Suit Cites 21 Hospitals for False Billing : Law: Medicare fraud is alleged in whistle-blower filing. Institutions, including 5 in California, charged for experimental devices, complaint says.

At least 21 major hospitals and research centers--including five California institutions--have falsely billed Medicare for more than $1 billion for the use of experimental devices and equipment, according to portions of a whistle-blower lawsuit made available Wednesday.

The lawsuit, which has been sealed from public view, claims the hospitals routinely violated government standards by billing the Medicare system for devices still deemed experimental, including heart valves, pacemakers, catheters and equipment used to regulate fast heart rates.

Even before the Food and Drug Administration approved the use of the equipment, the lawsuit alleges, the hospitals charged the government for reimbursement “through the knowingly false use of existing Medicare and Medicaid billing codes.”

For the installation of a replacement heart valve, for example, the lawsuit said hospitals charged $40,000 and doctors charged $5,000 for equipment not yet approved by the FDA--a violation of Medicare rules.

Some details of the alleged abuses have been unsealed by a federal court in response to a countersuit by the hospitals against the federal government.

The lawsuit has touched off a government investigation of more than 130 hospitals, although the number identified in the lawsuit is unknown. The portions of the lawsuit made available Wednesday named 21 institutions, including several in California: UCLA Medical Center, Cedars-Sinai Medical Center, Loma Linda University Medical Center, UC San Francisco and UC San Diego.

Those California hospitals are among 25 that have responded to the government inquiry by filing a lawsuit against the government. In it, they say they acted correctly, using equipment and procedures needed to save patients’ lives, and that their bills were reviewed and approved.

The whistle-blower complaint was filed in federal court in Washington state under a legal procedure commonly used by whistle-blowers in the defense industry to bring fraud charges. Under those procedures, and if the allegations are confirmed by government investigators, the whistle-blower is awarded a share of the money recovered. The name of the person filing the suit, the defendants and the details are normally kept confidential until the government inquiry is complete.

In this case, there are vast financial issues at stake: If the hospitals lose, they will have to repay the government money for bills they have already collected. And the whole system of clinical trials in hospitals for new medical devices could be drastically altered.

If the government investigation proves that the hospitals have violated the rules, they will be deemed guilty of some of the biggest financial misdeeds in the recent history of the Medicare program.

The opportunity for the fraud alleged in this case exists at hospitals because they routinely are the sites where new procedures and equipment are tested. Clinical trials are required before the FDA certifies that a device is safe and effective.

In December, the federal government, prompted by the whistle-blower lawsuit, issued a ruling saying that experimental equipment lacking FDA approval had never been covered for reimbursement. This led to investigations at the more than 130 hospitals.

The disclosed sections of the whistle-blower lawsuit say the hospitals have submitted false claims, receiving payments during the last eight years “totaling at least $800 million to $1 billion or more.”

Although the FDA has yet to approve artificial vascular grafts to repair or replace diseased vessels, the lawsuit said, the hospitals routinely billed Medicare for the operation with the grafts.

The hospitals charged $40,000 and the doctor charged $2,000 for the procedures, the lawsuit said.

The suit asks for the hospitals to make refunds to the federal government for any bills improperly submitted to Medicare, and for reimbursement to California for improper charges for the treatment of Medi-Cal patients. It also calls for penalties equal to three times the losses to the federal and state governments.

The hospitals that sued the government strongly defend their behavior. “The government knew what it was paying for,” said Russell Hayman, a lawyer with Latham & Watkins in Los Angeles, representing the 25 hospitals that have sued the government. “Every bill went through a standard chain of review and the bills were paid,” he said.

The hospital suit and the government investigation places “in jeopardy the fiscal integrity of over 100 of the nation’s leading research and cardiac medical institutions,” Hayman said. “The government paid for devices, and now eight years later, it says, ‘we made a mistake, and we will go back and say, you owe $5 million and you own $10 million.”