On December 11, 2018, the U.S. Attorney’s Office for the Eastern District of Pennsylvania (DOJ) announced that it had entered into a $12.5 million dollar settlement with Pennsylvania-based health system Coordinated Health Holding Company, LLC and its Chief Executive Officer (CEO), to resolve allegations of improper billing for orthopedic procedures. Under the terms of the settlement, the CEO (who is also the founder and principal owner of the for-profit system) agreed to pay $1.25 million dollars personally, and the health system entered into a five-year Corporate Integrity Agreement with DOJ requiring regular monitoring of its billing practices.

According to DOJ, the defendants were alleged to have “routinely exploited” the Modifier 59 billing code to circumvent global (bundled) reimbursement for many orthopedic procedures and “artificially inflate reimbursements.” Use of Modifier 59 indicates to certain governmental payers that a separately billed service was not part of an original procedure and therefore may be paid separately. While use of this Modifier can be justified in certain circumstances, according to DOJ the defendants allegedly used the modifier systematically to override technical safeguards designed to prevent double-billing for services that are part of the same procedure. Consequently, the defendants allegedly received both a global payment for an orthopedic procedure, as well as separate payments for component parts of the procedure, which the DOJ claims resulted in millions of dollars of overpayments.

The government also alleged that the CEO, himself an orthopedic surgeon, “should have stopped the illegal unbundling” but instead changed the way he wrote operative reports in furtherance of the unbundled billing practices. DOJ claimed that top executives at the health system were notified at least twice regarding improperly unbundled orthopedic procedures utilizing Modifier 59, but “simply ignored” recommendations to curb the abusive billing and repay the government.

This settlement serves as a reminder to hospitals and other providers of the significant potential exposure associated with a failure to implement compliance efforts to identify and return overpayments, and the risk for individuals involved with potential billing improprieties.