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Hospital Sues Software Company for $16 Million Loss

Jessica Mehta • Wed, October 4th, 2017

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Agnesian Healthcare, a hospital in Fond Du Lac, Wisconsin, filed a lawsuit on August 16, 2017 against health information systems giant Cerner Corporation.

According to Agnesian, the Cerner billing and claims software was full of problems from the day of installation. The hospital says “pervasive errors” in patient billing invoices gave the hospital no choice but to mail patient bills by hand—which allegedly resulted in a $16 million loss and a blow to the hospital’s reputation.

Kansas City, Missouri-based Cerner is the biggest publicly traded health information technology company in the world.

Agnesian is a not-for-profit healthcare provider that’s served the Fond du Lac area for over 120 years.

According to Agnesian’s complaint, Cerner is guilty of breach of warranty and fraud and, therefore, owes Agnesian $16 million in losses, $200,000 per month in damages, and fees associated with cancelling the Cerner contract.

Code Blue! Code Blue!

The complaint says that issues began immediately after installing the software for Agnesian’s ambulatory clinics. According to Agnesian, the software automatically wrote off reimbursable service charges. However, the system was not alerting Agnesian to these write-offs. As soon as Agnesian was aware of the problem, they “began to expend extraordinary amounts of time and financial resources to manually process patient billing statements” according to the hospital’s attorney John A. St. Peter. Agnesian is still handling the “huge backlogs of patient claims” as of August 2017.

By the summer of 2016, one year after Agnesian integrated Cerner’s software, Cerner reported that “all major issues” with the software were resolved. In the lawsuit, St. Peter writes that given Cerner’s reputation and that the billing errors appeared improved, “Agnesian believed at the time that the Integrated Solution had stabilized and the worst was behind it.”

However, in 2017 Agnesian reports the discovery of what the company calls “major additional coding errors.” These errors led to large amounts of undetected write-offs. Unbeknownst to Agnesian, the software was automatically waiving reimbursements because of the alleged software errors. St. Peter writes in the complaint that in 2017, “due to the severity of the coding issues, Cerner admitted to Agnesian that the Integrated Solution needs to be rebuilt."

Such a rebuild has, to date, not happened.

According to the lawsuit, shortly after Cerner admitted the need for a rebuild, staff in charge of the task left the company. St. Peter says that even if a rebuild took place, it would take months for Agnesian to “return to normalcy in billing collections.” Furthermore, during that time, more stale charges would, says the hospital, have to be written off.

Agnesian’s management team say that they might not be able to meet the federal billing requirements because of Cerner’s software. Agnesian points out that $16 million is only the damage amount they’ve sustained as of the date of the lawsuit filing. It does not take into account the full damage to the hospital’s reputation or tertiary damages.

Since Integrated Solutions was adopted by Agnesian two years ago, St. Peter says the errors have caused—and continue to cause—“grave damage” to the hospital’s reputation. Thousands of the hospital’s patients have struggled to reconcile their bills, which St. Peter alleges has tarnished the community’s trust and respect of Agnesian. “Agnesian has not yet been able to fully quantify the damages caused by Cerner’s wrongful conduct,” he writes.

Of the $16 million in current alleged damages, as well as the minimum of $200,000 per month in damages, none of these lost funds are available for Agnesian. St. Peter says this means the funds can’t be used to improve and grow the quality of services in the Fond du Lac region, which may further dissolve the community’s respect of Agnesian.

Shaky Foundations

Cerner reported $4.8 billion in revenue in 2016. When Agnesian switched to Cerner’s software after over a decade using a McKesson software solution, the move was to a well-established company.

Agnesian switched because of new federal diagnostic code requirements (International Classification of Disease 10) that started in April 2014. Agnesian narrowed down the choice to either upgrading the McKesson software or finding a more affordable solution.

Agnesian hospitals had used Cerner’s inpatient management and billing software for 11 years at the time. In 2012, Agnesian had looked at Cerner’s options for ambulatory clinical patient management and billing. However, in 2012 Cerner’s Integrated Solutions software didn’t have key features that Agnesian needed, such as anesthesia billing and the option to calculate relative value units.

Agnesian and Cerner representatives met in May 2013 for a discussion unrelated to Integrated Solutions. However, at the meeting Agnesian executives asked Cerner about recommendations for McKesson alternatives for ambulatory clinics. Agnesian knew the ICD-10 changes were fast approaching. St. Peter says Agnesian expected a third-party recommendation, but the Cerner representatives said a new Cerner software had been developed that fit the bill: Integrated Solution. The software had already been adopted by other ambulatory clinics, but would need some modifications to customize it for Agnesian. Until then, Cerner recommended a temporary, interim software solution. Their Powerworks’ Revenue Cycle (PWPM Billing) could immediately replace McKesson’s software and allegedly promised that Integrated Solution would be ready with the necessary added features “in the near future and would meet Agnesian’s needs.”

St. Peter writes that both the impending ICD-10 requirements and Cerner’s promise of Integrated Solution being ready in the near future is what caused Agnesian to switch from McKesson to Cerner. From July 2013 – March 2014, Cerner built-out the temporary replacement for Agnesian. However, St. Peter reports that during this time, “Agnesian became increasingly dissatisfied with Cerner’s progress.” Agnesian says that the interim solution didn’t have “basic functions” the hospital needed and calls it a “significant step back in terms of productivity from the McKesson solution.”

Ticking Time Bombs

In March 2014, the federal government announced that it would delay ICD-10 implementation until “at least October 2015.” According to Agnesian, Cerner allegedly knew that the hospital had a “growing disenchantment” with the interim solution—which allegedly kickstarted an aggressive sales campaign from Cerner. Agnesian claims they were promised a modified Integrated Solution “within a few months” of March 2014 and “well before the new ICD-10 deadline.”

St. Peter says that while pushing Agnesian to make the switch to Integrated Solution, “Cerner made a number of materially false and misleading statements.” For starters, says St. Peter, Cerner claimed that the software had been successfully adopted by other hospital systems. These included Adventist Health Systems in Florida, Kansas, and California. Cerner boasted of the software’s “substantial integration of clinical and billing functions” which offered better results and less complexity. Specifically, as an example Cerner told Agnesian about the “Revenue Cycle Transformation” which led to a “significant reduction” of Adventist databases that were necessary. Many concrete examples were offered, including the story of Adventist’s Florida Hospital, Waterman which allegedly took Cerner’s software live on January 1, 2013 and reached 100% of its cash target by April 2014.

St. Peter reports such claims were “materially false or misleading” because the outcomes Cerner touted weren’t representative of the majority of experiences from healthcare systems that adopted Cerner software. In fact, St. Peter claims “healthcare systems were experiencing significant problems with the implementation of Cerner’s purported Integrated Solution, prompting some (besides Agnesian) to take legal action and resulting in Cerner paying millions of dollars in confidential settlements.”

St. Peter also says Cerner misrepresented the integration and scalability of the software by promising a software solution that was a “fully-integrated clinical, operational and financial system” with “revenue cycle solutions through a single platform.” He calls this claim simply untrue. The lawsuit also alleges Cerner’s claims volumes were false, and that the software did not allow Agnesian to “submit claims at normal volume two weeks post go live.” Agnesian says they can’t submit claims at normal volume and St. Peter found that other Cerner customers had similar results to Agnesian.

The lawsuit alleges that Cerner’s promises of use of PWPM coding to save time and money, relative value unit (RVU) capability to customize to client needs, and guarantor billing capability were also false. According to St. Peter, Cerner used “false and misleading demos” that weren’t representative of the software’s capabilities in order to urge them to switch from McKesson. He says, “Cerner knew the representations it made to Agnesian were false at the time or Cerner acted recklessly without caring whether its statements were true or false.” He points out that in the past, Agnesian had rejected Cerner’s software because it didn’t have the features Agnesian needed. “Agnesian would not have gone forward with the Integrated Solution had it known at the time that Cerner could not successfully use the PWPM coding. Rather, Agnesian would have upgraded its McKesson solution or retained a service provider other than Cerner.”

The Stand-Off

While Agnesian is asking for direct, indirect and punitive damages, the lawsuit has been transferred to the U.S. District Court of the Eastern District of Wisconsin. The only statement Cerner has publicly made is that “Cerner disagrees with the allegations and will aggressively defend the case.” Cerner filed a motion to dismiss on September 21, 2017 or, alternatively, a transfer to the U.S. District Court for the Western District of Missouri. The requests are still pending. Cerner’s request for a transfer stems from claims of an improper venue due to an arbitration clause in its contract with Agnesian.

Cerner isn’t a stranger to lawsuits. Previous lawsuits include a Kansas hospital suing the company regarding electronic health record (EHR) installation. A North Dakota health system has also filed a lawsuit claiming that Cerner’s patient accounting software didn’t work as promised. In British Columbia, the Nanaimo Regional General Hospital has complained of a failed EHR rollout and the matter is under investigation by Health Minister Adrian Dix.

Cerner, it should be noted, is not only one of the most widely used health care information companies in the world, it also recently received the prestigious U.S. Department of Veterans Affairs EHR replacement contract after a high-stakes bidding war. Although, even that “win” didn’t come without its controversy. CliniComp International, the loser in the VA EHR contract bid, filed a lawsuit against the U.S. Veterans Affairs Department claiming that the whole process was improper.

Stay tuned, for sure.

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