Consultant seeks payment for Medicare fee-boost plan

A court battle looms over whether a Harrisonburg hospital has to pay contingency fees to a consulting firm that claims it gave the hospital an idea for boosting Medicare reimbursements.

In a federal lawsuit, McKay Consulting Inc. contends Rockingham Memorial Hospital reneged on a promise to pay if it used McKay’s secret plan to increase revenue.

RMH responds that the plan disclosed by the consultant was not “novel” so the hospital owes nothing to the consultant. The hospital will ask a judge to dismiss the lawsuit at a hearing next month.

The dispute was set in motion in May when McKay Consulting called on administrators at RMH. McKay says it offered to disclose a plan for RMH to substantially increase Medicare reimbursement rates. It would reveal the plan based on two conditions. The hospital had to agree to keep the plan secret and the hospital had to agree to pay McKay 20 percent of any increased reimbursement over four years if it chose to use the plan.

According to McKay, the hospital accepted those conditions and listened to McKay’s plan in June. The plan involved increasing Medicare reimbursement rates by changing the hospital’s classification under federal rules, according to a brief filed by RMH.

The details of the classification change are not disclosed in the court papers, but McKay has offered proposals to other hospitals based on changing the wage indices used for calculating hospitals’ Medicare reimbursement. In two instances in Michigan, for instance, McKay helped hospitals increase reimbursement rates by getting the government to designate a higher income community for the hospitals’ service area.

Whatever the McKay proposal for RMH, the lawsuit claims hospital officials were interested. An accounting officer called in the hospital’s chief financial officer to hear the details as they were explained by Mike McKay, according to the suit.

The CFO allegedly asked for a discount from the 20 percent fee, but McKay refused. Despite that disagreement, McKay claims the hospital asked for more information in the days that followed.
McKay then claims that – five days after the initial meeting with hospital officers – the CFO asserted the hospital had no contract with McKay. McKay protested in a letter: “Our staff, including myself, went over the nature of the relationship numerous times, in writing, over the phone and in person. There was no misunderstanding whatsoever between us and your hospital until the magnitude of the benefit to your hospital and our associated fee became apparent.”

Then came the lawyers.

McKay claims RMH’s counsel stated RMH had “no obligations to McKay whatsoever.”

In a brief supporting its motion to dismiss, RMH said McKay’s proposal is based solely on federal statutes and regulations, so the idea cannot be considered proprietary. “McKay’s alleged ‘idea’ merely embodied publicly known information, and therefore cannot constitute sufficient contractual consideration as a matter of law,” reads the hospital’s brief. “[A]ll of the information that forms the basis for McKay’s idea is publicly available.”

A hearing on the hospital’s motion to dismiss is scheduled for Oct. 6 with U.S. District Judge Glen E. Conrad in Harrisonburg.

McKay has won previous court battles with hospitals over its reimbursement plans. In Michigan, a jury awarded McKay $7 million in a dispute with two hospitals that balked at paying the consultant’s fees after a protracted effort to win federal reclassification. The jury verdict was upheld by the Michigan Court of Appeals in an unpublished January decision.

The theme used by McKay’s attorneys at the Michigan jury trial was, “A deal is a deal.” The McKay lawyers told Michigan Lawyers Weekly that one key to trial success was a trail of e-mails among hospital representatives. People are casual in electronic communications, the lawyers said, and e-mails can reveal the true nature of a situation.

McKay is represented by attorneys at the Charlottesville and Richmond offices of McGuireWoods. RMH is represented by attorneys at Wharton, Aldhizer & Weaver of Harrisonburg. None of the attorneys contacted for comment returned calls as of press time.