On August 4, 2014, the Department of Justice (DOJ) announced that Community Health Systems, Inc. (CHS) has agreed to pay $98.15 million to settle allegations that it violated the False Claims Act when it knowingly overcharged the Government by billing government health care programs for inpatient services that should have been billed as outpatient or observation services.  Larendo Medical Center (LMC), one of CHS’ affiliate hospitals, was also named in this lawsuit for improperly billing the government for inpatient services and procedures to patients that were referred in violations of the Physicians Self-Referral Law or the Stark Law.  The DOJ also announced that nine whistleblowers, connected to CHS, filed the lawsuit on behalf of the government, and will share a portion of the settlement under the qui tam provision of the False Claims Act.

This lawsuit was originally filed under the whistleblower qui tam provisions of the False Claims Act, which forbids a person or company from defrauding governmental programs – in this case Medicare, Medicaid and the Department of Defense (DOD) Tricare programs. Moreover, the Physician Self-Referral Statue (a.k.a. Stark Laws) which falls under the False Claims Act, prohibit a physician from making referrals to a provider for certain healthcare services that is owned by or provides compensation to the referring physician.

According to the lawsuit, the government alleged that from 2005 to 2010, emergency room patients 65 and older, and enrolled in Medicare, Medicaid and the DOD Tricare programs, were admitted to 119 CHS affiliate hospitals as inpatients, when a less costly outpatient or observation setting would have sufficed without compromising quality care to the patient.  Moreover, CHS improperly billed Medicare, Medicaid and the DOD Tricare for treatment of these patients, thereby intentionally overcharging the government and violating the False Claims Act.

In addition, from 2005 to 2010, the government alleged that LMC, a CHS affiliate, also violated the False Claims Act by treating referred patients for certain cardiac and hemodialysis procedures on an inpatient basis, and at a higher cost to the government when these same procedures could have been performed at a lesser cost to the government.  The Stark Laws were enacted to prevent this type of illegal practice and to also ensure that patients receive quality medical care based on a physician’s best judgment and not based on profit.