North Carolina hospital pays $1.9 million to settle Medicare fraud charges stemming from whistleblower lawsuit

WASHINGTON, DC, April 5, 2011 -- A whistleblower lawsuit sparked a federal investigation into the billing practices of Rex Healthcare that has resulted in the Raleigh, North Carolina, hospital paying the federal government $1.9 million to settle Medicare fraud charges.

The "qui tam" lawsuit alleged a number of hospitals were keeping Medicare patients overnight unnecessarily following a back procedure known as "kyphoplasty" as a way to boost Medicare revenues when the procedure often can be done safely - and at a much lower cost -- on an outpatient basis.

The settlement with the government, announced today, also covers federal charges that Rex Hospital billed Medicare for medically unnecessary overnight stays involving other medical procedures.

Rex Healthcare is the second North Carolina hospital to settle charges involving billing Medicare for unnecessary inpatient stays for kyphoplasty procedures. Presbyterian Orthopaedic Hospital in Charlotte paid the federal government $637,872 in January to settle Medicare fraud charges.

"Hospitals should be using Medicare funds to maximize essential patient care rather than trying to maximize their revenues," said Mary Louise Cohen, a Washington, DC, attorney with Phillips & Cohen LLP, which represents the whistleblowers. "Kyphoplasty is a procedure that generally can be done safely on an outpatient basis."

Kyphoplasty is used to treat certain spinal compression fractures, such as those due to osteoporosis. The minimally invasive procedure involves pumping up the compressed vertebra to create a cavity, then injecting bone cement into it. Kyphoplasty generally takes about one hour to complete, and patients generally recover and are able to walk around within a few hours.

"The government team at the Department of Justice and the U.S. attorneys' offices in Buffalo, New York, and Raleigh, North Carolina, have done a tremendous job recovering taxpayer funds in this case," said Matthew Smith, also with Phillips & Cohen LLP. "Because of its efforts, the government has recovered $103 million from this one whistleblower case."

The government has settled charges based on the whistleblower lawsuit with 26 hospitals, including Rex Healthcare, and Medtronic Spine LLC, the company that sold the equipment and materials used to perform kyphoplasty and advised hospitals on billing practices for the procedure. Medtronic Spine was formerly known as Kyphon Inc.

Two former Kyphon employees, Chuck Bates and Craig Patrick, filed the qui tam lawsuit in 2008 in federal district court in Buffalo, New York, under the False Claims Act. Under that law, whistleblowers who bring qui tam lawsuits receive a reward of 15 percent to 25 percent of the amount the government recovers as a result of their cases.

For more information about Phillips & Cohen's record, see P&C's Successful Whistleblower Cases.