Children’s National Medical Center Inc. has agreed to pay $12.9 million to settle two allegations of defrauding the government in violation of the False Claims Act. The first claim alleged that Children’s National, which has since changed its name to National Health System, inflated its cost reports which forced the Department of Health and Human Services to increase its reimbursement payments. The second claim alleged that Children’s National over reported the number of beds it had available, causing higher payments from the Virginia and D.C. Medicaid Programs and Medicare. Washington D.C. based Children’s National provides pediatric care throughout the D.C area. The Department of Justice (DOJ) alleged that Children’s National cost the Medicare Trust Fund millions of taxpayer’s dollars.
The DOJ alleged that Children’s National gave false information in their cost reports. The Department of Health and Human Services uses cost reports to calculate the rates at which hospitals will be reimbursed. Because the cost reports submitted by Children’s National were misstated at higher amounts, the reimbursements paid to the hospital were also artificially high.
The second allegation made by the United States alleged that Children’s National reported incorrectly on the total number of available hospital beds when submitting an application to the Health Resources and Services Administration. That application was made under the Children’s Hospitals Graduate Medical Education Payment Program which offers additional federal funding to children’s hospitals, such as Children’s National, in order to maximize the hospital’s training of personal working in pediatrics and other residents in graduate medical education programs.
The allegations of fraud were brought forward by whistleblower James Roark. Under the False Claims Act, a person can sue on behalf of the United States in return for as much as 30% of the recovered funds. Roark, a former employee of Children’s National, will receive $1,890,649 for bringing the alleged fraudulent actions to light. The False Claims Act continues to act as one of the government’s greatest tools in combatting fraud in health care. The sheer mass of Medicare and Medicaid create opportunities for health care providers to cheat the system. The actions of whistleblowers like Roark and many others have allowed the Justice Department to recover over $24.3 billion dollars of taxpayer money since January of 2009 through the False Claims Act.
This was not Roark’s first experience as a whistleblower in Medicare fraud. In 2013, Specialty Hospitals of America agreed to pay the United States $4.3 million to settle allegations over exaggerated Medicare claims. Roark learned of the Medicare fraud during his time as a company employee of Specialty Hospitals, where he worked to prepare and revise annual cost reports for Specialty Hospital’s agreements with Medicare. Roark received nearly $800,000 of the government’s total recovery.
The fraud allegedly committed by Specialty Hospitals was strikingly similar to the alleged fraud of Children’s National. Specialty Hospitals controls long-term care health facilities in D.C. and New Hampshire. It was alleged that the Medicare cost report filed in 2008 contained inflated revenue and expense numbers for the 2007 fiscal year at one of their hospitals. The inflated numbers caused Medicare to overpay Specialty Hospitals for various claims between January 1, 2007 and July 14, 2009. During this time period the United States alleged that it was overbilled in excess of $4.2 million.
Specialty Hospitals made its first payment under the settlement in November, 2013, but failed to make a second payment forcing the U.S. government to bring a new lawsuit. The government alleged that Specialty Hospital had failed to make a $1.2 million payment for the original settlement. Specialty Hospital was insolvent at the time the payment came due, and cited its financial problems for the failure to make timely payments. The government’s suit countered that the law requires companies to prioritize settlement payments over other debts, absent bankruptcy. The U.S. brought the suit using the Federal Priority Statute, which allows the government to sue corporations that have made debt payments to other lenders when the corporation owes funds to the government from a settlement agreement.