A federal court has dismissed a case against a rehabilitation hospital owned by the University of Maryland Medical System that was accused of diagnosing patients with a rare malnutrition-related disorder to collect bigger Medicare and Medicaid payments.

The federal government filed a $8.1 million lawsuit in U.S. District Court against Kernan Hospital last year, saying the West Baltimore facility manipulated its computer system to show that patients suffered from kwashiorkor, a disease most typically found in impoverished regions.

Judge Richard D. Bennett wrote in an opinion this week that his decision mostly relied on whether there was enough evidence that Kernan violated the False Claims Act, which makes it illegal to fraudulently receive a payment from the federal government.

Bennett said the government's case did not achieve one primary stipulation of the law: proving that the government had to pay out money or didn't get money it was due because of the fraud.

The government did not provide evidence to show that the diagnoses it said were fraudulent were submitted to the government for reimbursement, Bennett wrote in his opinion.

The government "utterly fails to link this scheme with any claims actually submitted," he wrote.

"The complaint generally alleges that Kernan developed a scheme to increase government funding, engaged in the fraudulent upcoding of kwashiorkor and malnutrition diagnoses, but is silent as to the next step or link in the False Claims Act liability mechanism — namely that those fraudulent diagnoses made their way to cost reports," he added.

The medical system's spokeswoman, Mary Lynn Carver, said in an email Friday that executives were pleased with the verdict.

But the judge did not rule on the legitimacy of the diagnoses, only that the government did not prove it lost money, so the matter may not be closed. The U.S. attorney's office said Friday it was considering whether to appeal or file an amended complaint, but it declined to comment further.

Carver did not answer questions about whether she thought the case could stand up on appeal or amendment.

The increase in kwashiorkor cases at Kernan came as the state Health Services Cost Review Commission, which sets hospital rates in Maryland, changed its billing system in 2005, tying higher reimbursements to more severe secondary diseases.

This increased the complexity of the patient's case mix, which qualified the hospital for higher reimbursements, the government claimed.

The hospital's cases of kwashiorkor as a secondary diagnosis grew a hundredfold, from three in 2005 to 358 in 2008, according to data from the Health Services Cost Review Commission.

One Kernan patient diagnosed with kwashiorkor was 5 feet 2 inches tall and weighed between 170 and 200 pounds, according to the federal complaint. Doctors told the patient to lose weight.

The disease, which is caused by a protein deficiency in the diet, is most commonly seen in children, who develop swollen bellies and feet. It is rarely seen in the United States.

The government claimed that Kernan encouraged physicians to use the secondary diagnosis and that the medical system fraudulently collected $1.6 million from federal health programs.

The University of Maryland Medical System had denied the charges from the beginning.

The medical system's CEO, Robert Chrencik, said earlier this year that kwashiorkor shares a computer coding with another nutritional disorder, "protein deficiency," which some Kernan patients do have.

"We're not coding things that weren't coded before," Chrencik said then. "It looked like we started coding nutritional deficits. It looked like we had this huge uptick, but in reality they had always been there."

There are a variety of reasons why patients at Kernan may be classified with malnutrition. The diagnosis is used both for low weight as well as for nutritional deficiencies such as protein deficiency determined by blood work.