Fifth Circuit Affirms Dismissal of Fraud Case Against Baylor Scott & White Health

On May 28, 2020, the U.S. Court of Appeals for the Fifth Circuit affirmed the dismissal of a False Claims Act (FCA) lawsuit filed by the data analytics company Integra Med Analytics (“Integra Med”) against Texas-based Baylor Scott & White Health (“Baylor”).¹    The lawsuit alleged that, based on a statistical analysis of Baylor’s claims from 2011 to 2017, Baylor inflated medical codes to maximize Medicare reimbursement.  Specifically, Integra Med accused Baylor of pressuring physicians to use higher value complication or comorbidity (CC) or major complication or comorbidity (MCC) codes when diagnosing patients.  The coding led to an alleged $61.8 billion in false claims submitted to Medicare.

The district court dismissed the case in August 2019 after finding that Baylor’s clinical documentation improvement (CDI) efforts that included resources for physicians on coding CCs and MCCs were consistent with efforts throughout the healthcare industry as a whole to improve hospital revenue through accurate coding of patient diagnoses.

In affirming the district court’s decision, the Fifth Circuit pointed out that Integra Med’s statistical analysis was capable of two different interpretations.  The Fifth Circuit found the analysis was “consistent with both Baylor having submitted fraudulent Medicare reimbursement claims to the government and with Baylor being ahead of most healthcare providers in following new guidelines from CMS.”  The Fifth Circuit discussed the changes giving rise to the use of CCs and MCCs, which occurred in 2007, whereby CMS reduced the standardized amount paid out to hospitals for Medicare reimbursement claims but increased the number of secondary diagnoses identified as CCs and MCCs. The Fifth Circuit noted that CMS was aware that coding more CCs and MCCs could increase hospital reimbursements.²

The Fifth Circuit further noted that “[i]n response to public comments expressing concern that the new rules would lead to lower reimbursements, CMS stated that it expected reimbursements to increase under the system.”³    According to the Fifth Circuit, “CMS believed it was ‘clear’ that hospitals would ‘change their documentation and coding practices and increase case mix consistent with the payment incentives that are provided by the’ then new coding system.”⁴    In fact, according to the Fifth Circuit, CMS “encouraged hospitals to adopt CDI programs ‘in order to increase reimbursement’ and highlighted an article touting the effectiveness of CDI programs at increasing Medicare reimbursement rates.”⁵

In further support of its finding, the Fifth Circuit pointed out that CMS unequivocally stated in its guidelines that, “‘[w]e do not believe there is anything inappropriate, unethical or otherwise wrong with hospitals taking full advantage of coding opportunities to maximize Medicare payment that is supported by documentation in the medical record.’”⁶

To this point, the Fifth Circuit ruled that Integra Med failed to provide sufficient evidence to support its claim that Baylor provided unnecessary treatment to patients in order to maximize Medicare reimbursement.  “Even when plaintiffs in an FCA case use statistics, which can be reliable indicia of fraud, they must still plead particular details of a fraudulent scheme for each claim,” the Fifth Circuit wrote.  “Here, Integra Med’s complaint contains a conclusory allegation that Baylor was providing unnecessary treatment to its patients. . . . Integra Med does not present sufficient particular details of this alleged fraud claim.”  Thus, according to the Fifth Circuit, dismissal of Integra Med’s claims was appropriate.

AGG continues to monitor healthcare fraud claims involving providers’ clinical documentation improvement efforts and will update this advisory with any new developments.

[1] See generally, U.S. ex rel. Integra Med Analytics, L.L.C. v. Baylor Scott & White Health, et al., No. 19-50818 (5th Cir. May 28, 2020).

[2] See id. at 6 (citing Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates, 72 Fed. Reg. 47, 130; 47, 135-39 (Aug. 22, 2007) (final rule)).

[3] See id. at 6-7 (citing Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates, 72 Fed. Reg. at 47, 180-82) (emphasis added).

[4] See id. at 7 (quoting Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates, 72 Fed. Reg. at 47, 182).

[5] See id. (quoting Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates, 72 Fed. Reg. at 47, 182) (emphasis added).

[6] See id. (quoting Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates, 72 Fed. Reg. at 47, 180).