Fifth Circuit Affirms Dismissal of FCA Case Based on Inadequate Pleading of Upcoded Claims

On May 28, 2020, the United States Court of Appeals for the Fifth Circuit affirmed the dismissal with prejudice of a False Claims Act suit brought against Baylor Scott & White Health (“Baylor”), a network of acute care hospitals.  The suit, brought by Integra Med Analytics, alleged that Baylor submitted $61.8 million in fraudulent claims to Medicare by using unsupported “higher-value” diagnosis codes to inflate Medicare reimbursements.  The U.S. government previously declined to intervene in the suit.

Integra alleged that Baylor engaged in a three-pronged scheme to use complication or comorbidity (CC) or major complication or comorbidity (MCC) secondary codes to increase its Medicare revenues.  First, Baylor allegedly trained its physicians and employees to upcode MCCs by instructing the use of key words, providing lists of “higher-paying” MCCs, training employees to “seek opportunities to use higher-value secondary codes,” and emphasizing that the use of certain terms would increase physicians’ performance pay.  Second, Integra alleged that Baylor “pressured” physicians to change their original diagnoses to include “revenue-increasing” CCs or MCCs.  Third, Baylor allegedly “purposefully placed and kept post-operative patients on ventilator support” that was medically unnecessary in order to code MCCs.  Integra’s allegations were based primarily on Baylor’s “significantly” higher rate of MCC coding compared to the national average for other hospitals and statements by a Baylor medical coder.

The Fifth Circuit affirmed the district court’s finding that Integra’s claims failed to sufficiently plead facts showing that Baylor’s claims were fraudulent as required by Federal Rules of Civil Procedure 8(a) and 9(b).  The Court found that Integra’s statistical 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” which encouraged hospitals to change their documentation and coding practices to include CC and MCC codes.  Because the facts “strongly indicate[d]” a “legal and ‘obvious alternative’ explanation” for Baylor’s higher rates of MCCs and CCs, Integra did not meet the pleading requirements.

The Court also found that Integra’s allegations that Baylor trained and pressured physicians and medical coders to “upcode” were insufficient to establish that Baylor had engaged in a scheme to defraud Medicare.  Specifically, the Court concluded that Baylor’s practices were “entirely consistent with the new DRG rules” which encouraged hospitals to take steps to help physicians and medical coders “focus on understanding the impact of the revised CC list.”  Finally, the Court found that Integra’s allegation that Baylor provided unnecessary medical services was “simply conclusory” and failed to “plead particular details of a fraudulent scheme for each claim.”

The Fifth Circuit’s decision reinforces the high standard whistleblowers must meet when alleging fraudulent upcoding schemes.  Perhaps more importantly, it provides support for the legitimate use of certain coding optimization practices to maximize Medicare revenue and undercuts the argument, commonly advanced by Relators and the government alike, that coding improvement strategies are inherently suspect.

A copy of the Court’s opinion can be found here.