Many things look good at first, and then not so much after you look closer. “As seen on TV” is never as good as “as seen in person.” On TV, the Sham WoW is like a shammy, a towel, a sponge. It cleans the house, the car, the boat, the RV. Why even think of throwing away $20 a month on paper towels. In person, on the other hand, it’s an absorbent towel.  You wonder why you thought you could clean you entire house and yard with it.

The qui tam plaintiff in Integra Med Analytics, LLC v. Baylor Scott & White Health, 2019 WL 3713756 (W.D. Tex. Aug. 5, 2019), filed a complaint that looked good at first too. It alleged that the defendants—a hospital operator and four of its hospitals—ran a scheme to “upcode” Medicare diagnostic codes on patient illnesses resulting in Medicare claims with secondary diagnostic coding of a “Complication or Comorbidity” (“CC”) or a “Major Complication or Comorbidity” (“MCC”), which increased the amount of Medicare reimbursement paid to defendants. Id. at 1. To accomplish this, according to plaintiff, defendants implemented a Clinical Documentation Improvement program. Id. at 2 They emphasized coding for MCCs to their doctors. Id. They trained doctors and staff to use key words to trigger an MCC. Id. They circulated a list of MCCs on which staff diagnoses should focus. Id. They used employees with lists of MCCs to find opportunities to assign MCCs as secondary patient diagnoses. Id. They distributed tip sheets on how to document a diagnosis so that it is “codable.” Id. They sent doctors “queries” that encouraged them to “specify” or amend their initial diagnoses to subsequently include an MCC or CC. Id. They stressed to their doctors the importance of MCC coding to revenue and to a doctor’s performance evaluation. Id. Their intent, plaintiff alleged, was to influence doctors to “upcode” to higher paying MCC or CC claims. Id. As a result of this scheme, according to plaintiff, defendants’ frequency of coding patients with MCC diagnoses was significantly higher than that of their peers. Id. Plaintiff also presented a statistical analysis showing that this higher frequency was not due to a unique patient population. Id. It was, according to plaintiff, due to a fraudulent scheme that violated the False Claims Act. Id. at 3. It was a Sham.

Upon closer review, however, plaintiff hadn’t actually made allegations of fraud, or at least allegations that satisfied pleading requirements. Instead, the alleged scheme was consistent with a process to increase revenue through accurate coding of proper services. The court recognized this on defendants’ motion to dismiss, pointing to the publisher of the Medicaid codes, an entity called the Center of Medicare and Medicaid Services (“CMS”), which included in its publications encouragement of hospitals to code accurately and focus their coding documentation on maximizing Medicaid reimbursement:

[The scheme alleged by plaintiff] is not in and of itself one to submit false claims and is equally consistent with a scheme to improve hospital revenue through accurate coding of patient diagnoses in a way that will be appropriately recognized and reimbursed by CMS commensurate with the type and amount of services rendered.

CMS “encourage[s] hospitals to engage in complete and accurate coding” and has “reaffirm[ed its] view that hospitals focus their documentation and coding efforts to maximize reimbursement.” Medicare Program, Changes to the Hospital Inpatient Prospective Payment systems and Fiscal Year 2008 Rates, 72 FR 47130, 471817. CMS is well aware of the existence of hospital “methods for improving clinical documentation in order to increase reimbursement” and that hospitals “utiliz[e] clinical documentation specialists that work on the hospital treatment floors to encourage improvements in clinical documentation” to “improve coding and increase payment.” Id. at 47182.

Moreover, CMS has directly disavowed “the notion … that CMS believes changes in how services are documented or coded that [are] consistent with the medical record [are] inappropriate or otherwise unethical.” Id. at 47181. CMS does “not believe there is anything inappropriate, unethical or otherwise wrong with hospitals taking full advantage of coding opportunities to maximize Medicare payment that is supported by documentation in the medical record.” Id. CMS was fully aware that hospitals would “change their documentation and coding practices and increase case mix consistent with the payment incentives that are provided by the” then newly implemented MS-DRG system and fully supported this practice. Id. at 47182.

Id. at *4. In other words, a closer look found that plaintiff’s fraud allegations didn’t do as much as you’d thought at first. They didn’t actually allege fraud: “the mere fact that Defendants took targeted steps to increase their coding of CCs and MCCs to increase hospitals revenues is neither fraudulent, nor improper per se.” Id.

Allegations that are equally consistent with a program to improve coding accuracy while seeking maximum Medicare reimbursement are insufficient to state a fraud claim:

Plaintiff’s allegations are equally consistent with the conclusion that Defendants were taking steps to improve the accuracy and consistency of their medical documentation and coding so as to align it with terminology that CMS would recognize and reimburse appropriately. Where a complaint pleads facts that are merely consistent with a defendant’s liability, it stops short of the line between possibility and plausibility of entitlement to relief.

Id. at 5. (citations omitted).

Similarly, plaintiff’s statistical analysis was equally consistent with defendants simply being better than their peers at identifying and using accurate coding to maximize reimbursement:

Plaintiff’s statistical analysis allegedly demonstrating that no other explanation but fraud accounts for the data it analyzed overlooks one major alternative hypothesis: Defendants were simply better than their peers in their efforts to ensure their medical documentation and coding maximized the opportunities for legitimate reimbursement from CMS. Ultimately, Plaintiff’s allegations are not only compatible with but arguably more likely explained by lawful conduct. In such instances, Rule 8 has not been satisfied.

Id. at 6 (citations omitted).

You don’t need to return the Sham WoW. It’s still a towel. It’s still absorbent. It still works. You just can’t use it to clean your entire house and yard. Similarly, plaintiff’s allegations, for the most part, seem to describe a program put in place by defendants. They just don’t describe fraud. The court dismissed plaintiff’s complaint with prejudice. Id.