Tenet Healthcare: When the Hospital Bill Outgrew the Cost of Care

In the 2006 Tenet Healthcare False Claims Act settlement, Tenet agreed to a $900 million civil resolution of alleged outlier-payment inflation, physician kickbacks and upcoding. The biggest allegation turned on the gap between what patient care cost and what the hospital charged. For someone who knows how those numbers were set, this is a case about decisions inside the hospital long before a bill reached Medicare.

The Department of Justice announced the settlement on June 29, 2006. Tenet was headquartered in Dallas and operated dozens of hospitals across the country. The agreement covered billing to Medicare and other federal health care programs, with outlier payments accounting for the largest allocation.

How the Outlier Payment Allegation Worked

Outlier payments were intended for extraordinarily costly episodes of care. The government alleged that Tenet increased hospital charges substantially beyond increases in the cost of treating patients, producing excessive payments from a program intended to cover unusually expensive care.

The settlement agreement adds the detail that makes the allegation recognizable to a hospital finance employee. It alleged that the payments grew further because they were calculated using statewide average cost-to-charge ratios that should not have applied. Both the charges and the ratio allegedly pushed the payment up.

The outlier allegations covered inpatient and outpatient care from 1995 to 2003. They also included billing for services and supplies that patients never received. The agreement allocated $788,851,228 to resolve the outlier claims.

We see the inversion plainly: a payment meant for unusually costly care allegedly became a reward for making the bill unusually large.

For an insider, the important comparison is the hospital’s charge increases against the costs associated with the same care. The next connection is to the ratio applied and the resulting government payment. Where the allegation concerns supplies or services never delivered, the patient record brings a different part of the bill into view.

The Other Medicare Billing Allegations

The Tenet settlement also covered the financial arrangements behind patient referrals and the diagnosis codes used to obtain reimbursement. The allocations for both were far smaller than the outlier allocation, but they reached different decisions inside the hospital.

Physician Payments and Referral Claims

The government alleged that Tenet paid kickbacks to physicians to obtain Medicare referrals and billed for services ordered by physicians with improper financial relationships. The agreement allocated $47,533,514 to the physician-relationship claims.

The agreement described both payments intended to induce referrals and relationships that prohibited the hospital from billing Medicare for the referred services. It also alleged that Tenet certified in cost reports that the services had not been obtained through kickbacks or billed in violation of referral laws.

The evidence question is what the hospital paid for, which referrals followed, what it billed, and what it said about those arrangements when seeking government money.

Upcoding and the Patient’s Medical Record

Upcoding was the allegation that Tenet assigned unsupported or otherwise improper diagnosis codes to increase hospital reimbursement. The agreement allocated $46,886,882 to those claims.

For inpatient discharges from 1992 to 1998, the government alleged that diagnosis codes lacked support in physicians’ documentation or were otherwise improper.

The government also alleged that Tenet annually certified compliance with its corporate integrity agreement despite knowing about those claims. We see the contradiction: an annual promise of compliance alongside allegedly known improper claims.

For a coding employee, the connection begins with the physician’s chart and the code assigned to the discharge. For someone reviewing compliance, it includes what the hospital learned about its coding and what it certified afterward.

Other Hospital Claims in the Agreement

The agreement reached beyond the three categories in the announcement. The government also alleged that certain hospitals used higher inpatient charges than outpatient charges where uniform charges were required, and that Centinela Hospital Medical Center billed for medically unnecessary cardiac catheterizations.

At Desert Regional Medical Center, allegations concerned inaccurate outpatient billing codes, insufficient documentation for laboratory and imaging services, and excessive management fees. At Brookwood Medical Center, they concerned billing for blood allegedly not administered and blood filters allegedly not used.

People’s Health Network, in which Tenet held an ownership interest, allegedly failed to provide services or provided care below required standards for patients covered by Medicare’s payments to the network.

These allegations show why the patient chart, the charge data and the cost report each mattered. A hospital-wide settlement can contain several different paths from an internal decision to a government payment.

Whistleblower Lawsuits Behind the Tenet Settlement

Several issues resolved in the Tenet agreement arose from whistleblower lawsuits. The department’s announcement credited those cases alongside the government’s work.

The Justice Department handled the resolution with assistance from HHS’s Office of Inspector General and other agencies.

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

What the Tenet Settlement Required

Tenet’s agreement combined scheduled payments with the surrender of claims for additional government reimbursement. The settlement amount reflected limits on the company’s ability to pay.

The agreement set out these terms:

• An initial payment of $450 million, due within ten days after the agreement took effect.
• A further $275 million in quarterly installments, running from 2007 through 2010.
• Waived claims valued at $50 million for additional Disproportionate Share Hospital payments for earlier cost-reporting periods.
• Waived claims valued at $125 million for additional outlier payments for periods before August 7, 2003.

Part of Tenet’s bargain was to give up demands for more reimbursement from the same government it had agreed to pay.

What Hospital Insiders Can Connect

The settlement’s document requirements show how closely the government’s inquiry followed internal decisions. Tenet agreed to produce specified documents about outlier payments, its analysis of the outlier rules, charge increases and cost-to-charge ratios. The agreement also called for documents about coding compliance audits and compliance with an earlier corporate integrity agreement.

Those subjects connect the bill to what the hospital knew and why its claims changed government payment. We examine the evidence linking hospital records to government claims with the person who understands how the records were created and used. A finance employee may understand the charge-to-cost comparison. A coding employee may understand the gap between the chart and the submitted diagnosis. Someone involved in physician arrangements may understand what the hospital expected in return for its payments.

The broader hospital pattern also appears in HCA’s civil settlement announced in 2003, which addressed false cost-report and kickback allegations. Tenet’s agreement makes those connections concrete across charges, codes and referrals.

Later Tenet False Claims Act Matters

Later Tenet matters involved separate referral allegations. In February 2014, the government joined a referral-kickback case against Tenet and four of its hospitals in Georgia and South Carolina. It alleged that hospitals paid obstetric clinics for labor-and-delivery referrals, then billed the states’ Medicaid programs and, in some instances, obtained additional Medicare reimbursement tied to the influx of low-income patients.

The Justice Department’s fiscal year 2016 account reported that Tenet paid $244.2 million to resolve federal civil allegations that four hospitals paid kickbacks for patient referrals. It separately reported $123.7 million paid to state Medicaid programs.

In May 2023, the Detroit Medical Center, Vanguard Health Systems and Tenet agreed to pay $29,744,065 in another physician-kickback settlement. The government alleged that the companies paid kickbacks to referring physicians. Across these later matters, the recurring issue was the financial relationship behind a referral and the government claim that followed it.

You Know How the Hospital Got Paid

If you can explain why the charge, diagnosis code or physician payment tells a different story from the hospital’s claim, speak with our whistleblower experts. We work beside you to build the case around that knowledge and bring in healthcare fraud whistleblower lawyers who understand hospital reimbursement and referral arrangements. We stay with you as the case moves from the records you know to the recovery it seeks.