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Cathedral Healthcare System to Pay U.S. $5.3 Million to Resolve Allegations Involving Inflated Charges to Obtain Higher Medicare Reimbursement

WASHINGTON & NEWARK, N.J. – Cathedral Healthcare System Inc. has agreed to pay the United States $5.3 million, plus interest, to settle allegations that it defrauded the federal Medicare program, the Justice Department announced today.

The settlement resolves allegations that the Newark, N.J.-based hospital system improperly increased charges to Medicare patients in order to obtain enhanced reimbursement from the federal health care program. In addition to its standard payment system, Medicare pays supplemental reimbursement to hospitals, called outlier payments, in cases where the cost of care is unusually high. Congress enacted the supplemental outlier payment system to ensure that hospitals have the incentive to treat inpatients whose care requires unusually high costs.

The government alleged that, between January 1998 and August 2003, Cathedral improperly inflated charges for inpatient and outpatient care to make these cases appear more costly than they actually were, and thereby obtained outlier payments from Medicare that it was not entitled to receive.

“Today’s settlement shows how the Department of Justice is committed to rooting out practices where hospitals knowingly overcharge the federal Medicare program,” said Jeffrey S. Bucholtz, Acting Assistant Attorney General of the Justice Department’s Civil Division.

The civil settlement agreement resolves allegations against Cathedral that were filed in three separate federal lawsuits brought by “whistleblowers” under the federal False Claims Act. The False Claims Act permits private citizens to bring lawsuits on behalf of the United States.

Under the settlement, Peter Salvatori and Sara Iveson, the relators in the first of the three lawsuits, will receive $848,000.

“This settlement demonstrates this office’s determination to ensure the integrity of the Medicare system for the citizens of New Jersey,” said Christopher J. Christie, U.S. Attorney for the District of New Jersey.

Cathedral has also entered into a Corporate Integrity Agreement with the U.S. Department of Health and Human Services, Office of Inspector General. The Corporate Integrity Agreement contains measures to ensure compliance with Medicare regulations and policies in the future.

The settlement with Cathedral was the result of a coordinated effort among the Justice Department’s Civil Division, Commercial Litigation Branch; the U.S. Attorney’s Office for the District of New Jersey, Affirmative Civil Enforcement Unit; the U.S. Attorney’s Office for the Eastern District of Pennsylvania; the Department of Health and Human Services, Office of Inspector General and Office of Counsel to the Inspector General; the Centers for Medicare and Medicaid Services; and the Federal Bureau of Investigation, in investigating and resolving the allegations.