Skip to main content
Subscribe
  • Login
  • My Account
  • Logout
  • Register For Free
  • Subscribe
  • News
    • Current News
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Digital Health
    • Transformation
    • ESG
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Blogs
    • AI
    • Deals
    • Layoff Tracker
    • HLTH 2024
    • Sponsored Content: Vital Signs Blog
  • Opinion
    • Letters
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • 40 Under 40
    • Best Places to Work in Healthcare
    • Healthcare Marketing Impact Awards
    • Innovators Awards
    • Diversity Leaders
    • Leading Women
    • Best in Business Awards
    • The 2030 Playbook Conference
    • Innovations in Patient Experience
    • Leading Women Conference & Awards Luncheon
    • Leadership Summit
    • Workforce Summit
    • Best Places to Work Awards Gala
    • Diversity Leaders Gala
    • - Looking Ahead to 2025
    • - Financial Growth
    • - Hospital of the Future
    • - Value Based Care
    • - Looking Ahead to 2026
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Sponsored Video Series - One on One
    • Sponsored Video Series - Checking In with Dan Peres
  • Data & Insights
    • Data & Insights Home
    • Hospital Financials
    • Staffing & Compensation
    • Quality & Safety
    • Mergers & Acquisitions
    • Skilled Nursing Facilities
    • Data Archive
    • Resource Guide: By the Numbers
    • Surveys
    • Data Points
  • Newsletters
  • MORE+
    • Contact Us
    • Advertise
    • Media Kit
    • Jobs
    • People on the Move
    • Reprints & Licensing
    • Sponsored Content
MENU
Breadcrumb
  1. Home
  2. Legal
July 01, 2020 03:34 PM

Investigators target fraud that exploits rural hospitals

Alex Kacik
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Modern Healthcare Illustration / Getty Images

    The COVID-19 financial crunch will likely lead to more healthcare fraud as new management companies of cash-strapped providers try to avoid closure, legal experts said.

    A spate of bankruptcies is expected this fall as small hospitals that can't weather COVID-19's margin compression restructure. There will be opportunistic buyers who toe the threshold between maximizing reimbursement and fraud, legal experts said, and they expect an uptick in fraudulent activity.

    "Where we will see it happen is with aggressive, small, for-profit buyers who are hands-on and will try new approaches," a consultant who works with hospitals said, adding that there is no question COVID-19 will prompt new schemes. "There are a lot of bankruptcies coming down the pike, and you'll have burned buyers who don't have the appetite for taking on more acute-care risk. A number of them will say: 'We can get this thing in bankruptcy and make the numbers work,' whether it's through aggressive coding, lab billing—you pick it."

    Lab billing schemes have been a popular avenue for fraud, reinforced by an indictment unsealed this week. One version of the scheme involves a company buying a struggling rural hospital, which receives more money for tests than lab companies because of its higher fixed costs and lower volume, and using its favorable contracts with commercial insurers to boost reimbursement for lab tests—even ones from patients who didn't visit the hospital.

    Hospital managers, lab owners, billers and recruiters were indicted for funneling fraudulent lab test claims through rural hospitals in several states to exploit the higher reimbursement rates, according to the Justice Department. The 10 individuals who were charged with 23 counts of conspiracy to commit fraud and money laundering allegedly billed private insurance companies approximately $1.4 billion from November 2015 to February 2018 and were paid around $400 million.

    Those involved would take over financially unstable rural hospitals through management companies they owned and operated and bill private insurance companies for expensive urine and blood tests that were conducted at labs and run through billing companies they controlled or were affiliated with, according to the indictment. While outside laboratories did most of the tests, the charged individuals allegedly billed insurers as if they were done at rural hospitals, which receive higher reimbursement rates than the outside labs.

    The lab tests were often unnecessary, according to the indictment. The conspirators would obtain urine specimens and other samples through kickbacks paid to recruiters and providers—often sober homes and substance abuse treatment centers. They would allegedly funnel the money through legitimate businesses to hide the scheme and distribute the proceeds.

    "Who does the buying becomes more important than ever because, as I think this fraud illustrated, you can hide a lot of improper conduct in a rural health facility," said Mark Silberman, a partner in Benesch's healthcare and life science group who has served as a state and federal prosecutor. "Candidly, if fraud has been conducted to this degree of success, there is real potential that it is being done elsewhere."

    But these small hospitals with narrow margins, not to mention the surrounding communities that rely on them, are often the ones that can least afford a fraud investigation, putting law-abiding operators in a difficult position, he noted.

    "It is unquestionable the degree of scrutiny over government healthcare dollars is going to increase because of the increasing volume of people reliant on Medicare, Medicaid and Tricare and the number of people in rural communities who will require significant care over the coming years," Silberman said.

    The Justice Department recovered more than $2.6 billion of healthcare fraud settlements in 2019, which aligns with the average trend in annual settlements over the decade prior. Rural hospitals will likely be an area of focus for state and federal investigators, given that these schemes can undermine access to care in underserved communities, said Brian French, a partner at Nixon Peabody.

    "As rural hospitals become more desperate, it's easier to be inadvertently lured into a deal by someone making promises to bring in more money and operate the facility more efficiently to maintain access and keep employees working," said French, adding that rural and critical-access hospitals are attractive targets because of their higher reimbursement rates. "There is a lot of pressure for these hospitals to stay afloat."

    These investigations inadvertently punish rural hospitals, he added, noting that a number of the hospitals named in the indictment have already gone under or are in bankruptcy proceedings. While there hasn't been a wave of bankruptcies yet, legal experts expect one this fall.

    Rural hospitals had been struggling prior to the pandemic as they cope with dwindling Medicare reimbursement while more patients migrate to Medicare, Medicaid and Tricare. About 46% of the country's 1,844 rural hospitals were operating in the red as of 2019, up from 40% in 2017, according to the Chartis Center for Rural Health. COVID-19 has only made things worse.

    A dozen rural hospitals have closed in 2020 so far, bringing the total to 171 since 2005, according to researchers at the University of North Carolina.

    In addition to a focus on rural providers, the indictment signals that the Justice Department is increasingly willing to prosecute fraud involving commercial payers, said Danielle Sloane, a healthcare attorney with Bass, Berry & Sims.

    "That has been percolating for a while. This case shows not only how it hurt commercial payers and self-insured employers' bottom lines, but also the surrounding community," she said, adding that the public health emergency highlights the importance of rural hospitals to their communities. "There is almost a heightening desire of the prosecutors to make an example of someone who took advantage of hospitals in these communities that don't have much access to healthcare services."

    Another indicator is the Eliminating Kickbacks in Recovery Act that passed in October 2018; it gives investigators a direct avenue to prosecute fraud affecting commercial insurers, Sloane said.

    "It is really a congressional statement that says healthcare fraud in the commercial space is not OK either—we're not just going to watch federal programs anymore," she said.

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    Tenet-Leapfrog
    Tenet hospitals sue Leapfrog Group over 'pay-to-play' grades
    Department_of_Justice_edited_AP_i_i_i.jpg
    DOJ sues insurers over alleged Medicare Advantage kickbacks
    Most Popular
    1
    Here are new state healthcare laws taking effect in 2025
    2
    Meet Modern Healthcare's 2025 Leading Women
    3
    New York-Presbyterian layoffs affect 2% of employees
    4
    Evernorth, Optum, CenterWell units buoyed insurers in Q1
    5
    Epic CEO Judy Faulkner on AI, antitrust and consolidation
    Sponsored Content
    Daily Dose Newsletter: Sign up to receive a late afternoon weekday roundup of that day’s breaking news and developments in healthcare.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Help Center
    • Advertise with Us
    • Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2025. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Digital Health
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • ESG
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Blogs
      • AI
      • Deals
      • Layoff Tracker
      • HLTH 2024
      • Sponsored Content: Vital Signs Blog
    • Opinion
      • Letters
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • 40 Under 40
        • Best Places to Work in Healthcare
        • Healthcare Marketing Impact Awards
        • Innovators Awards
        • Diversity Leaders
        • Leading Women
        • Best in Business Awards
      • Conferences
        • The 2030 Playbook Conference
        • Innovations in Patient Experience
        • Leading Women Conference & Awards Luncheon
        • Leadership Summit
        • Workforce Summit
      • Galas
        • Best Places to Work Awards Gala
        • Diversity Leaders Gala
      • Virtual Briefings
        • - Looking Ahead to 2025
        • - Financial Growth
        • - Hospital of the Future
        • - Value Based Care
        • - Looking Ahead to 2026
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Sponsored Video Series - One on One
      • Sponsored Video Series - Checking In with Dan Peres
    • Data & Insights
      • Data & Insights Home
      • Hospital Financials
      • Staffing & Compensation
      • Quality & Safety
      • Mergers & Acquisitions
      • Skilled Nursing Facilities
      • Data Archive
      • Resource Guide: By the Numbers
      • Surveys
      • Data Points
    • Newsletters
    • MORE+
      • Contact Us
      • Advertise
      • Media Kit
      • Jobs
      • People on the Move
      • Reprints & Licensing
      • Sponsored Content