Outlier Payments Make DRG Fraud “Material” to Government

A registered nurse brought a qui tam action against a hospital, alleging that the hospital’s doctors were fabricating post-operation complications to allow for patients to remain in the hospital so that cosmetic surgeries could be performed. The hospital filed a motion to dismiss, arguing that the relator failed to identify an actual false claim or invoice that was actually submitted to the government. In addition, the hospital argued that, even if true, the alleged activity was immaterial to the government’s payment decision.

In U.S. ex rel. Wagemann v. Doctor’s Hospital of Slidell, LLC, 2010 WL 3168067 (E.D. La. Aug. 6, 2010), the court granted the hospital’s motion to dismiss. While rejecting the hospital’s argument that relator must identify an actual claim submitted to the government, the court ruled that the relator must still plead enough facts “from which the court may reasonably infer that false claims were actually submitted for payment.” Here, the relator only offered “mere conclusory assertions.”

Then turning its attention to the hospital’s “immateriality” argument, the court noted that Medicare generally reimburses a fixed amount per patient based on the patient’s diagnosis, the procedures performed and the Diagnosis Related Group (“DRG”) into which the payment falls. According to the court, “If the defendants’ alleged scheme did not increase the fixed amount paid by Medicare, they are immaterial to the amount of reimbursement received.” Here, the court found that this requisite allegation was missing from the relator’s complaint.

In cases involving DRG payments, relator’s have been able to show damage to the government by discussing the impact on outlier payments. Outlier payments are warranted when a hospital’s cost-adjusted charges exceed either a fixed multiple of the applicable DRG rate or a fixed dollar amount established by the government. In turn, because outlier reimbursements are contingent on unusually long hospital stays and/or unusually costly treatments, the relator must allege facts to demonstrate that the unnecessary procedures resulted in either or both, thereby artificially inflating charges without corresponding increase in costs. Evidently, the relator in this case did not include allegations of outlier fraud.

For more information about qui tam law and health care fraud, contact Nolan & Auerbach, P.A.