NJ Hospital, owners pay $30.6 million for cost outlier payment fraud

by Ben Vernia | January 24th, 2024

On January 16, the Department of Justice announced that a Newark, New Jersey-based hospital and its investors have agreed to pay $30.6 million to resolve allegations that the hospital received excessive cost outlier payments for patient care. According to DOJ’s press release:

Columbus LTACH, doing business as Silver Lake Hospital (Silver Lake), a long-term care hospital based in Newark, New Jersey, has agreed to pay over $18.6 million, plus interest, to resolve alleged False Claims Act violations for claiming excessive cost outlier payments from the Medicare program. In addition, certain Silver Lake investors have agreed to pay $12 million, plus interest, to resolve alleged Federal Debt Collection Procedures Act (FDCPA) violations for the fraudulent transfer of money by the hospital to its investors. The settlement amounts will be paid over a five year period, and the Silver Lake payment was negotiated based on the hospital’s lack of ability to pay.

In addition to its standard payment system, Medicare provides supplemental reimbursement to hospitals called “cost outlier” payments in cases where the cost of care is unusually high. Congress enacted the supplemental outlier payment system to ensure that hospitals possess the incentive to treat inpatients whose care may be unusually expensive. These cost outlier payments are made based on a formula set forth in the relevant regulations that attempt to adjust a hospital’s charges to the hospital’s costs by multiplying the hospital’s current charges by the hospital’s cost-to-charge ratios derived from the hospital’s previously submitted cost reports. Because the previously submitted cost reports may not reflect the hospital’s current cost to charge ratios, the Medicare program also provides for a retrospective reconciliation process, whereby after the hospital’s cost-to-charge ratio for the applicable time period is finalized, the hospital may be required to pay back excessive outlier payments that it received. This settlement resolves allegations that Silver Lake improperly distorted the cost outlier payment system by rapidly increasing its charges well in excess of any increase in its costs and far beyond what the hospital had the financial ability to repay once its Medicare cost reports were reconciled to account for these charge increases.

The settlement also resolves allegations that Silver Lake transferred millions of dollars in the hospital’s money to its investors without receiving equivalent value in return, at a time when the hospital had reason to believe that it would not be able to repay its debts to the Medicare program. The United States alleged that such conduct violated the FDCPA.

According to the settlement agreement with the United States, the payments made to resolve the United States’ FDCPA allegations will be made by Dr. Richard Lipsky, Silver Lake’s principal investor, and Columbus Management South LLC, an entity through which other Silver Lake investors received cash distributions from the hospital.

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The case apparently arose from a government investigation, rather than from a whistleblower’s qui tam suit.

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