Rex Healthcare: Kyphoplasty, Other Procedures, and the Inpatient Bill

In the Rex Healthcare Medicare settlement, the hospital agreed to pay $1.9 million to resolve allegations that it billed Medicare for unnecessary inpatient admissions for kyphoplasty and other minimally invasive procedures. The government alleged that Rex chose the more expensive admission when outpatient care would have been appropriate. The procedure generated the bill, but the admission made it pay more.

The Justice Department announced the Rex settlement on April 4, 2011. It described Rex Healthcare as a 655-bed hospital in Raleigh, North Carolina. Two former employees of the device manufacturer Kyphon brought the whistleblower case under the False Claims Act.

The Inpatient Admissions Behind the Rex Settlement

The government alleged that Rex routinely classified a variety of minimally invasive procedures as inpatient admissions from 2004 through 2007 to increase its Medicare reimbursement. According to the Justice Department, the patients lacked the medical necessity that would justify the more expensive setting.

That allegation puts the clinical decision and the billing decision alongside each other. What care did the patient need? What level of care did the hospital bill? Rex’s alleged choice sent Medicare an inpatient claim when a less costly outpatient visit would have been appropriate. The government described the result as an inflated health care bill that taxpayers had to pay.

In the broader kyphoplasty campaign, the government pursued the manufacturer’s role in encouraging inpatient treatment and the hospitals’ role in billing for it. Rex’s resolution concerned the hospital claims.

Kyphoplasty Was Only Part of the Settlement

Rex’s settlement covered kyphoplasty and other minimally invasive procedures. Kyphoplasty treats compression fractures of the spine. The Justice Department’s account of the manufacturer case describes it as a minimally invasive operation used for fractures caused by osteoporosis, cancer or benign lesions.

The original manufacturer complaint explains the procedure: a balloon creates a cavity in the fractured vertebra, the balloon is removed, and bone cement fills the space to support the bone.

Rex in the Kyphoplasty Campaign

The broader campaign included a separate case against Kyphon, whose marketing the government alleged encouraged inpatient kyphoplasty even when outpatient treatment was appropriate. By December 2015, the Justice Department reported settlements with more than 130 hospitals totaling approximately $105 million in the kyphoplasty campaign. Those hospital settlements were separate from the manufacturer’s resolution.

How Does Reimbursement Work for Medical Devices?

Medicare generally includes the device cost in its payment for the hospital procedure or stay. Inpatient care uses a diagnosis-related group with a payment for the stay, while outpatient care uses a different payment structure.

What Evidence Is Needed to Prove Fraud?

We work with healthcare insiders to establish the connection between the patient’s clinical needs, the admission decision and the Medicare claim. Where a manufacturer influenced those decisions, we examine its reimbursement materials and sales instructions with you.

An insider’s knowledge can connect the sales presentation with what happened afterward. A reimbursement employee may know the assumptions behind a projected payment. A clinician may know why a patient was admitted. A coder may know which instructions shaped the claim.

We work with insiders to examine that connection: what the manufacturer said, what the hospital decided, what the clinical documentation supported, and what Medicare was asked to pay. The point is to understand how the higher bill came about and who knew why it was higher.

How Is Medicare Fraud Detected?

In the Rex case, former manufacturer employees brought the allegations through a whistleblower case. The broader campaign identifies their roles as reimbursement manager and regional sales manager, positions with a view into how the product and its payment strategy were sold.

The 2020 paper A Forensic Accountant’s Guide to the Most Potent Federal Laws Used Against Healthcare Fraud, published in the Journal of Forensic and Investigative Accounting, explains why inside knowledge matters to False Claims Act enforcement:

The manufacturer’s employees could describe the reimbursement strategy from inside the business promoting it. That perspective helps explain why a hospital billing case can begin with someone who works outside the hospital. A claim shows the payment requested. Someone who heard the sales pitch may explain how that request took shape.

How Much Is a Whistleblower Claim Worth?

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

You Know Why the Patient Was Admitted

If you saw a reimbursement pitch become an admission practice, tell our whistleblower experts how it happened. We build your strongest hospital billing whistleblower case with you around the clinical decisions, the billing and the people directing them, and bring in medical device fraud whistleblower lawyers who understand hospital admission cases. We stay beside you from the first conversation through the pursuit of a recovery.