On January 4, 2011, the U.S. Department of Justice (DOJ) announced that seven additional hospitals had agreed to pay $6.3 million to resolve allegations under the False Claims Act (FCA) related to overcharging Medicare for kyphoplasty procedures. These settlements are the fourth round of settlements with hospitals by the DOJ to resolve kyphoplasty-related claims under the False Claims Act. Including the settlements announced on January 4, 2011, the DOJ has entered into similar settlements with 25 hospitals for approximately $26 million.

Kyphoplasty is a minimally-invasive procedure used to treat certain spinal fractures due to osteoporosis and cancer. The DOJ alleged that the hospitals had performed kyphoplasty procedures on an in-patient basis in order to increase their Medicare billings, even though these procedures can be performed safely as a less costly out-patient procedure. According to their settlement agreements, the hospitals submitted inpatient DRG claims to Medicare for certain kyphoplasty procedures which were billable only as outpatient or observation status procedures due to the absence of medical necessity for an inpatient level of service.

The following hospitals were included in the settlements announced on January 4, 2011: Lakeland Regional Medical Center, Lakeland, Fla. ($1,660,134.49); Decatur General Hospital, Decatur, Ala. ($537,892.88); St. Dominic-Jackson Memorial Hospital, Jackson, Miss. ($555,949.35); Seton Medical Center, Austin, Texas ($1,232,955.91); Greenville Memorial Hospital, Greenville, S.C. ($1,026,764.01); Presbyterian Orthopaedic Hospital, Charlotte, N.C.($637,872.57); and The Health Care Authority of Lauderdale County and the City of Florence, Ala., d/b/a the Coffee Health Group, d/b/a Eliza Coffee Memorial Hospital ($676,038.00).

The background to these cases was a $75 million settlement in 2008 by Medtronic Spine LLC, the corporate successor to Kyphon Inc., to settle allegations under the FCA that it caused the submission of false claims to Medicare. The government had alleged that Kyphon caused the submission of fraudulent claims for its kyphoplasty procedure, which is a minimally-invasive surgery used to treat compression fractures of the spine caused by osteoporosis, cancer or benign lesions. In that case, the qui tam relators, former Kyphon, Inc. employees, alleged that Kyphon Inc. 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 the Medicaid and Medicare programs. Subsequent to the Kyphon, Inc. settlement, the U.S. Attorney’s office in Buffalo, New York began to investigate individual hospitals that administered kyphoplasties and which became known as the “kyphoplasty initiative”.

 In a September 2010 letter to the DOJ and U.S. Attorney’s office in Buffalo, New York, the American Hospital Association (AHA) expressed concerns regarding the use of data analysis to flag billing errors and/or overutilization in the “kyphoplasty initiative” and that information would be converted into a presumption of liability under the False Claims Act. The AHA had previously explained to Congress regarding amendments to the FCA in the health care reform legislation that the FCA does not apply to billing errors, mistakes or even non-culpable over-utilization. The AHA asked that the DOJ/HHS Health Care Fraud Prevention and Enforcement Action Team (otherwise known as the “HEAT Strike Force”) undertake a policy review of enforcement initiatives proceeding under the FCA, beginning with the DOJ’s kyphoplasty initiative. AHA representatives were scheduled to meet with DOJ representatives on January 24, 2011 to discuss these issues.