Silver Lake Hospital: The Medicare Bill Behind the Investor Payouts

The $30.6 million Silver Lake Hospital outlier settlement resolved allegations that the hospital inflated Medicare payments and transferred money to investors. The government’s account connects the reimbursement office to the people approving distributions: the hospital allegedly collected excessive payments for costly care, then sent money to investors while it had reason to believe it could not repay Medicare. An insider who knew the expected repayment could explain something the transfer alone would never show.

The Department of Justice announced the agreement on January 16, 2024. Columbus LTACH, doing business as Silver Lake Hospital, operated a long-term acute care hospital in Newark, New Jersey. Its outlier payment allegations centered on the gap between what the hospital charged and what the care actually cost.

Hospital Charge Increases and a Lagged Cost-to-Charge Ratio

Medicare outlier payments supplement the regular hospital payment when unusually expensive care produces costs above a set threshold. The calculation turns hospital charges into estimated costs by multiplying current charges by cost-to-charge ratios drawn from earlier cost reports. Raising today’s charges while Medicare uses an older ratio makes the estimated cost rise before the ratio catches up.

Medicare’s later cost-report reconciliation revisits those estimates using updated figures and can require the hospital to return excessive outlier payments. The hospital can therefore collect money now that it will owe back when the payment calculation catches up with its actual costs.

The settlement agreement covers alleged outlier conduct from April 1, 2018 through March 31, 2023. The government alleged that Silver Lake rapidly increased inpatient charges until the adjusted charges no longer reasonably reflected its actual costs. It also alleged that the hospital concealed and avoided repayment while knowing it would lack the money to repay the excess when its cost reports were reconciled.

Investor Distributions While Medicare Repayment Was in Doubt

Silver Lake’s investor distributions allegedly moved money out of the hospital while Medicare debt was foreseeable. From April 1, 2020 through March 31, 2023, the government alleged, Silver Lake paid investors without getting equal value back when it had reason to believe it could not repay Medicare.

The recipients were the hospital’s principal investor and Columbus Management South LLC, the company through which other investors received hospital cash distributions. In the government’s account, money went to investors while Medicare was owed more than the hospital could repay.

What did the hospital expect to owe Medicare when it let the money go?

That reaches a different part of the hospital’s books. The charge history helps explain why Medicare paid. The distribution records show where the hospital’s money went. An internal repayment estimate or a discussion approving a distribution could connect those decisions. That is where a finance insider’s knowledge may matter as much as the reimbursement calculation.

What the Hospital and Investors Agreed to Pay

The agreement separates the hospital’s excessive-payment claims from the investor-transfer claims. Silver Lake agreed to pay $18,636,282 to resolve the outlier allegations, including claims under the False Claims Act. Its principal investor and Columbus Management South LLC agreed to pay $12 million to resolve the transfer allegations under the Federal Debt Collection Procedures Act.

The payments run over five years. The hospital’s amount reflected its inability to pay, as the HHS Office of Inspector General’s settlement summary explains. What the hospital could afford was part of the negotiation, alongside what the government alleged it had done.

Silver Lake also entered a five-year corporate integrity agreement with the agency, effective January 12, 2024.

The Cost Report Connects the Claim to the Books

A hospital’s annual cost report joins patient activity, costs, charges and financial information in one filing. The Centers for Medicare & Medicaid Services’ description of cost reports includes costs and charges by cost center, utilization, Medicare settlement data and financial-statement data. For an outlier case, those entries connect the charge on a claim to the hospital’s own account of the expense behind it.

Healthcare reimbursement staff use that same filing for several payment streams. Reported wages feed the hospital wage index, and Medicaid patient days enter the disproportionate share hospital calculation.

Worksheet S-10 feeds uncompensated-care allocations, resident counts affect indirect medical education payments, and Medicare bad debt also runs through the cost report. For Silver Lake’s outlier allegations, the key comparison was charges against actual costs.

DRG upcoding concerns unsupported diagnosis codes that raise reimbursement. RAND’s 2024 review, Methodologies to Measure Upcoding in Provider Settings, makes a useful point about checking the underlying records:

The outlier comparison here runs from charges through actual costs to reconciliation. An insider may explain why the charges rose and what repayment the hospital expected.

What St. Vincent, Tenet and United Memorial Show

St. Vincent Hospital in Worcester admitted receiving outlier payments it was not entitled to. Between 2018 and 2019, it raised charges for all inpatient services once by 18% and twice by 15%, including transcatheter aortic valve replacement, commonly called TAVR. Those charge increases produced more outlier payments, including for patients without the complications or extended stays that would explain extraordinarily high costs, according to the Justice Department’s December 9, 2022 announcement.

St. Vincent made a voluntary repayment before settling, but that payment did not fully reimburse Medicare. Its admissions put a concrete example beside Silver Lake’s allegations: the charge increases moved the payment even where the patient had not required the added care.

Tenet agreed in its 2006 resolution to pay more than $788 million for claims involving excessive outlier payments. The government alleged both charges rising substantially faster than patient-care costs and billing for services and supplies not provided. The settlement reflected the company’s ability to pay.

United Memorial Medical Center adds another way the cost report can distort the calculation. In its December 20, 2023 settlement announcement, the government alleged that the hospital rapidly raised inpatient charges while underreporting charges on Medicare cost reports. That allegedly prevented the payment calculation from adjusting to actual costs. It gives a cost-report insider another concrete connection to recognize: the charges submitted for payment and the charges reported for reconciliation.

What Reimbursement and Finance Staff Can Add

Reimbursement and finance staff in health care may see different parts of the same decision. One may understand the charge increase and expected outlier revenue. Another may know what management expected to repay when it approved a distribution. Silver Lake’s settlement shows why both perspectives matter: the government pursued the payment claims and the money transferred to investors separately.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

The Medicare Bill Behind the Distribution

You may know why investors were paid while the hospital expected to owe Medicare money back, and a bank record shows the transfer, not the reason. Tell our whistleblower experts what was known when the money left. We stay beside you through the case and bring in whistleblower lawyers who know hospital reimbursement and disputed transfers.