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On March 15, the Department of Justice announced that Raritan Bay Medical Center, a New Jersey non-profit corporation owning two hospitals in the state, had settled allegations of Medicare and TRICARE fraud with the United States government by agreeing to pay $7.5 million. Reaching the point of the Settlement Agreement was a combined effort of numerous departments in the federal government including the Office of Inspector General, Department of Justice, the Federal Bureau of Investigation, the Department of Health and Human Services and the U.S. Attorney’s Offices for the District of New Jersey and Eastern District of Pennsylvania. As health care practitioners, it is our duty to understand and be able to explain to our clients the far-reaching effects that improper billing may have when the government is involved. The importance of compliance measures also needs to be emphasized. The Raritan scenario, not to implicate liability, is purely a demonstration of the costly dangers hospitals and other medical providers face with their billing practices. This situation is also demonstrative of the role that private citizens can play in a False Claims suit. Case Background The case against Raritan stemmed from three different qui tam actions brought by four different relators, beginning back in November of 2002. Under the False Claims Act (FCA), private citizens (either individuals or corporations), known as “relators,” may bring a False Claims action against an entity in the name of the government. The federal government will investigate the claim, and then has the option to intervene after the suit is commenced. In this case, the first action was filed by two relators on Nov. 2, 2002, in the Eastern District of Pennsylvania and is captioned U.S. ex rel. Salvatori and Iveson v. [Under Seal]. The second action was filed Nov. 27, 2002, and is captioned U.S. ex rel. Monahan v. [Under Seal]. The last was filed June 15, 2002, and is captioned U.S. ex rel. Kite v. [Under Seal]. The latter two actions were filed in the District of New Jersey. Collectively, the False Claims actions alleged that between 1998 and 2003 Raritan engaged in a practice of fraudulently increasing charges to Medicare patients so that the hospital in turn would receive higher reimbursements from Medicare. Under Medicare, the government will pay supplemental Medicare reimbursement to hospitals in cases where the cost of care is unusually high, otherwise known as “outlier” cases. Raritan allegedly submitted or caused to be submitted false claims for inpatient and outpatient outlier payments by increasing their charges for such care such that when adjusted to costs pursuant to the outlier statute and regulations these charges no longer reasonably approximated Raritan’s actual costs. Settlement Terms The settlement is neither an admission of liability on the FCA claims by Raritan, nor is it considered a concession by the federal government that Raritan did not violate the Medicare laws. Under the terms of the agreement, Raritan is to pay the United States a total of $7.5 million in four equal annual installments with the first due within 10 days of the effective date of the settlement agreement. Should Raritan default in its payments (with a 10-day opportunity to cure) the government has the option to either make the remaining unpaid principal due immediately; file for specific performance; offset the payments remaining from any amounts due to Raritan by the federal government; or rescind the settlement agreement and sue over the alleged conduct covered in the agreement. Raritan, in turn, will be released from civil and administrative liability from the United States for the actions covered in the settlement agreement. Release from criminal liability or any liability under the Internal Revenue Code are not included within the terms of the agreement for the covered conduct. Any liability for claims of a state arising under Medicaid is also not covered by the settlement agreement. The settlement agreement also provided that the relators in this matter would receive a portion of the settlement amount. Under 31 U.S.C. Section 3730(d), proper “first source” relators are entitled to receive a portion of a settlement in favor of the United States government. The percentage of recovery that a relator may receive depends on whether or not the government intervenes, among other factors. Under the settlement agreement, the United States agreed to pay to the Salvatori relators 16 percent of the settlement amount actually recovered by the federal government under the settlement agreement. In return, the Salvatori relators are to agree to allow the United States to intervene in the action and stipulate to the U.S. government securing dismissal of the action with prejudice. The Salvatori, Monahan and Kite relators, as part of the settlement agreement, represented that they had come to a separate agreement for the sharing of the funds received per the settlement agreement. In the Monahan and Kite actions, the relators are to move for a dismissal of their respective actions with prejudice within 30 days of the effective date of the settlement agreement. In an effort to assure adherence to the settlement agreement, Raritan was required to produce financial information and warrant to the information’s completeness and accuracy. In the event the government learns of assets that were not disclosed or that the net worth of assets that were disclosed were misrepresented by one million dollars or more, the government may rescind the agreement or keep the agreement intact and collect the entire net value of the previously undisclosed assets. Raritan also agreed to cooperate with the federal government in the investigation of individuals and entities not released by the settlement agreement, which includes production of company documents and making its officers, directors and employees available for interviews and testimony. Costs surrounding the litigation of this issue are deemed “unallowable costs” under government contracts and the Medicare, Medicaid, TRICARE and Federal Employee Health Benefits (FEHBP) programs. These unallowable costs are to be separately accounted for by Raritan, and Raritan may not directly or indirectly charge any of these costs incurred to contracts with the U.S. government, any state Medicaid program, or the Medicare, Medicaid, TRICARE or FEHBP programs. As another aspect of the settlement, and demonstrating the collaboration between the various federal departments in this matter, Raritan entered into a corporate integrity agreement (CIA) with the Department of Health and Human Services (HHS). The CIA provides a number of measures and procedures to be taken and implemented by Raritan to ensure future compliance with Medicare rules and regulations in the future. They include enhancements to Raritan’s existing corporate compliance and internal audit program. In its part, HHS agreed to release and refrain from excluding or attempting to exclude Raritan from the Medicare, Medicaid and other federal programs for the conduct covered by the settlement agreement. Should Raritan default, however, HHS will have the right to exclude Raritan from such programs until all funds owed under the agreement are paid. In consideration of the agreement, the TRICARE Management Authority agreed to release Raritan and refrain from seeking to exclude Raritan from the TRICARE Program for the conduct covered by the settlement agreement, with carved out exceptions. The settlement agreement may be found online at http://op.bna.com/hl.nsf/r?Open=jthn-6zbqyz. Conclusion Although there was no legal liability established here, this scenario demonstrates that proper billing practices are vital for health care providers. Improper practices may lead to severe civil monetary penalties, criminal penalties and administrative recourse such as exclusion from vital programs such as Medicare, Medicaid and TRICARE, not to mention a world of legal hassle and expenses. VASILIOS J. KALOGREDIS is president and founder of Kalogredis Sansweet Dearden & Burke, a health care law firm, and Professional Practice Consulting Inc., a health care consulting firm, in Wayne, Pa. Among his areas of expertise are group practice arrangements, practice sales and mergers, doctor contract drafting and negotiation, tax and retirement planning for physicians, joint ventures, fraud and abuse matters, and evaluation of practice options for physicians. He can be contacted at 800-688-8314 or by email at [email protected].

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