MD Judge Dismisses Upcoding Lawsuit Against Kernan Hospital

Published on Sep 17, 2012 at 12:37 pm in General Blogs.

A federal court has thrown out a lawsuit against a Maryland hospital accused of “orchestrating a scheme whereby it inappropriately and fraudulently coded malnutrition as a secondary diagnosis in order to increase its federally funded health care reimbursement.” In United States of America v. Kernan Hospital, Judge Richard D. Bennett wrote that the government did not present enough evidence to “adequately plead allegations of fraud under the False Claims Act.”

“Upcoding,” a common form of Medicare fraud, is the practice of billing Medicare for medical services or equipment under a code that is more expensive than what a patient actually needed or was provided. In other words, upcoding is the inflating of the severity of a case in order to get a higher level of reimbursement.

The government alleged that between 2005 and 2009, Kernan Hospital concocted a scheme to increase its Medicare, Medicaid and Tricare reimbursement by increasing the complexity of its case mix. Kernan’s reimbursement stems from the nature and complexity of the cases it treats – the more complex the case, the higher the reimbursement.

In this instance, the alleged upcoding was for a secondary diagnosis of malnutrition. The government alleged that, in particular, a severe form of malnutrition – Kwashiorkor – more often found in children in Africa and third-world countries went from zero cases in 2004 to 287 cases in 2007. Lesser degrees of malnutrition saw similar increases.

Through its investigation, the government found that 23 percent of the cases were inappropriate and that Kernan took none of the industry-recognized steps to monitor for quality control. The government also alleged that Kernan’s system was leading to doctors – a violation of Coding Clinic Precepts – as a sticky note was allegedly attached to some of the patient charts to indicate that the patient might have “protein malnutrition,” which would act as a prompt to the doctor to include the secondary diagnosis.

The alleged phony claims lead to the hospital receiving about $1.6 million to which it was not entitled, the government said in its complaint.

But, the United States District Court for the District of Maryland dismissed the case, finding that the government had not identified a single false claim actually submitted to the government.

The False Claims Act subjects to civil liability any person who knowingly presents or causes to be presented to the United States Government a false or fraudulent claim for payment or approval as well as any person who knowingly makes, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government.

A complaint alleging false claims must “state with particularity circumstances constitution fraud or mistake,” according to the federal rules of civil procedure. And, the Fourth Circuit appellate court has held that the “time, place and contents of the false representations, as well as the identity of the person making the misreprenstation and what he obtained,” must be pleaded with particularity. This set of information is often referred to as the “who, what, when, where, and how,” the court wrote. For example, a complaint is insufficient if it fails to allege specific claims submitted to the government and the dates on which those claims were submitted.

The primary failure of the government’s complaint was its lack of specificity as to the precise false claims at issue in this litigation – in fact, the curt wrote, the complaint did not identify a single false claim submitted to the government for payment.

“Put simply, the Complaint fails to identify the ‘who, what, when, where and how’ of the alleged fraud,” the court wrote.

United States of America v. Kernan Hospital was released July 30.

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