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Strata Resolves Whistleblower Lawsuit

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Two interesting and important health care fraud news stories this week…

On Monday, it was reported that hundreds of hospitals throughout the country have reached a settlement agreement with the Justice Department regarding a lengthy, nationwide investigation into the alleged overuse of implantable cardioverter defibrillators (known as ICDs).

Little information on the case has been made public, presumably because there are still details for both sides to come together on, but based on the number of those named in the allegations, this could go down as one of the largest health care fraud settlements the nation has ever seen. At this point, no one has speculated on the amount of money that will be returned to the government, but Modern Healthcare is reporting that the amount is likely to be very large.

The speculation on the recovery amount is based on regulatory filings that several health systems have made in recent months. For example, HCA said in an August filing with the Securities and Exchanges Commission (SEC) that it had agreed to pay the government nearly $16 million. Also in August, Tenet Healthcare Corporation said it would pay just over $12 million in an SEC filing.

Other companies like Catholic Health Initiatives, Iasis Healthcare, St. Joseph Health, and MedCath Corporation (chain of heart hospitals that have since gone out of business) have also entered SEC filings stating an intent to pay the government. Not one of the companies admitted to any wrongdoing as part of their settlement agreements.

ICD’s cost around $25,000 to $40,000 each, and are wired to the heart in order to deliver an electric shock if the device detects any abnormal rhythm. Medicare changed its rules in January of 2005 and began allowing implantable cardiac devices for primary prevention of arrhythmia. The only catch is that ICD’s cannot be implanted within 40 days of a heart attack or within 90 days of angioplasty or bypass surgery. Regardless of the rules, more and more doctors still chose to implant the devices under these circumstances anyway. With so much money changing hands and the health issues involved in each ICD procedure, the Justice Department felt it needed to investigate. The ICD investigation started about four years ago.

Why Is This Investigation Important?

  • Since the Justice Department began investigating these allegations, hospitals nationwide have essentially been put on notice about Medicare’s national coverage for ICD’s, which has resulted in a decrease in the number of the devices implanted in recent years.
  • This case has interesting implications for future health care fraud claims. This landmark case involving hundreds of hospitals represents what is likely the largest investigation of its kind with the goal of holding each hospital accountable for the medical decisions made by physicians. The government believes that when hospitals bill for services performed by physicians on-site, it is the responsibility of the hospitals to make sure that the service, treatment, procedure, or device is in compliance with Medicare’s regulations. If hospitals fail to perform due diligence and make sure they are in compliance, they are exposed to liability under the False Claims Act.
  • Lastly, this case highlights the importance of data analysis as a tool for bringing False Claims Act cases. By looking for aberrations in hospital billing, the government can identify and investigate likely fraud.

Strata Pathology Reaches Agreement to Resolve Kickback Allegations

In other health care fraud news this week, Lexington, Massachusetts-based Strata Pathology Laboratory, Inc. has agreed to pay $558,793 to resolve whistleblower allegations that it paid kickbacks to doctors in order to entice patient referrals. The settlement resolves a whistleblower complaint initially filed by an unidentified former Strata employee. Strata is described on its website as a leading anatomic pathology laboratory providing patients, physicians, and hospitals with diagnostic services.

According to the U.S. Attorney’s Office for the District of Massachusetts, Strata paid a number of doctors kickbacks in the form of sham consulting fees and provided unlawful discounts to doctors as a means to earn Medicare and Medicaid patient referrals. The pathology lab acknowledged that it paid consulting fees to two referring physician practices even though the physicians never actually provided consulting services.

The company further acknowledged that it entered into “account billing” arrangements with seven referring physician practices that facilitated fee-splitting between the parties. Under these arrangements, the whistleblower complaint claims that Strata allowed these physician practices to bill patients’ private insurers directly for pathology services actually performed by Strata. The pathology lab then charged the practices for its services at deeply discounted rates, which allowed the physician practices to profit the difference between the discounted price Strata offered and the full reimbursement amount from patients’ private insurance companies. The allegations further state that all of the physician practices referred Medicare and Medicaid beneficiaries to Strata, which then billed those programs at full price.

The whistleblower lawsuit claimed that Strata submitted false claims for reimbursement from Medicare and Medicaid because the claims were based on kickbacks that Strata provided referring physicians. The Anti-Kickback Statute prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of services or items covered by government health care programs like Medicare or Medicaid.

Strata’s account billing arrangements with physician practices didn’t explicitly condition discounted prices upon patient referrals, but the U.S. claims that the pathology lab offered the discounts based on the understanding that these practices who chose to enter into account billing arrangements with Strata would refer virtually all of their patients.

The settlement will be shared between the U.S., the unidentified whistleblower, and the state of Massachusetts.

This case and the resulting settlement show how a whistleblower can protect the integrity of federal and state health care programs. When laboratories, hospitals, or other health care companies offer kickbacks to referring doctors, the integrity of the system is corrupted. In such cases, Physicians may have their health care decisions influenced by the money to be made, rather than the health care needs of their patients.

The whistleblower law firm of Baum Hedlund Aristei & Goldman applauds the government’s efforts in both of these cases, as well as those of the whistleblowers. We need more people to come forward and expose wrongdoing whenever possible to protect the integrity of Medicare and Medicaid, stop rising health care costs, and maintain quality of care based on patient need rather than financial reward.

If you have firsthand information on health care fraud, consider speaking with an experienced whistleblower attorney, who can walk you through your options. For more information on becoming a whistleblower, contact us anytime.

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