$15 M Medicaid fraud lawsuit dismissed against medical center

By Michelle Massey, East Texas Bureau | Sep 22, 2008

MARSHALL � A federal judge recently granted a summary judgment in a case alleging a health care system submitted false claims to Medicaid.

U. S. District Judge T. John Ward granted the motion for summary in late August, dismissing a lawsuit against East Texas Medical Center Regional Healthcare System.

The lawsuit alleged the company violated the False Claims Act by submitting claims to the federal government for over $15 million of federal Medicaid matching funds.

The lawsuit was filed under seal on June 8, 2005, but when the United States declined to intervene, the court unsealed the action on Feb. 6, 2007.

According to court records, East Texas Medical Center Regional Healthcare System is a hospital company that owns and operates private hospital facilities in East Texas, including co-defendant East Texas Medical Center Athens.

The suit filed against the defendants argues that the companies "devised and implemented a scheme to fraudulently receive additional Medicaid matching funds from the United States by illegally abusing the intergovernmental transfers procedure for the Medicaid Upper Payment Limits Program."

The program allows states to reimburse public rural hospitals for specific uncompensated care provided under Medicaid. The reimbursement is an amount equal to what Medicare would have paid for the same service.

Intergovernmental transfers -- transfers made from one government agency to another -- are used to partially fund the state's contribution to the upper payments limit program and then can be used to claim additional federal monies.

To participate in the program, federal regulations require states to separate the hospitals by facility type because public hospitals are eligible for a higher percentage of reimbursement than private non-profit hospitals.

There are three facility types: state government-owned or operated, non-state government-owned or operated,and privately owned and operated facilities.

The private, non-profit organization ETMC operates East Texas Medical Center Athens but the facility is owned by Henderson County and then leased to Henderson County Hospital Authority, who subleases it to ETMC.

In 2002, the entity selected by the state to develop the upper payments limit program, The Texas Organization of Rural and Community Hospitals (TORCH) advised East Texas Medical Center Athens that it qualified for the program and could receive significant additional funding.

The lawsuit asserts that East Texas Medical Center Athens is actually a private hospital and obtaining reimbursement at a higher percentage level is a false claim under the False Claims Act.

Specifically, the lawsuit alleges that the defendant "masqueraded" as a public hospital and then knowingly received the higher reimbursement.

The defendants argue that its lease agreement with the county makes its fall under the county-owned facility operated by a private company. Further, the defendants relied on TORCH's communication that it qualified under the program, although TORCH had a significant financial interest with their participation in the program.

Within Judge Ward's opinion, he failed to decide whether the defendant is a public hospital or whether the funds are prohibited.

Judge Ward emphasizes that a "private hospital is defined as 'owned and operated' privately, and a public hospital is 'owned or operated' by the government."

However, Judge Ward did find that the defendants did not knowingly make a false claim to the government.

Judge Ward wrote, that the defendants' "reliance on TORCH and its attorneys was reasonable. East Texas Medical Center Athens' failure to seek independent legal advice under these facts does not rise to the level of reckless disregard needed for a FCA claim. At most, it would constitute negligence, which is insufficient to assert a claim under the FCA."

With the August Order, Judge Ward grants the defendants' motion for summary judgment and dismisses the case.

Case No 2:05cv00216

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