Cost report fraud occurs when nursing homes, hospitals, and other healthcare providers for patient care falsely submit claims to the government for reimbursement. Medicare Part A healthcare providers that are paid under the fee-for-service based system can abuse federal government funding by:
- Inflating their patient care costs;
- Seeking reimbursement from the government for costs incurred by non-Medicare patients;
- Seeking reimbursement for non-patient care costs; and
- Failing to disclose their relationship to other business entities with whom they are dealing, among other methods.
This type of fraud is relatively easy to commit in the face of the federal government’s lack of oversight and enforcement resources. This type of fraud impacts everyone, however, as it increases healthcare costs for all taxpaying Americans and reduces the resources available for individuals who genuinely require Medicare support.
When an insider of the offending healthcare provider has firsthand knowledge of cost report fraud (such as a current or former employee), that individual can initiate a qui tam lawsuit on behalf of the federal government. These individuals are considered “whistleblowers” who, through initiation of their suit, can try to help the federal government get back the money that was wrongfully taken.
What redress is available for instances of cost report fraud?
Cost report fraud is typically addressed by filing an action under the False Claims Act (“FCA”). The FCA is an all-purpose federal statute that creates a private cause of action on behalf of the government (called a “Qui Tam” action) for persons with knowledge of fraud, called “relators.” Relators who report cost report fraud can recover a percentage of the damages the government suffered from the fraud. Though the FCA is a federal statute, most states have analogous provisions for incidents of state-government fraud, thus, cost report fraud against state medical reimbursement programs is also actionable.
Though the FCA is not designed specifically for cost report fraud, it is the primary and most lucrative vehicle through which cost report fraud is addressed. The healthcare industry is by far the industry with the largest and most common FCA recoveries. In 2018, the Department of Justice recovered $2.8 billion from FCA actions, and $2.5 billion were related to the healthcare industry. Cost report fraud typically occurs in the context of fee-for-service Medicare reimbursement, but can also occur in Medicaid and TRICARE.
What are examples of cost report fraud?
Recent recoveries for Medicare cost report fraud include:
- DaVita Medical Holdings: In response to whistleblower allegations that HealthCare Partners, a company acquired by DaVita in 2012, engaged in “one way” chart reviews to find additional medical diagnoses for patients and included inaccurate diagnosis codes that allowed it to obtain additional revenue from Medicare, DaVita reached a $270 million recovery settlement with the Department of Justice. The whistleblower will receive $10,199,000 as their share of the recovery.
- Health Management Associates: Whistleblowers brought allegations that Health Management Associates improperly billed government healthcare programs for inpatient services that should have been billed as outpatient services and inflated claims for emergency department facility fees. Former hospital chain Health Management Associates paid more than $216 million to the Department of Justice, and whistleblowers in two of the eight False Claims Act cases received a combined $27.4 million as their share of the recovery.
- Prime: A whistleblower alleged that fourteen Prime hospitals admitted and billed patients who only required outpatient care for more expensive medical diagnoses, resulting in a $65 million settlement with the Department of Justice. The whistleblower received $17,225,000 as their share of the recovery.
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