Indiana and Alabama hospitals pay $8.3 million to settle whistleblower lawsuit for Medicare fraud

Fraud allegations involved billing for minor back surgery

SEPTEMBER 29, 2009, WASHINGTON, DC - Three hospitals in Indiana and three hospitals in Alabama have agreed to pay the federal government a total of $8.3 million to settle a whistleblower lawsuit that alleged the hospitals deliberately overcharged Medicare for routine, minimally-invasive back surgery.

The "qui tam" (whistleblower) lawsuit said that, from 2000 to 2008, patients who went to these hospitals for a certain type of spinal surgery known as "kyphoplasty" were unnecessarily kept overnight at the hospital and then classified as inpatient cases to boost the hospitals' revenues. The lawsuit said, and the government agreed, that the minimally invasive procedure can usually be performed safely on an outpatient basis.

"Billing Medicare for inpatient surgery rather than for an outpatient procedure wrongly increased the hospitals' revenues thousands of dollars each time kyphoplasty was performed," said Mary Louise Cohen, a Washington, DC, attorney with Phillips & Cohen LLP, which represents the whistleblowers.

The hospitals settling the whistleblower complaint and the amounts they are paying the federal government are:

  • St. Francis Hospital, Beech Grove, Indiana - $3.16 million
  • Deaconess Hospital, Evansville, Indiana - $2.1 million
  • St. Vincent's East, Birmingham, Alabama - $1.46 million
  • St. John's Hospital System, Anderson, Indiana - $826,256
  • St. Vincent's Birmingham Hospital, Birmingham, Alabama - $422,748
  • Providence Hospital, Mobile, Alabama - $381,713

The six Indiana and Alabama hospitals are the second group of hospitals to settle charges stemming from a whistleblower lawsuit alleging Medicare billing fraud involving kyphoplasty. In April, three HealthEast hospitals in the St. Paul, Minnesota, area, paid the federal government a total of $2.28 million to settle the whistleblower allegations.

Medtronic Spine LLC paid $75 million last year to settle a qui tam lawsuit brought by the same whistleblowers. The company had acquired Kyphon Inc., which sold the equipment and materials used to perform kyphoplasty and promoted the procedure as a moneymaker for hospitals if they billed Medicare for inpatient rather than outpatient surgery.

"The whistleblower lawsuit alleged hospitals were basing their decisions in most cases on financial rather than medical reasons when deciding whether patients should undergo kyphoplasty on an inpatient or an outpatient basis," said Matthew Smith, another Phillips & Cohen attorney in Washington, DC. "To qualify for Medicare reimbursement, inpatient stays need to be medically necessary."

Kyphoplasty is used to treat certain spinal compression fractures that commonly occur in the thoracic (middle) and lumbar (lower) spine. A balloon device pumps up the compressed vertebra to restore the spine's original height. Then it is removed and bone cement is injected into the cavity that the balloon created. Patients typically recover from the procedure and are out of bed, walking around within a few hours.

The qui tam lawsuits against the hospitals were filed in federal district court in Buffalo, New York. The two whistleblowers, Craig Patrick and Chuck Bates, were former Kyphon employees. Patrick, of Hudson, Wis., was a reimbursement manager, and Bates was a regional sales manager in Birmingham, Ala.

Attorney Smith lauded the work of the U.S. Attorney's Office (USAO) in Buffalo for its successful efforts to recoup funds for the Medicare program. He particularly noted the work of Assistant U.S. Attorney Robert Trusiak, USAO investigator Peggy McFarland, USAO auditor Theresa Tetlow as well as Cindy Pangallo and Peggy Glynn, who are Department of Health and Human Services special agents.

Phillips & Cohen is the nation's most successful law firm representing whistleblowers in qui tam lawsuits. Under the False Claims Act, private individuals can sue companies defrauding the government and recover funds on the government's behalf. Whistleblowers, known as "relators," are entitled to 15 percent to 25 percent of the amount recovered as a result of the lawsuit. For more information about Phillips & Cohen's record, see P&C's Successful Whistleblower Cases.