Michael, an attorney for Complin, declined to confirm that Vincoli is behind the lawsuit. Michael said it wouldn't surprise him if other hospitals are engaged in the same conduct because some “are very good at ferreting out those schemes that they think they can get away with.”
And he disagrees that it's easy for health systems that insure their employees through their own health plans to run afoul of the law. “Just as a general proposition, you don't charge your employees more … than you charge others,” Michael said. “That shouldn't be that difficult to figure out.”
