FCA Alert : Lawyers & Attorneys for Whistleblower, False Claims Act & Qui Tam Defense : Kelley Drye & Warren LLP

Following the settlement of the action against Kyphon and allegations made in a qui tam lawsuit filed in the Western District of New York in 2008, the U.S. Attorney’s office in Buffalo began to investigate individual hospitals that administered kyphoplasties. (For more on the suit against Kyphon and the government’s investigation into hospitals, click here: http://www.justice.gov/opa/pr/2008/May/08-civ-455.html, and here: http://fcaexpert.blogspot.com/2009/02/new-national-kyphonplasty-enforcement.html.)

The settlements announced today follow the settlements the DOJ reached with eighteen other hospitals in 2009 and 2010 for kyphoplasty-related Medicare claims. With the settlements announced today, the government has recovered more than $15.7 million from hospitals for kyphoplasty-related Medicare claims.

For more information about the DOJ’s enforcement activities concerning kyphoplasty claims and the American Hospital Association’s response to the DOJ’s kyphoplasty initiative, see our prior posts here.

First, some background. A kyphoplasty is a minimally invasive surgical procedure to treat spinal compression factures associated with osteoporosis and cancer. In 2008, the DOJ settled an FCA qui tam action brought against Kyphon Inc., the manufacturer of a device used in kyphoplasties, for $75 million. The relators in the action, former Kyphon employees, alleged that Kyphon encouraged hospitals to administer kyphoplasties on an inpatient basis, rather than a less costly but clinically appropriate outpatient basis, to maximize the reimbursement they could receive from Medicaid and Medicare.  Following the settlement of the action against Kyphon, the U.S. Attorney’s office in Buffalo began to investigate individual hospitals who administered kyphoplasties. (For more on the suit against Kyphon and the government’s investigation into hospitals, click here: http://www.justice.gov/opa/pr/2008/May/08-civ-455.html, and here: http://fcaexpert.blogspot.com/2009/02/new-national-kyphonplasty-enforcement.html.) It was this investigation that prompted the AHA’s letter.

The AHA’s letter states that the investigation appears to rely primarily on “data mining” and that the U.S. Attorney’s office is targeting hospitals based on “a data driven presumption that a hospital billing for an inpatient stay following a kyphoplasty ‘knowingly’ violated the FCA …” According to the AHA, the U.S. Attorney’s office sent these hospitals form letters indicating that they were liable for treble damages and penalties under the FCA, but that they could compromise their liability if they were willing to cooperate. This cooperation apparently requires the hospital to engage in a costly and burdensome self-audit and report the results back to the U.S. Attorney’s office. As a reward for cooperating, the form letters indicate that the hospitals will be liable for only double, not treble, damages.   It appears these letters have had the desired effect; as of May of this year, the Justice Department obtained over $9 million in settlement proceeds from hospitals that were the target of the kyphoplasty initiative. 

The AHA’s request for a review is understandable, as it is far from clear there is any FCA liability at all here.  The AHA’s letter points out that guidance manuals published by the Centers for Medicare & Medicaid Services recognize inpatient kyphoplasties are appropriate in certain circumstances, especially for Medicare-covered patients. Moreover, the letter notes that the decision to perform the kyphoplasty as an inpatient procedure as opposed to an outpatient procedure is often made by the patient’s physician, not the hospital. This seems to be another attempt by the Government to stretch the reach of the FCA.