New Jersey Hospital and Investors to Pay United States $30.6 Million for Alleged False Claims

NEWARK, N.J. – A New Jersey hospital and certain of its investors have agreed to pay $30.6 million to resolve alleged False Claims Act and Federal Debt Collection Procedures Act violations, U.S. Attorney Philip R. Sellinger announced today.

Columbus LTACH d/b/a Silver Lake Hospital (Silver Lake), a long-term care hospital based in Newark, has agreed to pay over $18.6 million, plus interest, to resolve alleged False Claims Act violations for claiming excessive cost outlier payments from the Medicare program.  Certain Silver Lake investors have agreed to pay $12 million, plus interest, to resolve alleged Federal Debt Collection Procedures Act (FDCPA) violations for the fraudulent transfer of money by the hospital to its investors. 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.

“Cost-outlier payments were intended to ensure that hospitals would provide care to all patients requiring their services,” Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division, said. “These payments were not intended to serve as a private source of enrichment for hospitals unrelated to the actual costs incurred in providing such care.”

“The Medicare outlier payment program is designed to provide hospitals with reimbursement for situations where extraordinarily costly patient care is needed,” FBI-Newark Special Agent in Charge James E. Dennehy said. “Instead of using the outlier payment program as intended, Silver Lake was caught fraudulently obtaining enhanced reimbursements from Medicare they were not entitled. Whatever magic trick or sleight of hand hospitals attempt to use to perpetrate fraud, the FBI and our law enforcement partners will diligently investigate and recover any ill-gotten gains.”

“When a hospital submits false information to seek higher reimbursements, it can affect the availability of funds and services for others and drive up the cost of taxpayer-funded health care,” Special Agent in Charge Naomi Gruchacz for the Department of Health and Human Services Office of Inspector General (HHS-OIG) said. “HHS-OIG will continue to work with our law enforcement partners to ensure that health care providers are held accountable if they attempt to exploit federal health care programs.”

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.

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.

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

This settlement was the result of a coordinated effort by the U.S. Attorney’s Office for the District of New Jersey; the Civil Division of the U.S. Department of Justice; the Department of Health and Human Services, Office of Counsel to the Inspector General, Office of Investigations, and Office of General Counsel; and the FBI.

The government is represented by Assistant U.S. Attorney Paul Kaufman for the District of New Jersey and Civil Fraud Section attorney Daniel Spiro.

The investigation and resolution of this matter illustrates the government’s emphasis on combating health care fraud. One of the most powerful tools in this effort is the False Claims Act. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement, can be reported to HHS at 800-HHS-TIPS (800-447-8477).

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