Fraudulent Cost Reporting

Over the last decade, spending on Medicare services has accounted for approximately 20% of all national health expenditures. The majority of Medicare spending is directed to the payment of benefits provided by Parts A and B of the program, which is the fee-for-service portion of the program, also known as “original” or “traditional” Medicare. Under the traditional fee-for-service program, Medicare pays providers directly for each specified unit of service delivered to a beneficiary. In order to get reimbursed through the traditional fee-for-service program, Medicare providers are required to submit annual cost reports to the Centers for Medicare and Medicaid Services, the federal agency that administers Medicare and Medicaid. As with other types of Medicare and Medicaid fraud, the fee-for-service portion of the program is often taken advantage of through fraudulent billing. One such type of fraud is known as “cost reporting fraud” or “fraudulent cost reporting.” Fraudulent cost reporting typically occurs when Medicare Part A providers, such as hospitals, nursing homes, home health agencies, and other institutional providers, inflate the costs related to patient care (including costs of non-covered services, supplies and equipment), mischaracterize the nature of the costs and statistics related to patient care, falsify the percentage of services dedicated to Medicare patients, and seek reimbursement for costs related to non-Medicare patients or for services that are unrelated to patient care. When a Medicare Part A provider commits any of these types of fraudulent cost reporting, it is liable under the False Claims Act.

An example of cost report fraud involved HCA Inc., the nation’s largest for-profit healthcare provider. In 2003, HCA agreed to pay $631 million to the government to settle nine qui tam lawsuits brought by whistleblowers. The whistleblowers alleged that HCA had inflated expenses for reimbursement claimed in annual Medicare cost reports, unlawfully billed Medicare, Medicaid and TRICARE (the healthcare program serving uniformed service members and their families) for claims generated by the payment of kickbacks and other illegal remuneration to physicians in exchange for referral of patients. In addition, Medicare was billed for unallowable costs incurred by a contractor that operated HCA wound care centers, and for a non-covered drug that the contractor manufactured and sold to hospital patients. The fraudulent cost reports comprised the largest of the settled claims – $356 million.

Whistleblowers serve as an integral check on healthcare providers. Whether discouraging physicians, hospitals, or nursing homes from delivering substandard care, or ensuring that healthcare procedures are appropriately priced and delivered as necessary, whistleblowers help to combat waste and Medicare and Medicaid fraud. Therefore, if you know or suspect that a Medicare Part A provider is committing fraud or other wrongful action against the government, please contact Micheal S. Bigin or Laurence J. Hasson, to discuss your legal options.