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Financial Pressures on U.S. Hospitals, Combined with New Funding, Increase Risk of Medicare and Medicaid Fraud

Posted  May 22, 2020

Hospitals are an institution we might have expected to be prepared for a healthcare crisis.  It is their job, after all, to provide emergency and intensive healthcare.  In fact, however, the COVID-19 crisis has put enormous pressures on hospitals.  With such new pressures come new risks of healthcare fraud at hospitals.

The Financial Pressures on Hospitals in the COVID-19 Crisis

Against the backdrop of heroic efforts by front-line hospital workers, hospitals face the threat of being overwhelmed by coronavirus patients, and they have struggled with shortages of critical personnel, equipment, and capacity.  As a result, hospitals are incurring substantial expenses to increase ER and ICU capacity, hire additional staff, and secure equipment for infection control and the treatment of COVID-19 patients.  And, with demand greatly exceeding supply, markets are chaotic, and hospitals are often paying inflated prices.

In addition to increased costs, hospitals are also facing a major loss in revenue.  Why would a healthcare crisis reduce hospital revenue?  Doesn’t a pandemic mean more people are going to the hospital, and therefore that the hospital is making more money?

Hospitals rely on revenue generated by “elective” procedures, including orthopedic and cardiac surgeries, as well as other outpatient services.  During the current pandemic, state and federal guidelines have required providers and patients to defer non-essential healthcare services.  As a result, hospitals have lost the revenues they earned from these services.  For many hospitals, that was the revenue that was keeping them in business.

New Government Funding and Reimbursements for Hospitals

Many hospitals are in a squeeze: their costs have gone up, and their revenues have gone down.  Important arguments can be made that hospitals should have had financial and supply reserves they could call on in a pandemic.  In the absence of such resources, the government is working to fill the gap, with new funding and reimbursements for hospitals so that they can continue to provide essential services.

These measures include:

  • The Provider Relief Fund. The CARES Act created a $175 billion fund, also referred to as the Public Health and Social Services Emergency Fund (the “PHSSEF”) for hospitals and other healthcare providers who are facing increased expenses as a result of the coronavirus.

In April, HHS distributed the first $30 billion of the Provider Relief Fund through the Automated Clearing House system used to process Medicare payments.  Providers did not apply for the funds; they were distributed based the amount of Medicare fee-for-service payments the provider had received in federal fiscal year 2019.  HHS has announced that future distributions will be allocated based on providers’ share of net patient revenue, as well as to providers in areas particularly impacted by the COVID-19 outbreak, rural providers, and providers who serve low-income populations and uninsured Americans.

While the Provider Relief Fund money at first simply showed up in provider accounts, there are strings attached, and if a provider keeps the funds, they are deemed to have accepted the terms and conditions of the grants.  Among these terms: the funds must be used to prevent, prepare for, and respond to the coronavirus; the funds are “last resort,” and cannot be used for expenses that could be reimbursed from other sources; and, patients cannot be balance-billed for services paid for by the funds.

  • HHS Hospital Preparedness Program. In March 2020, HHS announced an additional $100 million in funding for its Hospital Preparedness Program, including grants to public health programs around the country.
  • Medicare Accelerated and Advance Payment Program. Inpatient hospitals were able to request that Medicare payments be accelerated, effectively as an interest-free loan.  As designed, CMS will be able to later recoup the payments through offsets.

Hospitals Must be Held Accountable, and Whistleblowers can Help

No one can argue that it is important to keep hospitals operating during a healthcare crisis.  But hospitals and other healthcare providers must be held accountable for the taxpayer dollars they are receiving.  This concern is not at all abstract:  healthcare fraud costs us all billions of dollars a year, and many of the hospitals now receiving additional funding have previously paid large fines following allegations that they defrauded government healthcare programs.

  • HCA disclosed that it received $4 billion in accelerated Medicare payments, and approximately $700 million in Provider Relief Funds. HCA has paid numerous settlements for violating the False Claims Act and committing healthcare fraud, including precedent-setting settlements totaling $1.7 billion in 2000 and 2003.  More recently, HCA paid $8.6 million to resolve FCA claims in 2017, and $15.8 million to resolve FCA claims in 2015.
  • Community Health Systems reported that it has received $1.2 billion in Medicare Accelerated and Advance Payment Program, and $245 million from the Provider Relief Fund. Among the many earlier alleged violations by CHS and its affiliates are a 2018 settlement for $260 million, resolving charges that CHS paid unlawful kickbacks. In 2014, CHS paid $98 million to resolve claims that it billed government healthcare programs for inpatient services that should have been billed as outpatient or observation services; in 2015 CHS affiliates paid $75 million to resolve claims of unlawful Medicaid funding practices.
  • Tenet Healthcare is reported to have received at least $370 million from the Provider Relief Fund – while a $66 million settlement of claims that Tenet violated the Stark Law and Anti-Kickback Statute remains pending. Among its earlier violations, in 2016, Tenet agreed to pay $513 million to resolve claims that it paid unlawful kickbacks for patient referrals.
  • Dignity Health has received over $180 million from the Provider Relief Fund. In 2014, the hospital chain agreed to pay $37 million to resolve claims that it admitted patients for inpatient services who could have been treated on a less costly, outpatient basis.

With the intense financial pressures on hospitals, pressure to maximize revenue from all sources will increase – corners may be cut, and false claims submitted.  Healthcare fraud by hospitals can take many forms: billing fraud, for services that were not actually provided or were not medically necessary; unlawful kickbacks and financial arrangements; and, improper inpatient admissions.  Such fraudulent conduct can result in overcharges to Medicare, Medicaid, or other federal health insurance programs, or improper access of other government funds, such as the Provider Relief Fund.

Whistleblowers with knowledge of unlawful practices by hospitals and other providers play a critical role.  Whistleblowers can bring claims under the False Claims Act to report fraud and misconduct in federal healthcare programs and other federal spending.  If the government recovers money, the whistleblower can receive up to 30% of the amount recovered.

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Tagged in: COVID-19, FCA Federal, Government Programs Fraud, Healthcare Fraud, Hospital Fraud, Importance of Whistleblowers,