New National Kyphoplasty Enforcement Initiative

In the aftermath of its 2008 $75 million qui tam settlement with Medronic, Inc., which had acquired Kyphon, Inc., the Department of Justice is now beginning investigations and negotiations with individual hospitals seeking further recoveries under the False Claims Act. At issue is a procedure called “kyphoplasty,” which involves a minimally invasive procedure inserting a balloon-like device filled with cement into the spine of a patient to repair spinal weakness and damage. The government believes that some hospitals may have been encouraged by Kyphon improperly to admit patients for in-patient hospital stays, rather than to designate them as outpatients, in order to maximizer Medicare, Medicaid and other federal healthcare plan reimbursements. My colleague Alana Wexler and I were involved in successfully negotiating the first of these new cases on behalf of a large midwestern hospital system.

I anticipate that Kyphon will take its place among other recent national enforcement initiatives, such as “LabScam” and pneumonia upcoding. If you are a hospital, it is only a matter of time until your kyphon-related requests for reimbursement are scrutinized by DOJ. Phillips & Cohen, on behalf of two relators, filed an extensive complaint against hundreds of hospitals in late May, 2008. I have reviewed a redacted copy of this complaint.

The purpose of this brief note is to offer some helpful suggestions to avoid FCA litigation, and how to deal with DOJ should your institution be targeted.

The methodology of the investigation is quite straightforwarded and easy for DOJ to perform. A computer check is run on billings for Kyphon-related services under the appropriate procedure code. If more than a scattering of such claims include requests for inpatient service reimbursement, rather than exclusively outpatient procedures, then the hospital is targeted for further investigation. This is accomplished by a joint team of HHS-OIG agents and U.S. Attorney investigators, under the supervision of the U.S. Attorney’s Office, Northern District of New York, in Buffalo which is coordinating the national initiative. The supervising AUSA is highly experienced and direct, knows his stuff, and can be forceful and fair at the same time in my experience. These folks know what they are doing. In addition, further assistance is contributed by P&C as counsel for the relators, although they played no evident role in our negotiations.

The first indication of being under investigation is either an oral request for records, a written letter requesting documents, or even a subpoena. If your institution has not received any such contact, the following actions should be considered based upon my experience:

a. Run an audit of all Kyphoplasty billings to determine which, if any, include inpatient services.

b. Review each such inpatient billing to see if it satisfies InterQual criteria for inpatient admission. What written procedures does the hospital have for admitting kyphonplasty patients. Review for any fiscal intermediary guidance issued regarding Kyphon.

c. Make sure your audit will pass muster should DOJ review it, since the audit will serve as the basis for determining single damages. Employ a conservative approach, i.e., in doubtful or borderline cases still consider the claim as invalid just to be sure no inappropriate claims have been missed. You should plan on turning the audit over to DOJ, as well as making the folks who conducted it available to them. Claiming privilege as to the audit will only demonstrate that you do not really wish to “cooperate,” and this can be deadly with the supervising AUSA. More on this below.

d. Determine if any hospital employee has had contact with Kyphon sales or other personnel and the contents of any communications between hospital employees and Kyphon. It is extremely important to secure and review all internal hospital communications regarding kyphoplasty. DOJ will want to review these documents. Moreover, determine the working relationships between hospital employees and any outside radiological groups that perform kyphoplasty procedures at the hospital. Particularly important in this regard is determining who makes the decision to admit a patient as an inpatient–the outside group, the hospital staff, or both.

e. If your hospital has not been contacted by the government, then make a standard overpayment refund to your fiscal intermediary. This should be mandated by your compliance plan in any regard. However, if you have been contacted, then do not make a repayment to the FI unless it is approved by DOJ. The supervising AUSA will not look favorably upon such action.

f. A complete outside review should be undertaken of the hospital’s compliance plan to ascertain how the mischarging occurred, to develop alternatives to avoid a reoccurrence, and to manifest a dedication to having the best possible compliance program. A long list of issues needs to be considered in any such review, such as the relationship between outside physician groups and the hospital in making inpatient admission decisions. In my case, our client had a superior plan, and we as outside counsel drafted a report with substantial suggestions for further improvement, which recommendations were implemented totally and immediately by the Board. This dedication to meaningful compliance helped convince DOJ that our client should not be held to the normal measure of damages in these cases (triple single damages). We were also able to convince the IG that our plan was sufficiently effective so that no CIA or other form of administrative torture was imosed. But you have to earn the government’s trust on this to reap this benefit, and establishing a cooperative attitude is almost the most important element in doing so.

g. A point that cannot be emphasized too much is that DOJ expects complete “cooperation” if you wish to mitigate possible FCA damages. Most directly, the supervising AUSA will ask you to waive privilege as to pertinent documents (such as the audit), other records, and key individuals whom DOJ will want to interview. This is the only point at which we experienced a bit of rough going. In this connection, it is important to review recent DOJ pronouncements on forcing criminal defendants to waive privilege to earn cooperation credit. While DOJ’s most recent position stresses the content of facts, not the source of the facts, the supervising AUSA will argue that DOJ’s change in policy relates only to criminal cases, not civil FCA investigations. This is another reason it is critical to be “upfront” and credible with the government, so you can work through this challenging area constructively.

The basic point I wish to emphasize is that cooperation with DOJ, and establishing credibililty with the lead AUSA, are the most important objectives you should seek to develop during negotiations. We were treated extremely fairly because we satisfied these criteria. So, it is important to keep these points in mind throughout your negotiations.

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