HCA Conroe settles $10M patient misclassification
HCA Houston Healthcare Conroe will pay $10M to resolve claims of improperly billing Medicare for inpatient services that should have been outpatient,
CONROE, Texas — HCA Houston Healthcare Conroe has agreed to a $10 million settlement with the federal government to resolve allegations that the facility improperly billed Medicare for inpatient services that should have been classified as outpatient observation stays.
The settlement, announced last week by the U.S. Attorney’s Office for the Southern District of Texas, concludes a years-long investigation into the hospital’s billing practices between 2012 and 2021.
The investigation centered on the practice of "upcoding," where hospitals bill federal programs for full inpatient admissions despite the patient only meeting the clinical criteria for observation status. While the difference may appear technical to the average observer, the financial impact on patients is significant.
Under Medicare regulations, patients must be admitted as "inpatient" for at least three consecutive days to qualify for Medicare-covered rehabilitation in a skilled nursing facility. Patients kept under "observation" status often face significantly higher out-of-pocket costs and are frequently denied coverage for follow-up care at nursing homes because they fail to meet the "three-day rule."
The federal inquiry was prompted by a qui tam, or whistleblower, lawsuit filed in 2019 by Dr. Thomas Salzer, a former emergency room physician at the Conroe facility. Under the False Claims Act, private citizens can sue on behalf of the government for fraud and share in a percentage of the recovered funds. Dr. Salzer is slated to receive approximately $1.7 million of the settlement amount for his role in bringing the issue to light.
In addition to the $10 million payment, HCA Houston Healthcare Conroe has entered into a five-year Corporate Integrity Agreement (CIA) with the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG).
The agreement mandates rigorous oversight, including the appointment of an independent review organization to audit the hospital's claims, mandatory training for staff regarding patient status determinations, and regular compliance reporting to federal authorities. Such agreements are typically reserved for healthcare entities where the government identifies systemic failures in billing or quality assurance.
U.S. Attorney Alamdar Hamdani framed the settlement as a victory for both the integrity of federal healthcare programs and the patients who rely on them.
"Accurate billing is essential to the stewardship of taxpayer dollars," Hamdani said in a statement. "When hospitals misclassify patient stays, they not only strain Medicare resources but also place an unfair and often unexpected financial burden on vulnerable beneficiaries who are simply trying to navigate their recovery."
HCA Houston Healthcare Conroe, part of the national HCA Healthcare system, maintained its position throughout the litigation that the billing issues were not reflective of the quality of care provided to patients.
"We stand by the quality of care provided at our hospital," said Matt Little, CEO of HCA Houston Healthcare Conroe. "We have decided to enter into this settlement to avoid the expense and burden of further litigation and to focus our resources on continuing to serve our community."
The hospital is now required to demonstrate full cooperation with the HHS-OIG oversight committee as it implements the reforms outlined in the Corporate Integrity Agreement. Patients concerned about past billing status or the impact of observation stays on their Medicare benefits are encouraged to contact the Medicare Rights Center or consult with an advocate to review their specific medical records.