On March 28, 2013, a federal trial court in Wisconsin ruled that a medical clinic’s failure to further investigate findings from internal billing audits of chronic upcoding by some of its physicians and later altogether ceasing its billing audits of physician claims supported a whistleblower’s False Claims Act allegations. United States of America and State of Wisconsin ex rel. Elizabeth Keltner v. Lakeshore Medical Clinic, Ltd., E.D. Wis., No. 2:11-cv-892, March 28, 2013.

The whistleblower, a former billing department employee, alleged that Lakeshore Medical Clinic’s own billing audits had revealed upcoding of evaluation and management (E/M) services for Medicare and Medicaid beneficiaries, including one audit that showed two physicians with error rates over 10 percent.

The whistleblower claimed to have provided educational sessions to Lakeshore physicians after the audits. However, according to the whistleblower, Lakeshore failed to follow up on the physicians with the higher error rates until a year later, and then stopped the billing audits completely. The whistleblower also alleged that the physicians had an incentive to upcode because their compensation was tied to the amount they billed.

According to the judge who refused to dismiss the lawsuit, the whistleblower’s claim that Lakeshore Medical Clinic purposefully ignored the coding audits and ultimately stopped all coding audits supported her allegations that Lakeshore “acted with reckless disregard for the truth and submitted some false claims.” In denying Lakeshore’s motion to dismiss the lawsuit, the judge rejected Lakeshore’s argument that the billing code errors reflected a legitimate difference of medical opinion because “it could also result from wrongful upcoding and from defendant’s failure to review bills that it had reason to believe contained errors.”

The judge also held that the complaint adequately supported a claim under the reverse false claim provision of the False Claims Act because Lakeshore was notified of the billing errors (through the billing audits) and failed to take corrective action regarding possible overpayments, and thereby therefore Lakeshore “may have unlawfully avoided an obligation to pay money to the government.”

The whistleblower’s retaliation claim also survived the motion to dismiss: she alleged that she brought the billing irregularities to the attention of Lakeshore supervisors, who told her “to stop digg[ing] up problems” and then terminated her employment.

While this lawsuit is still in the early stages, having just survived the motion to dismiss, the judge’s rulings should put health care providers on notice that they need to pay attention to the results of billing audits and other internal reviews, take appropriate and timely action in response to those results, and not look the other way when they have reason to believe they may have been overpaid by Medicare or Medicaid. Choosing not to investigate further can create false claims liability under the reverse false claims provision of the False Claims Act, subjecting the provider to potentially significant damages and penalties.