On July 3, 2013, the United States Department of Justice announced Sound Inpatient Physicians, Inc. (“Sound Inpatient”) will pay $14.5 million dollars to settle allegations that it over-billed Medicare and other federal health care programs. The Washington-based company employs more than 700 hospitalists and post-acute physicians to facilities in twenty-two states.

Under the whistleblower provisions of the False Claims Act (“Act”), a former Sound Inpatient regional manager alleged the company was submitting evaluation and management (“E/M”) claims for reimbursement that were unsupported by medical documentation. The government then intervened; no surprise, considering that since January 2009, the Justice Department has recovered a total of more than $14.7 billion through False Claims Act cases.

Hospitalists are physicians who provide care exclusively to hospital inpatients and have no office or outpatient practice. They bill for their professional patient EM services through the use of Current Procedural Terminology (“CPT”) codes.  The Medicare Act’s medical necessity requirements specify that E/M services must be coded at the lowest level necessary and, further, that hospitalists should have documentation to support the code used for the service billed. When improper codes are accompanied by lack of documentation, impropriety is often suspected. When a provider knowingly or recklessly bills federal payers for services unsupported by adequate documentation, a practice known as “upcoding”, a False Claims Act violation can be alleged.

In the case of Sound Inpatient, it was alleged that between 2004 and 2012, Sound Physicians knowingly submitted to federal health benefits programs inflated claims on behalf of its hospitalist employees for higher and more expensive levels of service than those actually delivered as documented in the patient record. Safeguards to protect against upcoding, such as auditing and training systems, were allegedly not implemented by Sound Inpatient. In fact, there was no coding department or trained experts to review coding at all; instead, the hospitalists were left to perform their own coding with allegedly insufficient training. Even after internal audits revealed remarkably high upcoding error rates (57-94%), the company failed to take corrective action.

The $14.5 million dollar settlement illustrates the importance of compliance programs. These programs should be mandatory for all providers and include training, internal audits, and preventive measures against upcoding. When improper billing is identified, providers are required to report and reimburse healthcare programs for any overpayments received within 60 days. Improper billing practices and inadequate documentation can lead to False Claims Act liability and leave providers on unsound footing.