Tenet Healthcare: Outlier Charges, Unsupported Codes and Unprovided Services

Tenet Healthcare Corporation agreed to pay $900 million to resolve alleged outlier payment fraud, physician kickbacks and unsupported diagnosis coding, with the amount set by its ability to pay. The outlier allegations reached beyond inflated prices to bills for care patients never received. The alleged overbilling left Medicare and taxpayers paying for inflated costs and care never delivered.

What Did Tenet’s 2006 Outlier Fraud Settlement Cover?

The Tenet 2006 outlier fraud settlement covered excessive payments for unusually costly care, improper physician financial relationships and diagnosis codes used to increase reimbursement. The Department of Justice announced the agreement on June 29, 2006, with payments spread over four years. Tenet, headquartered in Dallas, then operated the nation’s second-largest hospital chain.

These allegations reached different parts of the business. Hospital charges fed the outlier calculation. Diagnosis coding affected reimbursement through the patient record. Physician financial arrangements affected the referrals behind Medicare bills. Calling the entire settlement an upcoding case loses the conduct that accounted for most of it.

How Higher Hospital Charges Become Outlier Payments

An increase in hospital charges can raise Medicare’s estimate of a stay’s cost when the calculation uses a lagged cost-to-charge ratio. That is how a decision about prices can reach a payment intended for unusually expensive care.

Ordinary Medicare inpatient payment starts with a base rate and a diagnosis-related group reflecting the patient’s condition and treatment. The outlier payment is an additional amount for an exceptionally costly stay. The diagnosis group and the outlier calculation are separate ways the same admission can generate more revenue.

The outlier formula estimates costs by multiplying current charges by a cost-to-charge ratio from a previously submitted hospital cost report. If charges rise sharply while costs do not, the older ratio turns the higher prices into higher estimated costs. The hospital’s price list has moved. The ratio has not yet caught up.

As CMS describes the cost report, it contains utilization, costs and charges by cost center, settlement data and financial statement information. Its connection to payment makes the relationship between the charge list and the reported costs consequential across many claims.

Tenet’s Outlier Allegations Included Services and Supplies Not Provided

More than $788 million of the agreement addressed excessive outlier payments, including Tenet’s alleged billing for services and supplies not provided to patients. The Department of Justice also alleged that the hospitals raised charges far beyond increases in the cost of patient care. Those are distinct claims within the largest component of the settlement.

One concerns the price attached to care. The other concerns whether the patient received the service or supply at all. For an insider, the latter brings the clinical record into an accounting story: the bill describes something delivered, while the allegation is that it never reached the patient. That is why this case belongs as much to the people who know what happened on the ward as to those who understand the cost report.

Unsupported Diagnosis Codes Raised Reimbursement

More than $46 million addressed Tenet’s alleged diagnosis upcoding. The Justice Department said the hospitals assigned codes they could not support, or that were otherwise improper, to patient records to increase reimbursement. Here the disputed payment input was the diagnosis recorded for the patient.

That incentive is built into severity-based payment. A more complex diagnosis group pays more. RAND’s 2024 report, Methodologies to Measure Upcoding in Provider Settings, reviewed 39 studies and found that most examined upcoding at an aggregate level, such as a hospital or geographic area. Its sharper finding concerns how few checked coding intensity against an independent benchmark: just three set it against a gold standard, and the others measured upcoding only indirectly.

A coder or clinician who knows the patient record can explain whether the billed diagnosis had clinical support. That is the connection between a payment pattern and the unsupported codes alleged in the Tenet case.

Physician Kickbacks and the Whistleblower Cases

More than $47 million addressed alleged physician kickbacks and improper financial relationships. The Department of Justice described payments intended to bring Medicare referrals to Tenet facilities, along with Medicare billing for care ordered or referred by physicians whose financial relationships with Tenet were improper.

This component reaches beyond prices and codes to the business relationships bringing patients through the door. The government challenged what Tenet paid to bring patients in, as well as what it billed once they arrived.

Several issues in the agreement arose from lawsuits filed by whistleblowers. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

The Settlement Reached Tenet’s Board

Tenet’s five-year Corporate Integrity Agreement required outside review of DRG claims, outlier payments, physician relationships and clinical quality management. HHS’s Office of Inspector General described those requirements in its September 28, 2006 announcement.

The board’s Quality, Compliance, and Ethics Committee had to review the compliance program’s effectiveness and adopt resolutions about that review. Tenet also had to submit annual reports to OIG with officer certifications of compliance with federal health care program requirements. In exchange for those obligations, OIG agreed not to seek Tenet’s exclusion from Medicare, Medicaid and other federal health care programs for the investigated conduct.

Ability to Pay and the Outlier Repayment Problem

Tenet’s ability to pay set the bill for its alleged overbilling of Medicare. A later outlier case shows what happens when cost-report reconciliation catches up with money already paid.

In its 2024 settlement, Silver Lake Hospital faced allegations that its charges rose far beyond its costs and its ability to repay the resulting outlier payments. The Justice Department explained that retrospective cost-report reconciliation could require repayment.

Silver Lake’s investor distributions also became a Medicare debt issue. The government alleged that the hospital transferred money to investors without equivalent value while it had reason to believe it could not repay Medicare. The investors agreed to pay $12 million to resolve those transfer allegations. The case followed both the payment calculation and the money leaving the hospital.

United Memorial Medical Center illustrates another way the reconciliation can fail. In a separate 2023 settlement, the Justice Department alleged that the hospital rapidly raised inpatient charges while understating them on cost reports, preventing adjustment toward actual costs. It also alleged that the hospital concealed and avoided its repayment obligation.

St. Vincent Hospital admitted receiving improper outlier payments in its 2022 settlement. It had raised all inpatient charges, including for TAVR heart valve procedures. Some stays generated those payments without unforeseen complications or extended stays to explain extraordinarily high costs.

Tenet’s separate 2020 settlement involving Desert Regional Medical Center concerned allegedly unnecessary implanted cardiac loop recorders.

The Records Behind Tenet’s Different Allegations

The Tenet allegations connect records that different departments know well: charge changes and cost reports, service documentation and bills, diagnosis codes and clinical support, physician financial arrangements and referrals. Each connection answers a different question about how the hospital obtained payment.

The people behind those decisions matter too. A finance employee may understand why charges changed. A clinician may know which billed services patients received. A coder may know why a diagnosis appeared in the record. The settlement’s separate components, and the independent reviews required afterward, show why an insider’s knowledge can reach beyond a single claim.

The Decisions Behind the Hospital’s Revenue

A price list or a coding decision shows what was billed, not who wanted it that way. If you know who expected a charge increase to bring in outlier money, or why a code stayed on a bill the care could not support, speak with our whistleblower experts. We build your hospital whistleblower case around those decisions, bring in hospital fraud whistleblower lawyers who understand Medicare reimbursement, and stay with you through the case.