John Peter Smith Hospital agreed to pay $3.3 million to settle a case alleging it violated the False Claims Act by upcoding claims given to federal healthcare programs such as Medicare, TRICARE, and VA health benefits programs. The suit stems from a complaint filed by JPS’ former Director of Compliance Erma Lee, who said the hospital upcoded hundreds of claims to increase payments. JPS maintains that the errors were unintentional.
Upcoding is when hospitals add billing modifiers to indicate significant care administered on top of the other medical procedures beyond the bundle included in the original care. The upcodes result in higher reimbursement for the provider but are illegal if more care wasn’t administered.
In September 2020, Lee said the hospital had been improperly adding modifiers from 70 to 95 percent of the time in specific procedures, often double billing for the care provided. At the time, JPS failed to reimburse payors for overpayment stemming from improper claims. The False Claims Act allows private citizens with evidence of fraud to sue on behalf of the government and share any proceeds, and Lee exercised her right via complaint.
The National Health Care Anti-Fraud Association says that healthcare fraud costs the nation about $68 billion each year, or 3 percent of the nation’s healthcare spending. Other estimates range as high as 10 percent of annual healthcare expenditures, or $230 billion. The prevalence of upcoding can be linked to the fee-for-service model of paying for healthcare, where providers are paid more for what they do than their patient’s overall health. However, more payors are moving to a value-based care model, where providers are reimbursed for health outcomes rather than the number of tests, procedures, and treatments they prescribe. This puts the patient’s care first and is a disincentive for wasteful or abusive treatment. As a result, providers are being forced to become more efficient and share unnecessary treatment costs.
Lee began her career with JPS in 1996 as an executive assistant and worked her way up through the organization in more than two decades of service. As director of compliance, it was her job to identify potential healthcare fraud and abuse concerns. In 2015, Lee led a team running an internal audit after the federal government flagged services that didn’t meet the Medicare program requirements. The audit found a “shocking” number of errors, the complaint reads. “An audit into JPS Health’s use of modifier 25 found that 88 percent of Medicare claims using that modifier and 100 percent of Texas Medicaid claims using that modifier were erroneous.”
Lee took her findings to the executive leadership of the $950 million healthcare system but said they ignored the information and did not refund the payment. In 2017, JPS fired Lee. The Department of Justice did not intervene in the case but worked with Lee to resolve the matter. Lee will receive $912,635 as her share of the settlement. “The settlement agreement is neither an admission of liability by JPS nor a concession by the United States that its claims are not well-founded,” the settlement agreement reads.
JPS says it first learned of these issues when the Department of Justice contacted the network about the possible misuse of billing modifiers. The errors were found to be unintentional and software generated. JPS complied with the DOJ’s request and provided needed information.
“We take any claims of wrongdoing extremely seriously, and JPS immediately engaged an outside law firm with experience reviewing allegations of this sort,” says JPS Health Network president and CEO Robert Earley. “JPS asked them to conduct a thorough and robust investigation, including full access to all records and individuals involved in coding and billing. As a result, the matter was resolved on behalf of the hospital district, and it’s my understanding that the interviews and investigation revealed no evidence of intentional or knowing conduct related to this.”