This week’s Fraud Spotlight article was written by Peggy Glynn, a former OIG Field Agent from Buffalo, NY. Her friendship, insights, and experiences in the OIG are incredible tools for those looking to learn more about fighting healthcare fraud, waste, and abuse.

Who is Kyphon Inc., what is a kyphoplasty, and where does the Civil False Claims Act (FCA) come in?

Kyphon Inc., subsequently purchased by Medtronic Spine LLC (MSL), was a medical device manufacturer based in Sunnyvale, CA.  Kyphon focused on the design, manufacturing, and marketing of the instrumentation used in kyphoplasty procedures.  Kyphoplasty is a minimally invasive procedure used to treat vertebral compression fractures, which primarily occur in elderly patients with osteoporosis.

An FCA action is brought when an individual or entity knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval to the federal government. There is a provision within the FCA known as a Qui-Tam lawsuit.   A Qui-Tam lawsuit may be filed by a private citizen, brought on behalf of the United States, when an individual has direct knowledge of alleged wrongdoing.  The individual(s) filing a Qui-Tam lawsuit, known as Relators, can receive a portion of the proceeds of any subsequent settlement.

In 2006, a Qui-Tam lawsuit was filed against Kyphon by two individuals, both former employees of the company (a former sales representative and a former reimbursement manager). The Relators alleged that Kyphon advised hospitals to perform the kyphoplasty procedure on an inpatient basis rather than an outpatient basis, knowing that in many cases, the procedure could be safely performed on a less costly outpatient basis.

By performing the kyphoplasty procedure on an inpatient basis, the hospital received a substantially larger reimbursement from Medicare. At that time, Medicare paid approximately $1000 if performed as an outpatient procedure and up to $10,000 if performed as an inpatient procedure.  The increased inpatient reimbursement enabled the hospital to cover the high cost of the kyphoplasty instrumentation kit and increased sales for Kyphon.

In 2008, while admitting no wrongdoing, Kyphon (MSL) entered into a Settlement Agreement with the federal government* and agreed to pay $75 million for causing the inappropriate submission of false claims to Medicare. The Relators received $14 million for the information and assistance they provided throughout the investigation.

The Relators subsequently filed a Qui-Tam against hospitals nationwide who allegedly submitted inappropriate inpatient claims.  The government subsequently settled* with over 140 hospitals for over $105 million.  The Relators received an additional approximately $16 million.

Over the course of the two investigations, thousands of documents and emails were reviewed in order to substantiate the Relators’ allegations.  Additionally, interviews were conducted of approximately one hundred individuals, to include sales reps, physicians, and hospital personnel.

Some lessons to be considered:

  • Listen to your employees if they voice concerns. Often Qui-Tams are filed because the employee feels that their complaints are not being appropriately addressed.
  • Conduct internal audits of billing practices, coding submissions, and policies and procedures etc., and
  • Keep abreast of healthcare settlements and determine whether your practice or facility may have a similar issue. Many times, entities do not take the time to conduct audits of their own; until approached by the government.

*The settlements reached with Kyphon (MSL) and the hospitals resolved allegations of wrongdoing only, there were no findings of liability.

Advize Health LLC is a healthcare advisory and consulting company that provides a breadth of healthcare industry services in the payer, provider, and legal communities. Contact Eric Rubenstein for more information on our Fraud Spotlight series.