Hospital Fraud

Hospitals may commit fraud in many of the same ways that physicians do (see Physician Fraud on this website), by billing for medically unnecessary services, entering into financial arrangements with physicians to induce referrals and upcoding services rendered to receive a higher level of reimbursement. Some of the more common fraud schemes engaged in by hospitals are described in more detail below.

Billing for Medically Unnecessary Services

If a physician who provides services in a hospital setting (to an inpatient, or in a hospital outpatient department) performs procedures that are medically unnecessary, the hospital may also be liable for submitting a false claim, if the hospital knew or should have known the procedure was not medically indicated. In almost all cases, when a physician performs a service in a hospital setting the hospital also submits a charge to Medicare or Medicaid for the technical component of the service (reflecting the cost of the hospital’s facilities and the staff used during the procedure). A hospital may be aware that the physician is performing medically unnecessary or excessive services if, for example, the hospital conducts internal audits of the physician for medical necessity or if the physician performs many more of the subject procedures than his peers.

Billing for Services Not Rendered As Described

Hospitals may also violate the False Claims Act if they upcode, that is, submit a bill for more complex services when less complex services were actually provided. An example of this can occur when a hospital overstates a patient’s condition, or co-morbidities, in order to charge a more complex and costly DRG to the Medicare program. Adding a diagnosis of pneumonia or kidney failure to a patient’s chart can vastly increase the amount of reimbursement to the hospital. To read more about the Healthcare Fraud Group founder Jamie Bennett’s work on the DRG upcoding issue in a case against Johns Hopkins Bayview Hospital, click here.

Supervision of Services Provided In Hospital Outpatient Departments

Hospitals are also required by Medicare regulations to have the appropriate level of supervision in hospital outpatient departments. In a radiation oncology department, for example, the radiation oncologist must be present when a patient is treated. That supervision cannot be handed off to a nurse practitioner or to a physician in another specialty. In the medical oncology department, a physician must supervise patients who are receiving infusion treatments. If the hospital does not satisfy these supervision requirements, it violates the False Claims Act if it submits claims to Medicare for these services.

Financial Relationships with Physicians

Hospitals are prohibited by the Stark Law from entering into a financial relationships with physicians that are in excess of Fair Market Value or are not commercially reasonable. Paying an employed physician above FMV, for services not personally performed by the physician (for example, paying the physician a productivity bonus based upon the hospital’s charges for the technical component of procedures, or for services provided by other physicians or for medically unnecessary or upcoded services) violates the Stark Law. Several high-profile cases that settled within the past year have revealed how wide-spread excessive compensation is among hospital-employed physicians. This excessive compensation tends to be concentrated in specializations that perform many procedures in hospitals, such as orthopedics, neurosurgery and cardiology. To read more about Ms. Bennett’s successful prosecution of Columbus Regional Hospital for excessive compensation and other allegations, click here.

Similarly, hospitals may engage physicians to serve as medical directors, or in other consulting positions, for very good reasons. But there are many instances in which the physicians do not actually provide any services under those agreements, or the payments to the physician exceed Fair Market Value. If the expectation is that the physician will refer lucrative procedures to the hospital in return for those payments, this violates the False Claims Act. To view the press release on Healthcare Law Group founder Jamie Bennett’s ground-breaking work on the St. Joseph Medical Center investigation, click here.

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