US: Tenet to Pay $900M to Settle Billing Claims

Tenet Healthcare Corp., the nation's second largest hospital chain, has agreed to pay $900 million to settle claims brought by the U.S. Justice Department that it had systematically bilked Medicare by using several illegal billing practices.

The settlement stems at least in part from a whistleblower lawsuit filed in November 2002 by attorneys Peter F. Vaira, John E. Riley, Jack L. Gruenstein and William J. Murray Jr. of Vaira & Riley in Philadelphia on behalf of two whistleblowers -- Peter Salvatori and Sara C. Iverson.

The same lawsuit was one of two suits -- along with a case filed by attorney Marc S. Raspanti of Miller Alfano & Raspanti -- that led to a recent $265 million settlement by Saint Barnabas Corp., the largest health care system in New Jersey and second largest employer in the state.

Raspanti's case, however, did not name Tenet as a defendant. When the Saint Barnabas settlement was announced, there was a strong hint that more settlements would follow. The suit filed by Vaira & Riley was only partially unsealed, revealing a case caption in which the identities of some of the defendants had been blacked out.

More settlements could be in the offing because the case remained partially under seal even after the Tenet settlement was announced.

Like Saint Barnabas, the claims against Tenet included allegations that it was abusing a Medicare provision that provides for supplemental payments for unusually expensive cases, referred to as "outliers."

Whistleblower lawsuits, also known as qui tam actions, allege claims under the False Claims Act. Initially, such cases are filed under seal and immediately referred to the local U.S. Attorney in order to give the Justice Department the option of pursuing the case.

The claims against Tenet led to a massive investigation that included prosecutors in the Eastern District of Pennsylvania; the Central District of California; the Northern District of Alabama; the Eastern District of Louisiana; the Eastern District of Missouri; and the Western District of Tennessee.

"Today's settlement reflects our continued resolve to hold responsible those who engage in health care fraud in any form," said Assistant Attorney General Keisler, head of the Justice Department's Civil Division. "The Department of Justice will not tolerate fraudulent efforts by hospitals or other health care providers to claim excessive sums from the Medicare program."

Under the terms of the settlement, Tenet, which is headquartered in Dallas but operates dozens of hospitals throughout the United States, will pay a total of $900 million over a four-year period, plus interest, to resolve various allegations involving its billings to Medicare and other federal health care programs.

A Justice Department press release said the settlement amount "was based on the company's ability to pay."

Tenet, in its own press release, was both contrite and optimistic.

"With this settlement, the company acknowledges that Tenet made mistakes in its conduct before 2003," said Trevor Fetter, Tenet's president and CEO. "Health care is a heavily regulated industry. Regulators depend on providers to be trustworthy and to set and abide by their own high ethical standards. Some of this company's past actions did not measure up to the high standards that we have imposed on ourselves since these issues first arose."

Fetter said Tenet has "made much progress with our reforms in clinical quality, corporate culture, management, transparency, governance, compliance and strategy."

The company was "humbled because of what happened," Fetter said, "but these challenges galvanized us to make necessary changes. As a result, Tenet is a stronger and better company."

Tenet's press release said the settlement brings to a close several previously disclosed investigations, including one by the U.S. Attorney in Los Angeles into Medicare outlier payments; and six others relating to physician financial arrangements by the U.S. Attorneys in Los Angeles; El Paso, Texas; Memphis, Tenn.; St. Louis, San Francisco and New Orleans, as well as civil litigation over Medicare coding that the Department of Justice filed against the company in January 2003.

In the same press release, Tenet announced its plan to sell 11 of its hospitals, including three of its five Philadelphia-area hospitals and four hospitals in New Orleans. When the sales are completed, Tenet will be operating 57 hospitals in 12 states.

"Because of uncertainties in the New Orleans market and the need for health care consolidation in the aftermath of Hurricane Katrina, we have made the difficult decision to seek new ownership for four of our five New Orleans-area hospitals," Fetter said.

"We have also decided to divest three of our five hospitals in Philadelphia in order to concentrate all our efforts on Hahnemann University Hospital and St. Christopher's Hospital for Children, as well as our academic affiliation with Drexel University School of Medicine."

The Philadelphia-area hospitals slated to be sold are Graduate, Roxborough Memorial and Warminster hospitals.

Under the terms of the settlement, Tenet will make an initial payment today of $450 million, plus about $20 million in interest. Beginning in November 2007, Tenet must begin paying the remainder of the cash portion of the settlement in 12 quarterly installments that will end in August 2010.

The settlement also says Tenet will waive its right to pursue receipt of $175 million in certain outlier and disproportionate share payments that have never been recorded by the company pending a resolution of these issues and the uncertainty that they would ever be received.

News of the settlement at first led to a 17-cent rise in Tenet's stock price, but by the end of the day the price had dropped 37 cents, to close 20 cents down at $7.03.

Justice Department lawyers said the lion's share of the settlement -- more than $788 million -- related to claims arising from Tenet's receipt of excessive "outlier" payments, which are intended to be limited to situations involving extraordinarily costly episodes of care.

Tenet inflated those charges "substantially in excess of any increase in the costs associated with patient care and billing for services and supplies not provided to patients," the Justice Department said.

About $47 million of the settlement stemmed from claims that Tenet "paid kickbacks to physicians to get Medicare patients referred to its facilities, and that Tenet billed Medicare for services that were ordered or referred by physicians with whom Tenet had an improper financial relationship," prosecutors said.

And another $46 million stemmed from claims that Tenet engaged in "upcoding," a term that refers to situations in which improper diagnosis codes were assigned to patient records in order to increase reimbursement, prosecutors said.

The settlement also calls for Tenet to enter into a multi-year "corporate integrity agreement" with the Office of Inspector General in the U.S. Department of Health and Human Services.

OIG promised not to exclude Tenet hospitals from any federal health care program if Tenet executes an acceptable corporate integrity agreement, which the company said it expects to do within 90 days.

The plan calls for Tenet to employ an independent review organization to provide an external review of the company's ongoing compliance in the areas of Medicare coding, physician financial relationships, setting of hospital charges and quality of care.

"Tenet has significantly enhanced its internal compliance function since 2003," Fetter said. "Therefore, we expect to fulfill the terms of the corporate integrity agreement without adding additional resources, except for external reviews required to monitor our compliance with the agreement."