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Catch of the Week — PA Hospital and Health System Pays $12.5 Million to Settle FCA Allegations

Posted  December 14, 2018

Coordinated Health Holding Company, LLC, a for-profit hospital and health system, and its founder, owner, and CEO, Emil DiIorio, M.D., have agreed to pay a combined $12.5 million to settle allegations of violating the False Claims Act for submitting false claims to Medicare and other federal health care programs for orthopedic surgeries. Coordinated Health is a for-profit hospital and health system based in the Lehigh Valley region of Pennsylvania. It employs approximately 100 physicians, approximately 30 of whom are board-certified orthopedic surgeons. Dr. DiIorio is a board-certified orthopedic surgeon.

The government alleges that Coordinated Health and Dr. DiIorio engaged in a scheme to improperly unbundle claims for reimbursement for orthopedic surgeries to artificially inflate reimbursements from federal healthcare payers. Medicare and other public healthcare insurers reimburse physicians and hospitals a global fee for many types of orthopedic surgeries. The global fee is a single payment for all parts of a surgery. Although electronic safeguards automatically block separate reimbursements for parts of the same surgery when the global fee is paid, those safeguards can sometimes be circumvented when billing codes are misused.

From 2007 until 2014, under DiIorio’s direction, Coordinated Health allegedly exploited a billing code called Modifier 59 to separately bill for orthopedic surgery charges that, properly billed, fall under a single “global” payment for each surgery. The government further alleges that Dr. DiIorio should have stopped the illegal unbundling.  Rather, beginning in April of 2009, Dr. DiIorio simply changed how he wrote operative reports so that Coordinated Health billers could maximize improperly unbundled reimbursements for his knee, hip and shoulder surgeries using Modifier 59.

For example, in his total knee replacement operative reports prior to April 2009, Dr. DiIorio rarely diagnosed any patient with poor patellar tracking and stated in almost every report that an incision sometimes necessary to improve patellar tracking, called a “lateral retinacular release,” was unnecessary. A lateral retinacular release performed during a total knee replacement is part of the global surgery reimbursement for a knee replacement. However, in almost every knee replacement operative report after April 1, 2009, Dr. DiIorio diagnosed the patient with poor patellar tracking and stated he performed a lateral retinacular release. Each time, Coordinated Health used Modifier 59 to improperly bill for a lateral retinacular release as if one was performed separate from the knee replacement.

Top Coordinated Health executives were directly informed at least twice that Coordinated Health improperly unbundled many orthopedic surgeries by misusing Modifier 59. Two separate outside coding consultants hired by Coordinated Health, one in 2011 and one in 2013, identified the improper unbundling during coding audits and warned Coordinated Health to stop. The 2013 consultant specifically advised Coordinated Health to self-report and repay Medicare and other federal payers; the consultant also provided on-site training on the proper use of Modifier 59 to Coordinated Health coders in November 2013. Motivated by its bottom line, Coordinated Health simply ignored the consultants’ recommendations and continued abusing Modifier 59 to improperly unbundle orthopedic surgery claims until mid-2014.

In response to the settlement, U.S. Attorney William M. McSwain stated “[t]he alleged corporate culture and leadership that promoted this conduct and allowed it to continue despite crystal clear warnings is shameful…If true, it amounts to theft of public funds and a fraud on Medicare, Medicaid, and federal employee health insurers. We are unaware of any unbundling scheme that has had a bigger impact on federal funds….” And Kenneth Cleevely, U.S. Postal Service Office of Inspector General Special Agent in Charge, Eastern Area Field Office, said “Benjamin Franklin stated ‘There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government.’ I believe that quote rings true in this case.”

The claims resolved by the settlement are allegations only; there has been no determination of liability.

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Tagged in: Bundling and Unbundling, Catch of the Week, FCA Federal, Healthcare Fraud, Hospital Fraud, Medical Billing Fraud, Medicare, Other Government Health Programs, Provider Fraud,


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