We previously reported on the Halifax Hospital Medical Center and Halifax Staffing Inc. (Halifax) whistleblower lawsuit in connection with the $85 million dollar settlement related to allegations that Halifax violated the Stark Law and False Claims Act. In that article, we noted that there was a second part to the lawsuit involving allegations of improper inpatient admissions. At the time, that portion of the case was thought to be worth $200 million in damages if the whistleblower’s allegations were proven. This second part of the lawsuit was scheduled to go to trial in July 2014, but at the last minute, the whistleblower and Halifax announced that they had reached a tentative settlement (pending Department of Justice approval) to resolve the allegations for $1 million.

You might be wondering how this went from a supposed $200 million dollar case to a $1 million dollar settlement. The answer is that the United States District Judge’s decision on Halifax’s Motion for Summary Judgment drastically cut the potential for damages in the case. The judge addressed (1) whether the whistleblower, Elin Baklid-Kunz (the Relator) provided sufficient evidence as to damages; (2) whether a failure to abide by certain Medicare “conditions of participation” can render Medicare claims “false” for purposes of the False Claims Act; and (3) whether some of the Relator’s claims are barred by the statute of limitations.

With respect to damages, the Relator alleged that Halifax “admitted thousands of patients whose admissions were not medically necessary” in order to collect an inpatient reimbursement rate from Medicare; the same services, the Relator alleged, could have been performed on an outpatient basis. Because the burden of proof as to damages fell on the Relator, and because the Relator never argued that Halifax failed to provide the services for which it submitted claims, the court found that the Relator failed to prove damages.

According to the court, the difference between the inpatient rate paid by Medicare and the outpatient rate Medicare should have paid resulted in inflated claims. While the Relator contended that the total amount of each inflated claim constituted damages sustained by the government, the court found that the measure of damages in this type of False Claims Act case was “the difference between what the government paid and the value of what it received.”1

To establish the falsity of Halifax’s claims, the Relator solely relied on the Medicare requirement that patients could not be admitted without a physician’s order. The court found that Halifax’s potential violation of this single Medicare “condition for participation” did not render Halifax’s claims false for purposes of the False Claims Act.

Pursuant to a court order dated July 2, 2014, the court consented to an agreed settlement amount of $1 million from Halifax’s counsel; however, the Department of Justice must approve the settlement since a whistleblower may not settle claims on behalf of the United States.

CMS has since changed the physician order requirement to now be a condition of payment (rather than a condition of participation). However, because the law in effect at the time of the dates of service for the claims in the Halifax lawsuit was that it was a condition of participation, Halifax was able to reach a settlement with the Relator that was much lower than many expected.