Simi Valley Hospital paid the federal government $3.64 million this week to settle allegations that it submitted false Medicare claims over a six-year period in the 1990s.
Without admitting liability, the private, nonprofit hospital said it reached an agreement to avoid the expense and inconvenience of lengthy litigation.
"It was very clear we had a choice to make: to continue down a path that could end up with additional legal fees and potential extra liability, or come to an agreement so this could end," said Margaret R. Peterson, the hospital's president and chief executive, who earlier announced plans to leave the hospital by Aug. 1.
Lisa Palombo, the assistant U.S. attorney handling the case, declined to discuss details of the investigation or the settlement but said violations of the federal False Claims Act entitle the government to damages triple the dollar amount in question.
The Department of Health and Human Services, which administers Medicare, began in 2000 a nationwide review of reimbursement records, focusing on billings for pneumonia treatments, the largest single disease category treated by the healthcare program.
Agency investigators determined that, from 1993 through 1998, Simi Valley Hospital obtained more money than it was entitled to by classifying pneumonia cases as more serious than they actually were, calling them "severe respiratory infections." The probe said the hospital also misclassified patients as having septicemia, a life-threatening form of blood poisoning, rather than less-serious forms of infection.
Requesting greater reimbursement than an illness calls for is referred to as "up-coding" and is not uncommon, according to health industry experts.
"Medicare often has problems with hospitals and the billing claims that are made. There are often different interpretations on the course and care of a patient's treatment. The federal government tends to behave on the conservative side," said Jim Lott, executive vice president of the Hospital Assn. of Southern California.
"It's not a question of whether the care was appropriate or was billed appropriately; it's a matter of interpretation."
Lott said reaching a settlement should not be considered a tacit admission of guilt.
"You can't get into a shooting match over who's correct," he said. "The hospital most times gives in because the federal government has unlimited resources to pursue this, and they can withhold future payments until the issue is resolved."
Peterson said up to 45% of Simi Valley Hospital's patients have Medicare coverage, representing about $35 million in annual revenue.
Glenn Melnick, director of USC's Center for Health Policy and Management, said the government ignored potential overbilling for years and then changed course this decade, snagging scores of hospitals and drug companies. For example, the government won or negotiated more than $1.8 billion in judgments and settlements tied to healthcare fraud in 2003, the most recent figures available.
"The word 'fraud' in this case is probably a misnomer," Melnick said. "I'd say 'aggressive billing practices.' I don't know all the facts of this case, but if [investigators] thought the hospital was trying to defraud them deliberately, I doubt they would have let them off with a settlement."