Coordinated Health, CEO Pay $12.5M to Resolve Fraud Allegations

Prosecutors allege that the Pennsylvania-based, for-profit health system improperly unbundled claims billed to Medicare and other government payers in order to inflate reimbursements.

Coordinated Health Holding Company, LLC and its founder and CEO Emil DiIorio, MD, will pay $12.5 million to resolve allegations that the health system improperly billed Medicare and other government-sponsored health plans for orthopedic surgeries, the Department of Justice said.

The government alleges that Coordinated Health and DiIorio improperly unbundled the global claims used for reimbursements for orthopedic surgeries in order to artificially inflate reimbursements from federal healthcare payers, including Medicare, Medicaid, the Federal Employee Health Benefits Program, and the U.S. Department of Labor's Office of Workers' Compensation Programs.

Under the deal, announced this week by federal prosecutors in Philadelphia, Coordinated Health will pay $11.25 million, and Dilorio will pay $1.25 million. The company also entered a five-year Corporate Integrity Agreement with DOJ.

"The alleged corporate culture and leadership that promoted this conduct and allowed it to continue despite crystal clear warnings is shameful," William M. McSwain, U.S. Attorney for the Eastern District of Pennsylvania, said in a media release.

"If true, it amounts to theft of public funds and a fraud on Medicare, Medicaid, and federal employee health insurers. We are unaware of any unbundling scheme that has had a bigger impact on federal funds," he said.

Coordinated Health, based in the Lehigh Valley region of Pennsylvania, employs 100 physicians, about 30 of whom are orthopedic surgeons.

Florence Brown, director of communications at Coordinated Health, said the provider was "pleased to have come to a resolution with the federal government regarding allegations of our past use of a specific Medicare billing modifier, involving a complex Centers for Medicare and Medicaid Services rule, which does not relate to the quality of patient care."

"We have already updated our billing practice to resolve the issue in question, and have taken a number of decisive actions to reduce the potential for issues in the future," Brown said.

Misused Modifier 59

Prosecutors allege that Coordinated Health and Dilorio knowingly circumvented electronic safeguards designed to block separate reimbursements for parts of the same surgery when a global fee is paid, and that they continued to do so even after they were explicitly warned that it was illegal.

Specifically, prosecutors allege that from 2007 through mid-2014 Coordinated improperly used the billing code Modifier 59 to unbundle claims and bill government payers separately for parts of the same orthopedic surgeries.

DiIorio, an orthopedic surgeon, allegedly changed how he wrote operative reports beginning in April 2009 so that Coordinated Health could use Modifier 59 to maximize improperly unbundled reimbursements for his knee, hip and shoulder surgeries. 

For example, in his total knee replacement operative reports before April 2009, DiIorio rarely diagnosed any patient with poor patellar tracking and said in almost every report that a "lateral retinacular release" incision was unnecessary. The procedure is part of the global surgery reimbursement for a knee replacement. 

However, in almost every knee replacement operative report after April 1, 2009, DiIorio diagnosed the patient with poor patellar tracking and claimed he performed a lateral retinacular release. Each time, Coordinated Health used Modifier 59 to improperly bill for a lateral retinacular release as if one was performed separate from the knee replacement, DOJ said.

Outside consultants hired by Coordinated Health told top executives in 2011 and again in 2013 that they were misusing Modifier. The 2013 consultant told Coordinated Health to self-report and repay Medicare and other federal payers. The second consultant also provided on-site training on the proper use of Modifier 59 to Coordinated Health coders in November 2013.

"Motivated by its bottom line, Coordinated Health simply ignored the consultants' recommendations and continued abusing Modifier 59 to improperly unbundle orthopedic surgery claims until mid-2014," DOJ said.

Federal prosecutors noted that the claims resolved in the settlement are only allegations and that there has been no determination of liability.