May 2011 Volume 7 Number 9

DOJ's Kyphoplasty Initiative: AHA Urges Greater Oversight in the Wake of Continuing Settlement Announcements

By Steven W. Postal, Associate and Post-Graduate Fellow, Office of the Maryland Attorney General, Baltimore, MD and Robyn Whipple Diaz, Associate General Counsel, St. Jude Children’s Research Hospital, Memphis, TN 1

AuthorAuthorOn April 4, 2011, a North Carolina hospital agreed to pay the federal government $1.9 million in a settlement to resolve claims that it overcharged Medicare in billing for kyphoplasty, a procedure used to stabilize and reduce pain associated with spinal fractures often related to osteoporosis.2 This settlement is the sixth publicly known kyphoplasty settlement in three years.

The Department of Justice (DOJ) began to focus on kyphoplasty in May 2008 when Medtronic Spine LLC, the corporate successor to Kyphon, Inc.,3 settled with the federal government for $75 million plus interest to resolve allegations that Kyphon counseled providers to admit patients for inpatient hospital stays in order to increase Medicare reimbursement, when the procedure can safely be performed on an outpatient basis.4 This settlement created a precedent upon which the government built a “kyphoplasty initiative,” an aggressive investigation targeting individual hospitals that had billed for inpatient stays following kyphoplasty procedures.5 This focus on inpatient admissions associated with kyphoplasty resulted in settlements with 18 hospitals, with settlements announced in May 2009, September 2009, and May 2010.6 Then in January 2011, seven additional hospitals agreed to pay the federal government more than $6.3 million to resolve similar allegations.7 By April 2011, the total amount paid by hospitals in kyphoplasty-related settlements reached approximately $28 million.8

 The DOJ’s mobilization against improper kyphoplasty billing is part of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, launched in May 2009 by Attorney General Eric Holder and the Secretary of the Department of Health and Human Services Kathleen Sebelius to better enforce the False Claims Act (FCA), among other goals.9 The federal government has thus far recovered $4.2 billion in FCA health care recoveries since January 2009.10

It is unclear why kyphoplasty has figured so prominently on HEAT’s agenda. It’s certainly plausible that on the heels of the $75 million settlement with Medtronic, prosecutors concluded that individual hospitals likely relied on Medtronic’s advice, and that additional settlement opportunities existed. Statements from the DOJ regarding the kyphoplasty initiative have focused on the government’s duty with respect to FCA enforcement. Commenting on the April 2011 settlement, Tony West, Assistant Attorney General for the DOJ’s Civil Division, stated: “We pursue cases like this because when hospitals submit false claims in order to increase their Medicare reimbursement, as we allege here, it artificially drives up the cost of health care, leaving taxpayers to foot the inflated bill.”11 The U.S. Attorney’s office has taken a similar public stance, with the U.S. Attorney for the Western District of New York, stating, “[t]his settlement shows the continuing commitment by the U.S. Attorney’s Office for the Western District of New York to investigate and recover any improper billings for kyphoplasty procedures and to partner with our colleagues in other U.S. Attorney Offices when necessary to remedy similar billing abuses related to non-kyphoplasty procedures.”12

Despite the insistence by prosecutors that they are appropriately using the FCA to recover monies owed to the Federal Treasury, the American Hospital Association (AHA) asserts that the kyphoplasty settlements are the result of a misapplication of the FCA. In response to the kyphoplasty settlements, the AHA requested in a September 2010 memo to Holder and Sebelius that HEAT “undertake a policy review of ongoing enforcement initiatives proceeding under the auspices of the False Claims Act.”13 AHA’s request was not limited to kyphoplasty, but the vast majority of the September 2010 memo was dedicated to criticism of the kyphoplasty initiative.14 The AHA memo depicts the kyphoplasty initiative as the most egregious example of what the AHA perceives as the DOJ’s overly-aggressive enforcement tactics.

In the memo, the AHA claimed that the FCA “does not apply to billing errors, mistakes, or even non-culpable over-utilization.”15 The AHA claimed that the DOJ is using data mining to create a presumption of liability for “knowing violations” under the FCA. 16 Specifically, the AHA argued that the initial contact letter sent by the DOJ to hospitals in kyphoplasty investigations uses the threat of FCA liability to force providers into undertaking expensive and burdensome audits, the results of which must be turned over to the DOJ in order to appear cooperative.17 The AHA also pointed out that it is unclear whether the DOJ has reviewed the medical necessity of admission when sending initial contact letters, and that such letters presume “that: (a) the physician judgment on which hospitals must depend was compromised in every case; and (b) hospitals knowingly or recklessly acceded to that judgment.”18

The AHA has forcefully objected to other recent federal audits and investigations on the grounds that they are overly broad or aggressive. Specifically, in a January 14, 2011 letter to Congress, AHA President Rich Umbdenstock criticized the Centers For Medicare & Medicaid Services (CMS) for “improper oversight” of the Recovery Audit Contractors (RACs) resulting in “overzealous claim denials.”19 On February 23, 2011, AHA Executive Vice President Rick Pollack sent a letter directly to CMS, arguing for fifteen audit restrictions following the expansion of the RAC program into Medicare Parts C and D.20 Following one hospital’s $2.2 million settlement with the DOJ associated with short-stay admissions,21 the AHA attributed the increasing number of patients that have been placed in observation status, rather than admitted as hospital inpatients, to hospital fears of RAC audits and prosecution under the FCA.22

AHA and DOJ officials met to discuss the kyphoplasty initiative on November 22, 2010, and in a December 7, 2010 letter to the DOJ, AHA President Rich Umbdenstock again emphasized the importance of DOJ oversight of the tactics used in FCA investigations, and asked for a follow-up meeting with DOJ officials.23 It is unclear whether a follow-up meeting has taken place, but upon announcement of the January 2011 kyphoplasty settlements, AHA General Counsel and Senior Vice President Melinda Hatton expressed AHA’s disappointment that DOJ failed to “mention…any attempt to address the serious and widespread problems with this investigation” and reiterated AHA’s position that “the government needs to act expeditiously to assure the hospital community that its enforcement power is not misused to prosecute billing mistakes or legitimate differences in medical judgment."24 However, as the April 2011 settlement demonstrated, the discussions between the AHA and the DOJ appear not to have impeded the government’s full court press against kyphoplasty.


The 2008 Kyphon settlement, and the DOJ’s subsequent kyphoplasty initiative, serves as a cautionary tale for both medical device companies and hospitals. The 2008 settlement sets a precedent for medical device companies; if they give providers (including hospitals) advice on how to bill for procedures and receive higher reimbursement, the device companies may find themselves facing FCA liability. As subsequent settlements associated with the kyphoplasty initiative demonstrate, hospitals may also find themselves facing such liability if they rely on that advice. The kyphoplasty initiative remains a concern for hospitals that have more than occasionally billed Medicare for an inpatient stay associated with kyphoplasty, even without the intent to defraud. Despite the AHA’s efforts, hospitals that bill Medicare for kyphoplasty should consider conducting retrospective and/or concurrent reviews of admissions to assess and minimize potential liability.

1 Opinions expressed herein are attributable to the authors and are not those of the Office of the Maryland Attorney General or St. Jude Children’s Research Hospital.
2 Lynn Bonner, “Rex to Pay $1.9M to Settle Claims of False Medicare Paperwork”, Raleigh News & Observer, April 4, 2011, available at
3 Kyphon, Inc. is a company that provides medical devices to restore spinal function through minimally invasive procedures such as kyphoplasty. See and
5 Brendan Cyr, “Hospitals Ask U.S. Attorney to Reconsider HEAT Enforcement Initiatives,” September 23, 2010, FCA Alert, available at See also Ronald Clark, “New National Kyphoplasty Enforcement Initiative,” February 6, 2009, False Claims Act/Qui Tam Strategic, available at
7 “Seven Hospitals in Six States to Pay U.S. More Than $6.3 Million to Resolve False Claims Act Allegations Related to Kyphoplasty,” January 4, 2011, Department of Justice, Office of Public Affairs, available at
8 B. Scott McBride and Ameena N. Ashfaq, “DOJ Continues Focus on Kyphoplasty: Seven More Settlements Across Six States,” Baker Hostetler’s Health Law Update, January 20, 2011, available at 20ON%20KYPHOPLASTY:%20SEVEN%20MORE%20SETTLEMENTS%20ACROSS%20SIX%20STATES.
10 Other HEAT initiatives target fraudulent billing in Medicare Advantage and Medicare prescription drug programs, Medicare Parts C and D, durable medical equipment, and home healthcare. HEAT also conducts the Medicare Strike Force, which targets Medicare fraud within specific cities. See

















21 Cheryl Clark, “AHA: Observation Status Fears on the Rise,” October 29, 2010, HealthLeaders Media, available at

Cheryl Clark, “AHA: Observation Status Fears on the Rise,” October 29, 2010, HealthLeaders Media, available at Many hospitals believe that these fears are responsible for a rise in observation status claims as documented by CMS from approximately 830,000 to 1.1 million from 2006 to 2009, and observation stays for patients over 48 hours from approximately 26,000 to 83,000.

23 See
24 “DOJ Announces FCA Settlements Over Kyphoplasty Procedures,” January 4, 2011, AHA News Now, available at AHANewsNowArticle/data/ann_010411_FCA&domain=AHANEWS.

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