Newark Hospital Falsely Reported Medicare Costs, Will Pay $30M: Feds

NEWARK, NJ — A long-term care hospital in Newark and some of its investors have agreed to pay $30.6 million to resolve accusations that it falsely reported its costs to Medicare for years – and reaped millions in “unjustified payments,” federal prosecutors say.

The U.S. Attorney’s Office announced the settlement with Silver Lake Hospital on Tuesday.

According to prosecutors, Columbus LTACH – which does business as Silver Lake Hospital – has agreed to pay over $18.6 million plus interest to resolve alleged False Claims Act and violations for claiming excessive cost outlier payments from the Medicare program.

In addition, some Silver Lake investors have agreed to pay $12 million plus interest, to resolve alleged Federal Debt Collection Procedures Act (FDCPA) violations regarding the fraudulent transfer of money by the hospital to its investors, prosecutors said.

According to the settlement agreement, the payments made to resolve the United States’ FDCPA allegations will be made by Florida resident, 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.

The settlement amounts will be paid over a five-year period. The Silver Lake payment was negotiated based on the hospital’s lack of ability to pay, prosecutors said.

The claims resolved by the settlement are allegations only, and there has been no determination of liability, prosecutors noted.

Here’s what the allegations are based on, according to federal prosecutors:

“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,” prosecutors said.

“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,” prosecutors added.

“Medicare serves to ensure that patients get necessary care, including when that care is very expensive,” U.S. Attorney Philip Sellinger said.

“Medicare is not there for hospitals and their investors to gain unwarranted financial windfalls,” Sellinger added.

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