Adventist Health System Agrees to Record Settlement in Whistleblower Lawsuit

There was no admission of wrongdoing and no determination of liability by the DOJ or any court. That’s important based on my experience in more than three decades of representing hospital and physician providers.

Persons unacquainted with the regulations involved may think the $119 Million settlement is an admission of wrongdoing, and if AHS was in the right it should have fought the charges to prove its innocence in court. It is nowhere near that simple. The difference between being right and proving you are right in court is money–lots of money. This settlement appears to be what is known as a “cost of defense” settlement. As large as it is, my calculations are that it is less than one percent of AHS annual net revenue even though it sets a record for settlements of its kind.

The physician compensation issue gets the sound bites but it appears to be isolated to three issues at one hospital when AHS must have more than a thousand physician contracts. All physician contracts would have all been subject to investigative review so overcompensation of referring physicians isn’t the big problem. This is not to diminish the seriousness of the problems that were reported.

The three whistleblowers were all at one hospital. It is likely the local administration turned a deaf ear to compliance concerns. Once the DOJ was involved, it would have quickly opened an investigation to see if there were issues elsewhere in the system. That would mean scrutiny of coding and billing.

American healthcare is long past the days when providers are reimbursed for costs. The issue here isn’t about padding costs. It is about picking the right code out of 13,000 (soon to be 88,000 with ICD-10) codes each with a dollar value arbitrarily attached for billing and reimbursement purposes.

Medical coding is extremely complex and there are constant interpretations and re-interpretations by CMS, the government agency responsible for Medicare and Medicaid reimbursement regulation and constant arguments and adjustments over what constitutes proper billing and reimbursement. The DOJ typically takes a sample of patient billings on certain treatments and procedures it deems miscoded and analyzes them to determine a rate of error. It then extrapolates that error rate to the billing of those kinds of treatments and procedures throughout the entire system.

No doubt an error rate was found because the chances of any hospital or system having no errors in coding or billing would be infinitesimal due to the complexities.

The hospital system might code a certain type of procedure differently than the government deems appropriate. Although this difference may mean only a few extra dollars of reimbursement in each case, the extrapolation to thousands of cases across the whole system can lead to a staggering amount in dispute. The government can, in its discretion, deem that error, even if only a difference in interpretation, a false claim and add penalties up to 2X to 3X the amount in question. Now we are talking about a staggering amount in dispute. However, in AHS’s case there was no finding of an intentional scheme to defraud the government or there would have been criminal charges. Also, technical violations of the Stark Law are a matter of strict liability even though a hospital had no intent to violate the law.

The hospital system faces a choice when it learns there are whistleblowers and the government is investigating their claims. The system must hire a battalion of attorney specialists, audit firms, and reimbursement consultants to respond to the government’s legion of investigators, accountants, and attorneys. In the legal system, the difference between being right and proving you’re right comes down to money-lots and lots of money. To defend a case like this through trial costs millions in litigation costs and fees. Even after going to that expense, the matter will likely come down to whether 12 ordinary citizens, who are increasingly unhappy over a trial that is lasting months and months if not a year or more, will understand the complexity of the healthcare regulation sufficiently to reach a defense verdict.

Given the huge amount of possible damages and costs of defense, the pending litigation will cast a cloud over bond financing and provider contracting costing the hospital system even more in higher interest payments and lost opportunities.

The other choice for the system is to settle the matter for a steep price to be sure, but less than it would likely spend and risk if took the matter all the way through trial to verdict. The government knows it will be costly for the hospital to defend and counts on that pressure to reach a settlement.

Is this justice? No, it is the highly sophisticated governmental regulation of a highly sophisticated big business taking care of some of the most basic of human needs. A lot can go wrong and some things probably did. The healthcare system in the U.S. is Kafkaesque in the absurd complexity of its reimbursement mechanisms, pricing and access to care. Medicare and Medicaid which began as a 15 page piece of legislation in 1965 now involves literally hundreds of thousands of pages of technical rules.

AHS has a strong compliance department. The result of this settlement and publicity will be an enhanced awareness of compliance policies and practices throughout the organization. The policies and practices where the internal checks and balances failed will be improved strengthened. That’s what happens in situations like this.

There is a lot of money and bad publicity attached to the name “Adventist” in this. But this situation is much more "Render unto Caesar the things that are Caesar’s than “Thou shalt not steal.” Phil Brantley is correct that this matter does not reveal a threat to the integrity or finances of the Adventist Church.

I’ve written a lot here and it will probably draw comments, but this is my one shot since I don’t rank for entrance to “the Lounge.”


Kent, I appreciate your thoughts, and would like to comment.

I’ve been in healthcare about 35 years, and have been following healthcare reform very closely. I am not looking forward to Oct1 when I have to come in at 5 am to deal with the transition to ICD10 - and I don’t even work in billing or coding!
There is no easy answer to the problems experience by Florida Hospital, and many other hospitals at well. Bad management decisions were made that could have averted this.

Why I hate to say it, I think capitalism is at the core. Not long ago I visited 8 of Florida Hospitals facilities (2010), and found them all remodeling their entrances with marbled floors and baby grand player pianos. One hospital even had you walk out of the main building, go into the new part, then walk outside again to get to where you needed to go. It seems the latest way to get better paying clients is to create an atmosphere of a high class resort. And we dare not say they are "patients’ but “guests”. This will help attract the richer patient, but doesn’t do much to solve the current issues in healthcare and the discrepancies to access. This is just an example. The patient is caught in the middle with capitalism and govt fighting it out. You can only throw so many lawyers, laws and regulations at the problem to try to solve it, until it implodes - which some feel may be part of the strategy. Many lawyers on both sides are motivated by unnecessary mega-settlements, either for private gain or to fill the govt coffers.

I do like one thing I see coming out the latest healthcare reforms; reimbursement based on value, not volume. Blame the govt for setting the example by decades of paying for procedures performed, instead of outcomes. We have the best technology in the world, but not the best health. The current govt push right now is building the electronic infrastructure and defining what “outcome” means (ICD10 being part of that). It has the potential of truly getting at the root of the problem, but will be very uncomfortable for most during the transition. And pray that it doesn’t fail.

What happened at Florida Hospital is not an Adventist problem, it is a national problem, and attempts are being made at reform. Time will tell if it is the better solution.


Just write a post directed to @JaredWright requesting and you will be granted entrance to the Lounge - the place for people who want to discuss issues in more detail. We would love having you there!

1 Like