Minnesota hospitals pay $2.28 million to settle whistleblower lawsuit for Medicare billing fraud

MAY 21, 2009, ST. PAUL, MINNESOTA -- Three HealthEast hospitals in the St. Paul, Minnesota, area have agreed to pay the federal government a total of $2.28 million to settle a whistleblower ("qui tam") lawsuit alleging Medicare fraud involving a certain type of spinal surgery known as kyphoplasty.

The Minnesota hospitals are the first hospitals to settle charges stemming from a government investigation into Medicare fraud involving billing for kyphoplasty.

The whistleblower lawsuit, which the federal government joined, says the HealthEast hospitals overcharged Medicare from 2002 to 2007 by thousands of dollars each time they performed kyphoplasty, a procedure used to treat certain spinal fractures that often are due to osteoporosis.

The spinal procedure can be performed safely as an outpatient surgery. But the lawsuit alleges that the hospitals performed the procedure on an inpatient basis to increase their revenues. Kyphon Inc., which sold the equipment and materials used to perform kyphoplasty, promoted the minimally invasive procedure as a moneymaker for hospitals that billed Medicare for inpatient surgery.

"By claiming these were inpatient procedures, hospitals could seek greater reimbursement from Medicare and make much larger profits on kyphoplasty," said Matthew Smith, a Washington, DC, attorney with Phillips & Cohen LLP, which represents the whistleblowers.

Medtronic Spine LLC - Kyphon's corporate successor after Medtronic Inc. bought it -- paid $75 million last year to settle a qui tam lawsuit brought by the same whistleblowers that exposed Kyphon's sales and marketing scheme to defraud Medicare.

Numerous hospitals nationwide followed Kyphon's recommendations to increase its Medicare billings by in effect requiring kyphoplasty to be an inpatient procedure even though the procedure should have been done in almost all cases as outpatient surgery.

After the Kyphon settlement, HealthEast Care System conducted a self-audit and determined three hospitals -- HealthEast St. Joseph's Hospital, HealthEast St. John's Hospital and HealthEast Woodwinds Hospital -- had overbilled Medicare for kyphoplasty by $1.45 million, which they paid at the time. That amount will be deducted from the amount owed under the terms of today's settlement

Kyphoplasty is used to treat certain spinal compression fractures that commonly occur in the thoracic (middle) and lumbar (lower) spine. Patients typically fully recover and can walk in a few hours.

The qui tam lawsuit against the HealthEast hospitals, brought under the False Claims Act, was filed in 2008 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.

The U.S. Attorney's Office (USAO) in Buffalo is leading the government's investigation into Medicare fraud involving billing for kyphoplasty. Those who have been most involved include 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.

"They have done a great job recouping money that the Medicare system desperately needs," said Mary Louise Cohen, a whistleblower attorney with Phillips & Cohen.

Phillips & Cohen specializes in 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 their qui tam lawsuits when the government joins the case and up to 30 percent when it doesn't join. For more information about Phillips & Cohen and qui tam lawsuits, see http://www.phillipsandcohen.com/.