Judge Rejects Hospitals’ Suit Against Chain in New Jersey

A judge in Newark has dismissed a lawsuit claiming that the St. Barnabas Health Care System, which overbilled Medicare by hundreds of millions of dollars, defrauded the federal government so badly that other hospitals were deprived of their fair share of reimbursement.

St. Barnabas, which grew into New Jersey’s largest hospital system starting in the early 1990s, systematically overcharged the federal government by at least 0 million from 1995 to 2003, according to court papers, and agreed last year to pay a 5 million settlement to the federal Centers for Medicare and Medicaid Services. St. Barnabas denied defrauding Medicare and admitted no deliberate wrongdoing, although it acknowledged the overbilling, calling it a misinterpretation of Medicare rules.

Shortly after that settlement, the largest ever agreed to at that time, two small hospitals in Maine and Colorado filed a racketeering suit against St. Barnabas and its executives. The suit charges that the overbilling by St. Barnabas was so flagrant and costly that it skewed the reimbursement formula, cheating thousands of health care facilities nationwide out of half a billion dollars in federal money they would have been entitled to.

But in an opinion filed this week, Judge Dennis M. Cavanaugh of United States District Court in Newark wrote that the federal government was the only direct victim in the case and had already been reimbursed for some of the payments.

Ellen Greene, a spokeswoman for St. Barnabas, said, “This decision is very gratifying and a positive development for the Saint Barnabas Health Care System.”

The case began as a criminal investigation after two whistle-blower lawsuits filed in 2002 reported that St. Barnabas officials were involved in a scheme to inflate their costs for the most expensive medical procedures in an effort to pad their federal reimbursements, a practice health care advocates refer to as “turbocharging.”

The United States attorney’s office reviewed the bookkeeping at St. Barnabas — which at one point operated nine hospitals and 3,200 beds across New Jersey — and found that it had bilked the federal government out of at least 0 million, according to prosecutors.

Hospital officials agreed to repay 5 million and were spared any criminal charges as part of the settlement. One factor in the government’s settling for less than half was its fear that a larger fine might drive the St. Barnabas system out of business.

But Hal Hirsch, a lawyer for the hospitals suing St. Barnabas, said the settlement did not address the damages caused to other health care systems. The hospitals will appeal the judge’s ruling and seek to reinstate the suit. The overbilling by St. Barnabas was so severe, Mr. Hirsch said, that it set off changes to the reimbursement formula and caused other hospitals to receive less federal money than they deserved.

“The hospitals that didn’t engage in this illegal activity need to be remunerated for these wrongful acts by Barnabas,” he said.