Inpatient Hospital Fraud Attorneys

Nolan Auerbach & White are experienced Hospital Fraud Lawyers helping courageous whistleblowers.

The False Claims Act is violated when hospitals knowingly submit improper Part A claims to Government Healthcare Programs such as Medicare. Common false claims submitted under Part A include:

Inpatient Short Stays

Hospital systems are incorrectly billing Medicare Part A for beneficiary stays that should have been billed as outpatient or outpatient with observation services.

Inpatient Admission of patients when observation or outpatient status would have been more appropriate, is one of the leading areas of healthcare fraud in the Medicare system. Hospital systems’ utilization review process must verify the medical records support the determination of the physicians who are admitting patients to inpatient status. The Office of Inspector General made this clear over a decade ago. In OIG Compliance Program Guidance for Hospitals (February 1998), the OIG stated:

… the OIG recognizes that licensed health care professionals must be able to order any services that are appropriate for the treatment of their patients. However, Medicare and other government and private health care plans will only pay for those services that meet appropriate medical necessity standards (in the case of Medicare, i.e., “reasonable and necessary” services). Providers may not bill for services that do not meet the applicable standards. The hospital is in a unique position to deliver this information to the health care professionals on its staff. Upon request, a hospital should be able to provide documentation, such as patients’ medical records and physicians’ orders, to support the medical necessity of a service that the hospital has provided. The compliance officer should ensure that a clear, comprehensive summary of the “medical necessity” definitions and rules of the various government and private plans is prepared and disseminated appropriately.

Guidance at p. 15.

Of concern to providers and on the radar screen are medical necessity determinations by utilization review of hospitals. Instrumental in the review determination before a fraud investigation ensues are Recovery Auditor Contractors (RACs). Section 302 of the Tax Relief and Health Care Act of 2006 requires the Secretary of the Department of Health and Human Services (the Secretary) to utilize RACs under the Medicare Integrity Program to identify underpayments and overpayments, and recoup overpayments under the Medicare program associated with services for which payment is made under part A or B of title XVIII of the Social Security Act. RAC Auditors detect and correct past improper payments, and many of the audits have focused on inpatient medical necessity. States are required to establish programs to contract with one or more Medicaid RACs for the purpose of identifying underpayments and recouping overpayments under the State plan and any waiver of the State plan with respect to all services for which payment is made to any entity under such plan or waiver. Further, the statute requires States to establish programs to contract with Medicaid RACs in a manner consistent with State law, and generally in the same manner as the Secretary contracts with Medicare RACs.

Inpatient Same-Day Discharges and Readmissions

Hospital systems are improperly billing Medicare separately for related discharges and readmissions within the same day. Chapter 3, section 40.2.5 of the Medicare Manual states:

When a patient is discharged/transferred from an acute care Prospective Payment System (PPS) hospital and is readmitted to the same acute care PPS hospital on the same day for symptoms related to, or for evaluation and management of, the prior stay’s medical condition, hospitals shall adjust the original claim generated by the original stay by combining the original and subsequent say on a single claim.

Inpatient Claims Billed With High Severity Level Diagnosis-Related Group Codes

Hospital systems are improperly billing Medicare for DRG’s with levels that are not supported by the medical records.

Inpatient Hospital-Acquired Conditions

Hospital systems are improperly billing Medicare for inpatient stays which are caused by patient’s acquiring diseases (such as pneumonia) in previous hospital stays.

Inpatient Manufacturer Credits for Replaced Medical Devices

Hospital systems are failing to adjust inpatient claims with the proper value and condition codes to reduce payment, after having received medical device credit for a replaced device from a manufacturer.

Federal regulations (42 CFR § 412.89) require reductions in the IPPS payments for the replacement of an implanted device if (1) the device is replaced without cost to the provider, (2) the provider receives full credit for the cost of a device, or (3) the provider receives a credit equal to 50 percent or more of the cost of the device. The Manual, chapter 3, section 100.8, states that to correctly bill for a replacement device that was provided with a credit, hospitals must code Medicare claims with a combination of condition code 49 or 50, along with value code “FD.

Conclusion: Harm from Inappropriate Admissions

A landmark study published in 2000 by the Institute of Medicine of the National Academy of Sciences pointed out that up to 98,000 Americans may die in US hospitals annually due to preventable medical errors. These errors were classified as diagnostic, treatment-related, failure of preventative measures, communication issues, and other hospital system failures (JAMA, May 18, 2005; Commonwealth Fund, May 27, 2005). The take-home message was that hospitals are large, cumbersome institutions with many moving parts operating in mutually exclusive fashion, frequently placing patients at risk for adverse events.

Elderly patients are not only the heaviest utilizers of hospital services but have clear risks attendant to confinement in the hospital, whether in observation or inpatient beds. Three landmark studies (Annals of Internal Medicine 118(3): 219-223, 1993; Archives of Internal Medicine 168(4): 390-396, 2008; Quality and Safety in Health Care 17: 216-223 2008) delineated hazards of hospital stays for the elderly. A striking finding was that as many as 75% of previously independent elderly individuals were no longer independent after discharge. This high number could not be attributed to the discharge diagnoses and co-morbidities, but rather to the adverse consequences of admission itself as an independent variable. These consequences are physical, emotional, and social. In many cases, enforced bed rest and other processes and practices in the hospital were independent risk factors for adverse outcomes (loss of muscle strength, frailty, bone demineralization, altered appetite and thirst, bed sores, risk of incontinence, disorientation, falls, phlebothrombosis, medication errors, and depression).

Thus, any confinement in the hospital, whether for prolonged ER observation or for formal inpatient admission, carries attendant risks that should be considered before such dispositions are made. Fraud in this context impacts far more than taxpayer dollars. Not only do unnecessary admissions constitute healthcare fraud, Medicare fraud, and violate the False Claims Act, they have the potential for great patient harm.

Federal Intervention

The United States has routinely intervened in qui tam cases and/or otherwise recouped monies based upon lack of medical necessity for either inpatient or observation services. For example, in December 2007, St. Joseph’s Hospital in Atlanta, Georgia agreed to pay $26 million to settle allegations concerning lack of medical necessity for certain inpatient care. The hospital falsely claimed Medicare reimbursement for inpatient admissions that were in fact, less costly outpatient visits. On July 1, 2009, DOJ announced that Yale New Haven Hospital had notified the OIG and agreed to enter into a civil settlement to pay nearly $900,000 to resolve allegations that it billed the Medicare program for medically unnecessary Gamma Knife procedures, admitting the patients for overnight stays which were not medically necessary. More recently, the Department of Justice is conducting a nationwide intervention against hospitals around the country alleging their Medicare claims for kyphoplasty were improper when billed as inpatient procedures. In addition, there have been several publicly announced interventions and government recoveries in 2010 thru present, regarding unnecessary hospital admissions. Several more whistleblower cases are pending under seal.

Kathleen Hawkins

Dignity Health
$37 million

Kathleen Hawkins, RN MSN, had been employed by Defendant, Catholic Healthcare West (CHW) for approximately 6 years when she decided she had had enough of trying to change the hospital system from within.

CHW, a California not-for-profit corporation that operated hospitals in California, Arizona, and Nevada, was at the time the eighth largest hospital system in the nation and the largest not-for-profit hospital provider in California.


Joe Strom

Johnson & Johnson
$184 Million

Joe Strom contacted us in 2005. We were very grateful that he did. We immediately formed an all-star legal team and a process to stop a very harmful pharmaceutical marketing strategy. It was this process we set into motion that ultimately returned hundreds of millions of dollars to the U.S. Treasury, and a portion of that, very well-deserved, into Joe’s bank account.

Joe told us a very troubling story about the off-label promotion of a pharmaceutical drug for patients who already suffered from chronic heart failure.


Bruce A. Moilan Sr.

$27 Million

Bruce Moilan was a seasoned hospital systems expert by the time he contacted our Firm. At the time he decided to file his qui tam lawsuit, he was employed by South Texas Health System as a System Director for Materials Management. In this position, he oversaw $24 million in annual purchases of supplies and equipment and helped determine budget, reduction and cost analysis throughout the contract bidding and negotiations process. His job was to insure proper implementation for purchasing, receiving and management of inventory, for McAllen Hospitals, L.P.


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