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Consultant loses appeal over ‘secret plan’ to boost hospital income

A company that approached Rockingham Memorial Hospital with a plan to boost its Medicare reimbursements failed to prove a binding contract for a percentage of the increased revenues, a federal appeals court found last week.

The 4th U.S. Circuit Court of Appeals Friday affirmed dismissal of the suit brought by McKay Consulting Inc. seeking court endorsement of the purported deal with the hospital.

In 2009, McKay told hospital officials it had a plan that could increase hospital income by millions. McKay would reveal the details only if the hospital agreed to pay 20 percent of the increased revenue. McKay claimed hospital officials orally agreed to the deal.

District Court Judge Glen Conrad concurred with the hospital that the terms of the alleged agreement were too vague to be enforced, and the appeals court agreed in an unpublished opinion. In its pleadings and arguments, McKay never settled on exactly what the hospital was supposed to pay, the court found.

The secret plan? McKay proposed to have the hospital change its Medicare status from “urban” to “rural” and apply for the “sole community hospital” designation. McKay thought the change could boost the hospital’s Medicare income by close to $8 million annually. While not widely recognized in 2009, the strategy now appears to be common knowledge in the health care industry, the court said.

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