Hospital Faces Whistleblower Suit Over Issues Raised in Audit

April 15, 2019Alerts

Hospitals and other providers should take note of a recent federal court ruling that green-lighted a whistleblower suit against MedStar Health Inc. brought by a former employee who alleged that the health care system billed federal insurance programs for unnecessary inpatient admissions.

MedStar urged the court to dismiss the case, contending that claims under the False Claims Act brought by whistleblowers or “relators” must be dismissed if the basis for the allegations was already publicly disclosed in connection with prior government audits.

But a federal judge disagreed, finding that the suit, also known as a qui tam action, must be allowed to proceed because the hospital's prior public disclosures lacked details.

“The court might be able to overlook the absence of any overlap if the public disclosures identified by the MedStar defendants contained any details with similarities to relator’s allegations,” U.S. District Judge Robert M. Dow of the Northern District of Illinois wrote in his 18-page opinion in United States ex rel. Graziosi v. Accretive Health, Inc., et al. “But instead, the public disclosures focus on a high level of generality: the classification of patients as inpatients without medical necessity.”

As a result, Judge Dow denied Defendant’s MedStar’s motion to dismiss based on a lack of jurisdiction, and its alternative companion motion for summary judgment premised on the “public disclosure bar” to relator’s qui tam proceedings.

The “public disclosure bar” prevents a relator from filing a qui tam action based upon information previously disclosed to the public. A qui tam action under the False Claims Act, is an action instituted by a private citizen or relator on behalf of the U.S. government against a person or a company who is believed to have engaged in health care fraud. Once the proceedings are instituted the federal government can choose to intervene in the matter. However, whether the government intervenes or not, if the relator is successful and prevails, the relator is entitled to a percentage of the funds recouped by the federal government.

This case applies a narrow scope to the public disclosure bar that favors prospective relators. The decision requires that the public disclosure be more specifically aligned with the claims of the relator, rather than merely having some connection with the disclosure in a high level of generality.

The facts of the case are as follows:

  • The relator Cherry Graziosi worked between January 2010 and October 2013 as a “Service Associate” in the emergency department of Washington Hospital Center one of nine hospitals and twenty other health facilities in Maryland and Washington, D.C. owned and operated by MedStar Health, a Maryland corporation.
  • Part of Graziosi’s job was making and receiving daily communications from the staff of the emergency department of the Hospital to staff of R1RCM (Accretive).
  • R1RCM is company that, among other things, reviews documentation for patients whose medical conditions only qualified them under federal insurance programs to be admitted for observation, and not for admission as a hospital inpatient. Reimbursement for observation is paid as an outpatient service through Medicare Part B funds, rather than the more financially advantageous inpatient compensation under Medicare Part A.
  • According to the Complaint R1RCM had a contract with MedStar to review admissions that were previously determined by its hospital staff to fail to meet the medical necessity requirement for inpatient admission (24 hour then two midnight rule).
  • Relator alleges that she worked on what she characterized as the “ Accretive admissions certification scheme” to submit allegedly false claims for health care costs reimbursement by federal Medicare, Medicaid, and Tricare for inpatient admissions for patients who failed to meet the medical necessity requirement for such admissions.

MedStar’s motions under the “public disclosure bar,” relate to a jurisdictional defect for pre-2010 claims and statutory defense post-2010 with the enactment of 31 USC Sec. 3730 (e) 4.

Public Disclosure – A Three-Step Inquiry

For purposes of the public disclosure bar, a public disclosure occurs “when the critical element exposing a transaction as fraudulent are placed in the public domain.” The fraud itself need not be public, as long as “facts establishing the essential elements of fraud – and, consequently, providing a basis for the inference that ‘fraud has been committed’ – are in the government’s possession or public domain.”

Public disclosure is a three-step inquiry:

  1. Have the relator’s allegations been publicly disclosed?
  2. Is the relator’s action substantially similar to the publicly disclosed allegations?
  3. Even if the public disclosure bar applies, was the relator the original source for the public disclosure? If so, then the relator is not disqualified.

In this case, while there were public disclosures concerning the Hospital’s alleged misclassification inpatients through a set of audits performed by a Recovery Audit Contractor (RAC), and an audit by the OIG finding that a number of inpatient admissions were inappropriate for failing to meet the medical necessity standard, there were no allegations or inferences of fraud.

The court also found that the allegations and facts were not substantially similar applying a four-prong test;

  1. Did the time periods for the allegations or transactions overlap?
  2. Did the relator have first-hand knowledge of the allegations?
  3. Were the allegations similar or involve different schemes such that independent investigation and analysis is required?, and
  4. Does the relator present genuinely new and material information? Or is it just more detail or additional instances?

The court found no time overlap. The court also noted that the public disclosures focused on a high level of generalities. Moreover, the complaint (third-amended compliant) alleged new and material information, not just extra details. Finally, there was no question about the relator possessing first-hand knowledge. The court concluded that the relator’s allegations were not substantially similar, so the court did not need to inquire about whether the relator was the original source.

In conclusion, the court in Graziosi applied narrow limits to the scope of the public disclosure bar so to preserve the relator’s qui tam proceedings under the False Claims Act.

Stay tuned for further developments in a case involving Intermountain Healthcare, Inc. that may go before the U.S. Supreme Court testing how far the courts will go to preserve the relator’s ability to pursue qui tam actions under the False Claims Act, where the relator’s allegations are supported by scant details in the complaint.