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The real cost of falsifying claims


A recent $65M False Claims Act settlement highlights physicians' responsibility to provide the best care as well as correctly document and appropriately code it.

A recent $65 million False Claims Act settlement underscores the importance of accurate claims coding.

Upcoding is utilizing a billing code that reflects a more severe illness or a greater number of goods that were provided than actually existed at the time of treatment. It can also reflect more expensive treatment than what was involved. In turn, this can equate to the submission of a false claim for payment and lead to violations of the False Claims Act.

Common examples of improper claims that can expose physicians or other providers to liability include:

  • billing for services that were not rendered,
  • billing for goods that were not provided,
  • billing for services or goods that were not medically necessary,
  • billing for modifiers that are not appropriate (e.g., Modifier 25 for E/M services), and
  • billing without a physician work order or other appropriate written documentation.

Earlier this month, the U.S. Department of Justice (“DOJ”) settled allegations of upcoding in violation of the False Claims Act against both Prime Healthcare Services, Inc. (“Prime”) and its CEO Prem Reddy, MD, FACC, FCCP. Under the terms of the settlement agreement, Reddy is responsible for $3.25 million and Prime is responsible for $61.75 million for a total penalty of $65 million.

According to the DOJ’s announcement, the settlement resolves allegations that from 2006 through 2013:

Prime engaged in a deliberate corporate-driven scheme to increase inpatient admissions of Medicare beneficiaries who originally presented to the Emergency Departments at 14 Prime hospitals in California. 

“The government claimed that the inpatient admission of these beneficiaries was not medically necessary because their symptoms and treatment needs should have been managed in a less costly outpatient or observation setting.

“Hospitals generally receive significantly higher payments from Medicare for inpatient admissions as opposed to outpatient treatment; therefore, the admission of beneficiaries who do not need inpatient care, as alleged here, can result in substantial financial harm to the Medicare program. 

“The settlement also resolves allegations that, from 2006 through 2014, Prime engaged in upcoding by falsifying information concerning patient diagnoses, including complications and comorbidities, in order to increase Medicare reimbursement.”

Interestingly, Prime released a corporate statement, which focused on the role of physicians: “Prime Healthcare’s exemplary record of clinical quality care was never in question. This matter dealt with the technical classification of the category under which patients were admitted and billed. Physicians, not hospitals, direct the level of care needed for their patients.” 

In light of this settlement, the takeaways for physicians include: making sure the codes are commensurate with the services provided; coordinating with practice billers and coders, as well as hospital billers and coders, to make sure that there is no miscommunication between what is in the medical record and what codes are appropriate; and ensuring that medical necessity, whether it is for observation versus inpatient status or for a particular service, is met and documented.

In sum, care should accurately correlate to the code that is utilized both from a clinical and legal perspective.

Rachel V. Rose, JD, MBA, advises clients on compliance and transactions in healthcare, cybersecurity, corporate and securities law, while representing plaintiffs in False Claims Act and Dodd-Frank whistleblower cases. She also teaches bioethics at Baylor College of Medicine in Houston. Rachel can be reached through her website, www.rvrose.com.

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