Community Health Systems: The 119-Hospital Admission Policy Settlement

Community Health Systems agreed to pay $98.15 million to settle allegations that corporate policy pushed patients into unnecessary inpatient admissions. The government described a scheme across 119 hospitals. The whistleblower complaints put that policy inside the emergency department and the case-management office, where employees allegedly had to justify sending Medicare patients home and explain why observation stays had become inpatient admissions.

The Department of Justice announced the settlement on August 4, 2014. CHS, based in Franklin, Tennessee, then operated the country’s largest acute-care hospital chain, with 206 affiliated hospitals in 29 states. Fresno’s Community Health System settled a separate physician-benefits case.

What the Community Health Systems Admission Fraud Settlement Covered

The admission allegations accounted for $89.15 million of the settlement. The government alleged that, from 2005 through 2010, CHS pressed its hospitals to admit emergency patients over 65 covered by Medicare, Medicaid or the Department of Defense’s TRICARE program. Those patients allegedly needed outpatient treatment or observation, but CHS billed the more expensive inpatient care.

That is the central accusation: a decision about a patient’s care became a way to increase the hospital’s payment. A chain-wide policy could produce a separate claim every time it reached an admission decision.

The Middle District of Tennessee’s announcement describes a coordinated investigation across several states. The allegations crossed hospitals, programs and state lines.

Why Inpatient Status Was Worth More

Medicare pays acute-care hospitals differently for inpatient and outpatient care. An inpatient stay falls under Part A and a diagnosis-related payment group. Observation is outpatient care under Part B. The status decision puts the patient’s care into a different payment system before anyone argues about which diagnosis code belongs on the claim.

The Department of Health and Human Services Office of Inspector General measured the gap in its December 2016 report, Vulnerabilities Remain Under Medicare’s 2-Midnight Hospital Policy. Medicare paid an average of three times as much for a short inpatient stay as for a short outpatient stay. For digestive disorders, the averages were $4,572 and $789 respectively.

The two-midnight expectation puts the clinical decision in focus: Medicare’s benchmark generally asks whether the admitting physician expects the patient to need hospital care across two midnights. A corporate admission quota asks how many patients the hospital wants admitted. Those instructions start in different places, one with the patient and one with a target.

The hospital’s institutional billing policy can therefore change the payment for the same care under inpatient or observation status. That is why the CHS allegations matter to people outside the coding department. The disputed decision can already have been made by the time a coder opens the chart.

How the Alleged Policy Reached the Patient’s Chart

The CHS complaints describe instructions that employees could recognize in their daily work. In the first amended Tennessee complaint, whistleblowers alleged that emergency physicians were told to raise admission rates from approximately 8-10 percent to 20 percent. A separate CHS complaint alleged that CHS hospitals had to justify releasing a Medicare beneficiary from the emergency department without an inpatient admission. These were allegations about hospital admission rate targets and the treatment of Medicare patients, including the over-65 population identified in the settlement.

The same Tennessee complaint challenged the admission criteria themselves. It described a Blue Book criterion covering systolic blood pressure above 90 or below 90. The alleged problem was visible in the wording: readings on either side of the threshold could support admission. A guide meant to distinguish patients who needed hospital care was allegedly giving staff reasons to admit in either direction.

The complaint also described instructions reaching the treatment itself. At Chestnut Hill Hospital, a Quick Guide to Basic Admissions allegedly called for nebulizer treatments every four hours for at least 24 hours and intravenous steroids for all asthma or COPD patients. It also prescribed intravenous diuretics for all congestive-heart-failure patients, regardless of medical necessity, the whistleblowers alleged. The disputed policy reached the orders residents were told to write, as well as the status used for billing.

At Lutheran Hospital, a nurse who supervised case management described questioning why cases formerly classified as observation were now being presented as inpatient:

The answer attributed the change to the company. The same complaint alleged that internal guidelines favored inpatient status because it brought in more money. For a utilization-review nurse or case manager dealing with inpatient and observation decisions, that is a recognizable conflict between a clinical assessment and a management instruction.

A different whistleblower complaint described what happened when a status change reached the physician’s signature:

That allegation connects the institutional policy to a specific document. The physician’s authorization was disputed. The status change had already been put into an order for the physician to sign. The chart, the order and the account of the person who supposedly gave it tell different parts of the same story.

Hospital Insiders Saw the Policy From Different Jobs

Nine former hospital workers brought the seven qui tam cases resolved by the settlement. Their jobs included health-information management, coding, emergency medical services, nursing, internal medicine, emergency medicine and case-management supervision. The cases named Community Health Systems Inc. or Community Health Systems Professional Services Corporation.

Those different hospital jobs expose different parts of an admission policy. Here, the complaints add the missing connection: what employees were told, what changed in the patient’s status, and what appeared in the order.

RAND Corporation’s 2024 Methodologies to Measure Upcoding in Provider Settings reviewed 39 studies and found that most examined patterns across hospitals or geographic areas rather than identifying individual upcoded admissions. In an admission case, the hospital’s rate report shows the pattern. The employee can explain the instruction, the patient and the decision behind it.

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

Laredo’s Procedure Billing and Physician Referrals

The remaining $9 million covered two allegations at Laredo Medical Center in Laredo, Texas. One concerned the status used to bill procedures. The other concerned the financial relationship behind a physician’s referrals.

For 2005 through 2010, the government alleged that Laredo billed Medicare for inpatient cardiac and hemodialysis procedures that should have been outpatient care. That theory focused on how the hospital classified those procedures.

For 2007 through 2012, the government alleged that Laredo billed Medicare for patients referred by a physician offered a medical directorship. The financial relationship allegedly violated the Stark Law.

HMA Hospitals Were Outside This Settlement

Hospitals CHS acquired from Health Management Associates in January 2014 were excluded from the settlement.

Admission Targets Left a Trail in Other Hospital Cases

HMA’s admission benchmarks provide a concrete parallel. In its account of that separate case, the Justice Department described a 50 percent admission target for emergency patients 65 and older. It alleged that physicians and medical directors faced threats of dismissal if admissions did not rise. An HMA complaint also described reports tracking emergency physicians’ admission rates. The alleged admission benchmark and physician scorecard made the corporate demand visible to the person seeing the patient.

The government alleged a similar use of performance reports in Prime Healthcare’s admission and coding case, brought by a former director of performance improvement. Its complaint described hospital report cards that marked facilities meeting admission quotas in yellow and those falling short in red. Physicians were ranked by admission percentages and length of stay. A patient-by-patient judgment had become a performance score.

Other cases show how the incentive can enter elsewhere. At Oroville Hospital, the government alleged that admitting physicians received bonuses based on the number of inpatient admissions. San Mateo County Medical Center faced allegations about inpatient admissions for social reasons and a lack of alternative placements. Banner Health faced a separate allegation of inflated observation hours in reports to Medicare. A bonus, a placement decision and an hours report give insiders different evidence of how a hospital’s billing was shaped.

Five Years of Independent Inpatient-Claim Review

The CHS settlement required a five-year corporate integrity agreement with the Department of Health and Human Services Office of Inspector General. Independent review organizations had to examine the accuracy of inpatient claims submitted for federal health care program patients. The requirement reached the claims themselves, where the admission decision became a request for payment.

The Journal of AHIMA‘s 1999 article Honest Mistake or Fraud? Meeting the Coding Compliance Challenge recommended retaining the original codes, the codes used for billing, and the codes after later reviews, along with the reasons for changes. That history matters when employees dispute how a patient’s care became a claim.

How the Chain’s Policy Reached Your Hospital

A chain can span hundreds of hospitals, but you know how its admission policy reached yours. If you saw an observation decision changed, a disputed physician order or an admission target driving claims, speak with our whistleblower experts about what happened. We build the case around that connection, bring in hospital fraud whistleblower lawyers who understand admission billing, and stay beside you through the case’s resolution.