551-7
Lesson seven
Fraud and abuse
READ:
1. The attached fraud and abuse-materials
WATCH:
1. The following Office of Inspector General videos, False Claims Act, Federal Anti-kickback statute, and Physician Self referral law. Each video lasts about four and one half minutes. All three can be found at:
http://oig.hhs.gov/newsroom/video/2011/heat_modules.asp
False Claims Act a very short history
During the American Civil War the government had limited resources and was buying enormous quantities of goods necessary to pursue the war effort. Unfortunately all too often the government paid for less than they bargained for. In some cases they got less quality then they had bargained for and in some cases they got less quantity than they bargained for. As an example they may have ordered 100 barrels of gunpowder but when the barrels arrived they found that some of the barrels were only 85% full. In other instances they may have bought 20 mules, but when the mules arrived two of the mules were lame and unable to work.
Traditionally the only available response to such problems would be a civil suit based on contract. Congress determined that this was not a sufficient remedy so they enacted the False Claims Act. The statute makes it a crime to submit a bill to the government which is false. In addition to the criminal penalties created by the statute there is a civil penalty section which allows the government to file suit when a false claim is submitted that would allow the government to recover damages equal to three times the amount of the false claim submitted. So as an example if a claim submitted for $100 were deemed to be false the government is entitled to sue and collect $300.
In the roughly 150 years since it was originally put into law, the False Claims Act (FCA) has been used against defense contractors, medical providers and others who do business with the government. Following the 1986 amendments to the law there was a shift to more and more of the cases having a healthcare angle to them. The federal governments role as the largest buyer of healthcare in the United States makes this unsurprising.
FRAUD AND ABUSE
Much has been written about the extent to which fraud has increased the cost of healthcare. Estimates of the percentage of healthcare dollars spent on invoices driven by fraud or abuse range from 3% to 10%. Estimating how much you are overpaying for something or estimating how often you are being cheated is a notoriously inexact art, that can be inflated by self interest. As an example when the Center for Medicare Services goes to Congress and asks for $1.3 Billion to spend on their Health Care Fraud and Abuse Control Unit it helps them sell this expenditure if they say the amount of fraud is huge. Insurance companies don’t get very sympathetic treatment from the general public, but everyone applauds their efforts to root out fraud. When they go to tell you that your premiums are rising it is nice to say if fraud were less premiums could come down. The point is that measuring fraud is a little bit like measuring how many fish you didn’t catch. But, in the final analysis the cost of health care fraud is staggering. With Americans spending $2,700,000,000,000 a year on health care (the number looks a whole scarier with all of the zeros than it does when we calmly write $2.7T), a fraud rate of ½ of one percent would still mean over $13 billion a year of fraud. With numbers like that fraud gets and deserves attention.
As the largest buyer of health care services the federal government has taken the lead in trying to punish and prevent fraud. The federal government relies on a series of statutes to deter those that would consider fraud.
FALSE CLAIMS ACT
Fraud has been around for as long as people have interacted with each other. In 1602 The Court in the English case known as Twynes Case wrote: “Fraud and deceit abound in these days more than in former times”. Whether it was true or not I don’t know, but we do know that the most important of all of the statutes used by the federal government is a statute that has been on the books for 150 years. The False Claims Act was passed by Congress during the American Civil War in response to the fact that the government was spending more money than ever and funds were short, ( a familiar sounding fact pattern). The government was buying barrels of gunpowder, teams of horses, and thousands of uniforms. The problem was that sometimes when they bought 100 pounds of gunpowder they really got 92 pounds, sometimes when they bought a team of 100 horses, but three of the horses were lame, and sometimes when they bought a thousand pairs of wool pants the pants were made out of inferior material. The False claims act was designed to bring an end to cheating in government contracts. This same statute remains the most important of all of the statutes used to stop healthcare fraud.
The statute can be used when someone sends the government a bill for something the government didn’t get, or for something of inferior quality. In the world of Healthcare it can also be used when the work done wasn’t necessary. This is because when a bill is sent to Medicare it must be accompanied by a representation by the provider that the work done was “reasonable and necessary”. If this representation is made and it is not true the bill has been fraudulently submitted and the False Claims Act can come into play. In the world of healthcare the False Claims Act applies to claims made under federally funded programs. This means Medicare program, Medicaid programs, and the Tricare program. Tricare is a federal program designed to provide healthcare to military families and veterans.
The False Claims Act has both civil and criminal provisions. A violation of the False Claims Act can also result in debarment from the federal Medicare and Medicaid programs. When an entity is debarred this means that they can no longer participate; for many providers especially hospitals this is effectively a death sentence. The criminal sanctions include jail time as well as fines. When federal prosecutors decide to pursue the matter as a criminal matter the burden of proof becomes higher and the rules of the trial change. As an example if the case is brought as a civil case it is not necessary to obtain a unanimous jury and it is only necessary to prove the case by the preponderance of the evidence rather than the more difficult criminal standard of beyond a reasonable doubt. As a practical matter federal prosecutors ordinarily pursue the cases as both criminal and civil cases.
The False Claims Act is violated when someone knowingly presents or causes another to present to the federal government a false or fraudulent claim.
There is no limit to the creativity of those that want to cheat the government. Historically the claims have fallen into one of two very broad categories: 1) claims made for services or goods that were never performed; and 2) claims made for services that were performed but were not reasonable and not necessary. In recent years a major push has been made to pursue drug companies that have encouraged doctors to prescribe drugs for purposes that are “off label” meaning not approved for that use by the FDA.
The penalties for violation of the False Claims Act can very quickly become staggering. Each bill submitted to the government that is false is a false claim and each one can result in a fine of $10,957 to $22,393*, plus an amount equal to three times, (treble in legal jargon), the amount of the claim. Suppose if you will a hospital that for bills a patient for a $10 lab test that was not actually performed. If the government can show that this was done “knowingly” the penalty would be $30 , (this is $10 x 3) + as much as $22,393, yielding a staggering penalty of $22,427 for a single $10 invoice. In instances where processes have been faulty and not corrected this can result in very large amounts very
*the od numbers come because the law calls for an annual adjustment for inflation
quickly. One hospital chain was found to have routinely ordered a chest x-ray on all incoming patients whether that was medically appropriate or not. Over the course of a year a small hospital admitting two Medicare patients a day for two years under this scenario would have sent out 730 bad bills to Medicare. If the charge for a chest x-ray is $40 the potential liability for the two years of bad behavior would be (730 x $40 x 3) + (730 x $22,393) for a total potential penalty of $16,412,590. By design the down side risk (over $16,000,000) overwhelms the reward for pursuing an illegal course, $29,2000, (an amount equal to the $40 for each of the 730 patients). The idea is that it is simply not worth it to take the risk.
One of the more interesting features of the False Claims Act is the Qui Tam provision. The Qui Tam provision allows individuals who are aware of fraudulent billing practices to file the suit on behalf of the United States. So rather than picking up the phone and telling the federal prosecutor about the billing fraud that you have discovered someone who discovers a circumstance where the federal government has been fraudulently billed can go to the courthouse and file the law suit against the party that has committed the fraud. The incentive for doing this is in essence a reward system. In addition to feeling good about the patriotic duty that one has done, the party who files the law suit is entitled to a percentage of what is collected on behalf of the government.
The mechanics of Qui Tam cases are unusual but distilled down to their simplest form the suit is filed by a private citizen on behalf of the federal government. The federal government is then given the opportunity to look at the case and decide if they want to step in and take over. If they think it is a good case and do step in, and if there is an eventual recovery, the person who filed the lawsuit is entitled to a fee of 15% to 25% of whatever is collected. If the federal government thinks the case is not a good one the person who files the case can continue and push ahead. If the person who files the case pushes ahead and obtains an award for the federal government the percentage reward the person filing the lawsuit gets is boosted to 25 to30% of whatever is collected. About 75% of the false claims act cases brought in the recent years have been brought by Qui Tam plaintiffs. This system of rewarding “whistleblowers” has produced large rewards for those that step forward to bring the suits. In the suit against Hospital Corporation of America two whistleblowers split a fee of $100 million. In the Bextra case one whistleblower received a fee of $52 million.
One other powerful element of the False Claims Act is the way in which it can be used in conjunction with other fraud and abuse statutes. As an example if a health care provider violates the Anti-kickback laws and transaction is considered tainted, and when a claim is made to Medicare there is a certification that is made that the claim has not been tainted. As a result a violation of the Anti-kickback law ordinarily creates a contemporaneous violation of the False Claims Act.
The Department of Justice’s report for the year 2018 shows the federal government recovered $2.5 Billion by using the false claims act. Of that amount $2.3 Billion were from healthcare cases.
ANTI-KICKBACK STATUTE
The Second major piece of the federal government’s fraud and abuse arsenal is the Anti-kickback statue. Like the False Claims Act the federal Anti-kickback law only applies to kickbacks made to induce federally funded health care. More on the intricate wrinkles of that later.
In many businesses it is permissible and even commonplace to pay a finders fee to someone who brings you business. As an example if a car dealer wanted to, they could pay anyone who sends them a customer $100. This same business model is clearly illegal if the thing being sold is federally funded health care. When the term “federally funded healthcare” in the context of fraud and abuse it refers to Medicare, Medicaid, and Tricare. Medicaid is administered by the individual states, but a large portion of the money comes from the federal government. The other two programs are paid for directly by the federal government.
The Anti-kickback statute makes it a crime to offer, ask for, give or receive a something of value in exchange for past or future referrals of federally funded patients. Some of the cases are obvious on their face. As an example if a surgeon pays a primary care doctor $50 for every Medicare patient that primary care doctor sends to the surgeon this is a clear and easily identifiable kickback that could result in criminal convictions for both the primary care doctor and the surgeon.
Because of the “one purpose test” some of the fact patterns are less obvious. The one purpose test is used by the courts when they review anti-kickback cases. When using the test the courts ask the question was one of the purposes of the money or thing of value paid or offered to induce referrals. If there are multiple legitimate reasons and one corrupt reason, (to induce the referral of a patient), then the transaction is tainted and is illegal.
Any time that there is a transaction between a party who is in a position to refer cases and a party that is in position to receive those referrals it is essential that an analysis be done to determine if the law is being violated. As an example suppose that Dr. X is an orthodontist. Further suppose that she builds an office building big enough for her practice and two tenants.. She has two prospective tenants, the first tenant is someone who sells hearing aids, the second one is a dentist with a large pediatric practice. Both prospective tenants are financially the dentist would like to have the dentist in the building because she believes that the dentist would send some patients to her. As a result she offers the space to the dentist for $800 per month and offers the identically sized suite to the hearing aid seller for $1200 per month. The spread between the two rents makes all kinds of business sense, but would be viewed with great suspicion by the federal government if any of the patients referred from the dentist to the orthodontist were federally funded patients. The analysis is simple. It is unlikely that the hearing aid seller will be referring patients to the orthodontist so the rent being paid by the hearing aid seller is probably fair market value. If $1200 is the fair market value, than the $800 price is less than fair market value, and the difference between the $1200 and the $800 is a kickback that is being given to the dentist every month. It is often said that there is no such thing as a free lunch. The federal government looks at a free lunch and sees a kickback, (more on actual free lunches later). Remember that a benefit can flow to someone who receives more than fair market value, or it can flow to someone who pays less than fair market value. Transactions involving parties who are in a position to refer federally funded patients must be examined with great scrutiny because of the anti-kickback statute.
Suppose that a hospital wants to have a physician as director of the hospital’s heart catheterization program. Suppose they choose the person who has sent them the most heart catheterizations in the previous year, further suppose that the job of director requires about 2 hours a month of work. If the hospital pays that physician $100,000 per year for that job bells should be ringing in your head. The compensation is excessive, it far exceeds the fair market value of the work. In this case it is fair to ask why is the hospital paying more than the fair market value for the doctors time. You can be assured that the federal government would look at that transaction and conclude that the purpose was to reward past referrals or encourage new referrals. Fair market value is a concept that constantly comes up in the analysis of transactions between sources of referrals and those to whom they refer.
There is no prohibition between referral sources and those that they refer patients to having business arrangements with each other, but prudence suggests that those transactions be reviewed carefully to make sure that whatever consideration moves back and forth between the parties be measured against the fair market value.
What about free lunches. Don’t drug companies buy lunches for doctors that might prescribe medicines that are covered under part D of Medicare? Don’t hospitals have a doctors lounge that has free food laid out for the doctors? Can doctors give Christmas presents to other doctors that refer them patients? Before addressing the potential applicability of the de minimis rule it is important to remember that the Anti-kickback statute is a criminal statute and as such it is necessary to prove intent to obtain a conviction. What this means is that for the government to win its case the government must demonstrate that the purpose of the gift or the lunch was to induce referrals. Intent can be a hard thing to prove when the stakes are low. The more money or value being passed between the parties the more likely it is that a jury is going to find the purpose or intent to have been to induce referrals.
The application of the de minimis rule is much more problematic. The de minimis rule is actually a rule that has been engrafted onto the Stark Law. It technically doesn’t apply to the Anti-kickback statute, but many lawyers believe that the de minimis rule sheds light upon the practical bounds of the Anti-kickback law even if it doesn’t technically apply. Tragically the federal government has had multiple opportunities to extend the de minimis rule under the Stark law to the Anti-kickback statute and have thus far refused to make that the law. The de minimis rule provides that small gifts such as lunches can be provided without triggering the Stark Law, (see below), so long as they don’t exceed $300* in value in a year. To make this exception work it is essential that it not have any direct tie to referrals. Similarly there is an incidental staff benefit rule that is part of Stark, but not part of Anti-kickback that allows hospitals to provide members of the medical staff benefits as an incident to being on the staff, such as meals with a value of no more than $35* and an annual aggregate value of no more than $416*. This de minimis exception is by law an exception to the Stark law’s prohibition on certain kinds of financial arrangements, but at this point it cannot be said with certainty that this practical exception is a safe spot under the anti-kickback rule.
Until such time as the government sees fit to attach the de minimis rule and the incidental staff benefit rule to the anti-kickback rule we have are left with the unsettling prospect of giving advice based on our uneasy sense of how far the government wants to go in enforcing the law.
The Anti-kickback statue does have some safe harbors. Safe harbors are types of behavior that government enforcers have identified as being technically in violation of the law, but which they consider to be so tame or so unlikely as to cause a corruption of the system that they have published rules saying these types of behavior may be safely engaged in without fear of prosecution. The exceptions are fairly narrow, but include as an example some payments made by hospitals to doctors to get them to come to underserved areas, and bona fide employment arrangements.
Hot spots that the government has said they are looking at very carefully are medical directorships and space rental arrangements.
*These dollar amounts are subject to periodic adjustments for inflation. The amounts listed are for the year 2019
STARK LAW
The most challenging of all of the fraud and abuse statutes is the Stark law. This law is not a criminal law. All of the penalties are civil. The fines can be significant, and like the False Claims Act and the Anti-kickback statute, a determination that a health care provider has violated this statute can result in debarment from the Medicare program. It is also important to note that a violation of the Stark Law automatically creates a violation of the False Claims Act because bills sent to Medicare include a warranty or representation that the transactions are not tainted by Stark violations. If they are tainted by a Stark Violation, claim is by definition now a false claim.
To understand the Stark law it is first necessary to understand the “evil” that Congress was seeking to address. When the law was passed Congress believed that doctors that referred patients to facilities that they owned or facilities that they had an economic relationship with, were running up the cost of health care. For this reason Congress set out to make such self-referrals illegal except when the transaction fit into narrow and frequently difficult to understand exceptions.
Before getting into the exceptions the general rule must first be understood. Like the two statutes above this rule applies to transactions that are federally funded. In theory if a physician had a practice that never saw anything but privately insured patients or patients who were self pay, the False Claims Act, the Anti-kickback statute, and the Stark law would not be a factor. The number of doctors who can say this are remarkably few. The
general rule under Stark is that a physician may not refer a federally funded patient to a facility for designated health services if that the doctor or one of the doctor’s relatives has an ownership interest in that facility. The term “designated health services” includes:
lab work
imaging work,
durable medical equipment,
home health services
radiation therapy,
hospital services,
out patient drugs,
nutritional services, and
prosthetic devices.
The designated health services are frequently and easily thought of as ancillary services. What we are generally talking about are services for which there is a charge beyond the charge for the services that the physician personally performed.
This general rule is riddled with complicated exceptions, but before dealing with those lets walk through a classic Stark case. Suppose if you will that Dr.X has a patient that Dr. X determines needs an x-ray of the spine. If Dr. X sends that patient to a x-ray facility that Dr. X, or a relative of Dr. X, has an ownership interest in, this is a violation of the Stark law unless the transaction can be parked into one of the exceptions.
Unless the transaction could be parked within an exception the following scenarios would be illegal under Stark:
1. Dr. W sends his Medicare patients lab work to a lab that Dr.W’s wife owns.
2. Dr. X sends his Medicaid patient to a durable medical equipment provider that Dr. X and three other doctors jointly own.
3. Dr. Z is a member of the Alpha medical group as a group they buy an MRI machine and send their federally funded patients to have MRI s on that machine, at the end of the year they split the profits from the MRI department based on how many patients each doctor sent to the machine for tests.
In each of the scenarios the doctor or a family member is making money off the
referral that the doctor has made of a designated health service.
Like many things in the law the rule is easy to understand and learn it is knowledge of the exceptions that is difficult. Most of the exceptions that have been created because the “evil” that the statute is intended to eradicate is either not present or is out weighed by some desirable consequence that the rule would preclude.
The first exception is the publicly traded entity exception. This rule says that if a doctor owns stock in a large publicly traded company that provides one of these services that doctor may still make the referral. As an example Lab Corp is a large national company that provides lab services for hundreds of hospitals and thousands of doctors nationwide. If a doctor sent a patient’s lab work to Lab Corp this would not violate the law. The underlying thinking is that the benefit to the doctor of adding one more $10 lab test to the volume of a company that does millions of lab tests a year and has tens of thousands of shareholders is so diluted that the it is hard to imagine that the doctor is trying to bump up his personal profits by sending the test to Lab Corp.
The second exception is the rural provider exception. This exception exempts from the statute doctors who practice in rural settings and see patients who live in those rural areas. The definition of rural area leaves out most of the doctors practicing in the United States. The idea behind the exception is that it would be hard to find investors that would want to build an imaging center or a lab in a rural area, and that cutting off local doctors who might be potential investors would in too many instances leave rural communities with no one willing to invest and care for the local population. Like so many things with the Stark law the definition of rural is not what you might think. As an example, Edmonson County Kentucky is Northeast of Bowling Green. The county has less than 13,000 people, the largest city in the county has less than 1000 people and that county is for the purposes of Stark not considered rural. At the same time the county to the east of Bowling Green, Barren County which has 42,000 people and has as its largest city a town of 14,000 people is eligible for the rural provider exception. In addition to the almost irrational definition of what is and what isn’t rural the government has cautioned those that rely on the rural provider exception that the status of an area as rural or not rural is subject to change especially in those cases where a county just barely makes it in under the definition. Populations change so do the designations of what counties are rural and what counties are not.
The third exception is the bona fide employment agreement exception. This exception focuses on the fact that Stark is not just about ownership interests it also prohibits sending patients who need designated services to entities that the referring doctor has a financial relationship with. As an example a doctor may not own a lab, but if he or she has lent them significant amounts of money this would be a financial relationship. (This makes sense if one again focuses on the perceived evil, a doctor who has lent large sums of money to an independent lab and is watching that lab fail economically might in that case be tempted to send to that lab patients in need of lab work or even worse patient who don’t need lab work. This self interest is exactly what Stark is all about). Because financial relationships are covered by Stark and because an employee employer relationship would certainly be considered a financial relationship the law carved out an exception and said if the employment relationship is bona fide, meaning based on fair market value, that relationship will not be considered a Stark problem. Once again an example may make this clear. Dr.X works part time at an independent lab. Dr. X could send patients to that lab so long as the employment agreement between the lab and Dr. X is a bona fide employment relationship.
The fourth exception exists in those rare instances where a sole practitioner who provides at their offices designated services may self refer. At first glance this seems odd, but the rationale is that this rare circumstance means that the doctor is really running this designated service as a part of what they do. This is not an investment somewhere else. This is something that is on the site of the sole practitioner’s primary operation and is personally supervised by the doctor. As an example a doctor who is a sole practitioner can order chest x-rays on patients they see even though the x-ray machine is owned by the doctor. This exception does not apply if the machine is at some remote location or if the doctor is not personally supervising the designated service. This again gets to the point of Stark, the law is not against doctors performing services and owning equipment the law is instead against this being some kind of more passive investment that can perform well if the doctor refers to himself or herself.
The de minimis exception outlined above in the discussion on the Anti-kickback law is also an exception. The de minimis exception relates to the part of Stark that prohibits referrals of designated health services to someone with whom the doctor has a “financial arrangement”. Because the definition of “financial arrangement” is so broad a de minimis exception had to be created. Otherwise free parking given to doctors or an apple provided to a doctor by a hospital who receives patients from the doctor would ensnare the parties. The details of the de minimis exception appear above in the section on the Anti-kickback rule.
The final Stark exception is group practice exception. It is remarkably
complicated and the source of as much confusion as anything in healthcare law. The law says that doctors may band together and become a group and if they are a group the group may deliver unto their patients designated health services without violating the law. This seems to totally gut the law until you read the law carefully. Like the rural provider exception what may be the commonly held definition of things is not necessarily the Stark definition of things. Stark provides that not every collection of doctors is a group. To qualify as a group under the Stark law and to have access to the group practice exception a group must be structured in ways and behave in ways that virtually no group did prior to the passage of the law. To be a Stark group the doctors must:
1. have a common governance system. This is not difficult, but it does rule out people who simply share space or people who just happen to be in the same building.
2. bill under the group name instead of under individual names, this simply means that the money goes into one pot. Again not difficult for most groups, but it rules out loose confederations of doctors.
3. now for the tough one. The group must distribute the profit from the ancillary services in a way that does not directly take in to consideration the value or volume of referrals that individual physicians have sent to that ancillary service.
Groups that carefully structure governance, billing procedures and income distribution rules can self refer and still be compliant with Stark.
Point number three above means that a group could take the profits from a lab they own and split it up at the end of the year among the members of the group if the doctors distribute that money equally or in some other way that is not directly tied to the volume or value of referrals, (this assumes that the governance requirements and billing rule have been met). If a group of doctors owns a designated health service and if they refer to it there will always be at least an indirect connection between the level of referrals and the profits that are distributed to the owners. As an example ordering more tests puts more money in the pot to be distributed. The authors of Stark didn’t like this, but they accepted this so long as the connection wasn’t direct. An example of a direct and therefore illegal system of distributing designated services income would be a system that counts how many patients each doctor sends to the lab and then uses that to calculate the pro rata share of profits to distribute to each doctor.
Because of the Stark Law it is extremely important that any group that owns a lab, imaging equipment or any other source of designated services income pay particular attention to the Stark law.
Because of the penalties associated with the Stark law it is important that any physician, and this includes sole practitioners, who have a financial relationship with any individual or entity that he or she refers patients to for designated services pay particular attention to this law. Remember that Stark is not always about common sense.
I have asked you to consider: “When is too much care fraud?, is there room for regional variation? And if Dr. X orders more tests than Dr. Y how do we know if X ordered too many or if Y ordered too few? Which is worse? Which is more expensive—in the short run, in the long run?” Those questions naturally lead to controversial Kentucky case. That was covered by the Wall Street Journal with this headline.
A second Opinion becomes a guilty verdict.
Those pesky copyright laws keep me from simply copying articles and including them in my materials. As a sometime author I want copyright laws to protect the short stories I write, but as an instructor I have to either get the copyright holders permission, (time consuming and frequently overpriced), or do a work around. This is one of those workarounds.
Click on the link which follows. It is from the law firm Baker Botts, who with 725 lawyers spread out over 14 cities around the world, can afford to pay the necessary royalty to the Wall Street Journal. Once on the Baker Botts page site listed below look for the link that says “for a copy of this article click the link below”. Click it and it should bring up a reprint from the Wall Street Journal. That article, “A second opinion becomes a guilty verdict” appeared in the December 28, 2018 edition of the Wall Street Journal. Once again thank you Baker Botts.
Before reading the article, it will be useful to know that in federal court system a jury verdict of guilty can be overruled by the judge if the judge believes the evidence was insufficient to sustain a guilty verdict. The federal rules allow the judge to make that decision after the jury has found the defendant guilty. In the case discussed the jury found the defendant doctor guilty of Medicare fraud, the trial court judge overruled the jury, the judge concluding that the evidence was insufficient. The federal prosecutor appealed to the Sixth Circuit Court of Appeals which hears appeals from the federal trial courts in Ohio, Michigan, Kentucky and Tennessee. As you will see the Court of Appeals found the trial judge erred and the jury verdict of guilty should have been allowed to stand.
http://www.bakerbotts.com/insights/publications/2018/12/a-second-opinion-becomes-a-guilty-verdict
After reading the article please read the following press release issued by the federal government in March of 2019:
Ashland Cardiologist Sentenced to 60 Months for Health Care Fraud and False Statements
COVINGTON, Ky. – Late yesterday, Ashland cardiologist Dr. Richard E. Paulus was sentenced, by U.S. District Court Judge David L. Bunning, to serve 60 months in federal prison for health care fraud and false statements. In October 2016, a federal jury convicted Paulus, 71, of one count of health care fraud and ten counts of making false statements relating to health care matters, after hearing evidence that Paulus defrauded Medicare, Medicaid, and private insurers, by implanting medically unnecessary stents in his patients and falsifying the degree of stenosis in their medical records. After the trial, the district court granted Paulus’s motion for an acquittal. The Sixth Circuit Court of Appeals later reversed that decision, on June 25, 2018, and reinstated Dr. Paulus’s conviction, resulting in his formal sentencing.
According to evidence presented at trial, from 2008 to 2013, Paulus performed invasive heart procedures on patients who did not need them. In order to justify these unnecessary procedures, Paulus falsified patients’ medical records, exaggerating their medical condition and making it appear that the heart procedures were necessary and qualified for payment. From 2006 to 2012, Paulus billed Medicare for more heart procedures than any other cardiologist in Kentucky, and was fifth in the nation in terms of amount paid by Medicare for stent procedures.
Paulus’s sentence was based on stents he placed in seventy-one patients whose blockages were significantly less than 70 percent, where Paulus recorded them at or near 70 percent in the records, in order to be paid for the procedures. These medically unnecessary procedures were performed during his tenure at King’s Daughters Medical Center in Ashland.
In addition to his term of imprisonment, Paulus must pay $1.1 million in restitution to Medicare, Medicaid, and other private insurers who were financial victims of his scheme. Under federal law, Paulus must serve 85 percent of his prison sentence and will be under the supervision of the U.S. Probation Office for three years following release.
Robert M. Duncan, Jr., United States Attorney for the Eastern District of Kentucky, Derrick L. Jackson, Special Agent in Charge for the U.S. Department of Health and Human Services, Office of Inspector General, Atlanta Division; James Robert Brown, Jr., Special Agent in Charge, Federal Bureau of Investigation, Louisville Division, and Andy Beshear, Kentucky Attorney General, jointly announced the sentence.
The investigation was conducted by FBI and the Department of Health and Human Services, and the Kentucky Office of Attorney General-Medicaid Fraud and Abuse Control Unit. Former Assistant United States Attorney Andrew Sparks and Assistant United States Attorney Kate Smith prosecuted the case on behalf of the federal government.
Consider the following Kickback hypotheticals.
Yellowstone Hospital is competing with neighboring Hospital of the Tetons. They are in the same market, comparably sized and both see a large number of Medicare patients. Most of the doctors in town have privileges at both hospitals. Yellowstone Hospital has never been as busy as Hospital of the Tetons. Yellowstone determines that the key to increasing their profitability is to increase the number of surgeries that are performed at the hospital. Among the surgeons in the community the two busiest are Dr. Cody and Dr. West. Yellowstone reaches out to Dr. West and Dr. Cody and asks them why do you do more surgery at Hospital of the Tetons and what do we have to do to get your business?
Dr. West responds by saying: “It’s a lot easier to park at HT, the facility at HT is attractive while quite honestly who ever is in charge of aesthetics at Yellowstone should be shot. The other thing is that it seems like you guys are always understaffed in the nursing department.”
Dr. Cody responds by saying: “I’ve always liked your hospital, but HT was good enough to hire my son when he couldn’t find a job anywhere else, he’s working over at HT now doing mowing lawns in the summer and shoveling snow in the winter, I appreciate what they have done for him and I feel like I owe them”
Yellowstone’s board of directors receives the report with the comments of the two doctors and immediately takes the following actions;
1. They spend $300,000 to buy three houses that are next to the hospital. They are bulldozed to make more parking, even though there is already adequate parking. The new lots will be closer to the surgery wing of the hospital than the existing lots.
2. They hire a world renowned designer from Argentina to come and redecorate the hospital. As a consequence what had been a makeover 2 years earlier is torn out and replaced with new materials at a cost of $600,000. The new look is sharp and modern, but no more functional than the old look.
3. At an annual cost of $1,000,000 they doubled the number of nurses on the surgical floor. This created staffing on those floors that was double the national average for surgical floors.
4. They approached Dr. Cody’s son who was making $8.00/hour as a landscape employee and offered him $16.00/hour to come to do the same work at Yellowstone.
As a consequence of the changes made at Yellowstone Dr. West and Dr. Cody both shift all of their surgeries to Yellowstone. A portion of the work referred to Yellowstone by the doctors is paid for by Medicare.
In the hypothetical items 1,2, and 3 have a very high cost to the hospital, but do not constitute a violation of any of the federal Fraud Statutes. Item 4 above would be a violation of the anti-kickback statute because it involves paying above market value for services to the family member of a referral source for the purpose of inducing the referral of federally funded patients.
Real cases with real money
And now real cases instead of hypotheticals. The link below lists the top false claims cases for the first half of 2014. Although the list is now several years old the list is notable in that two of the top cases are from Kentucky, and a third is based on activities across the river from Kentucky in Cincinnati. Many people foolishly believe that the federal government will never get to the small towns of America. Some of those who thought so have ended up paying large fines others have ended up in jail. Case number 5 on the list should look familiar to you.
Much of the action in the False claims world touches healthcare, after all this is what the federal government spends $1.2 Trillion on in 2019. Or as I prefer to see the number,
$1,200,000,000,000. Look at the number of health cases in one four month period in 2018. https://www.beckershospitalreview.com/legal-regulatory-issues/15-false-claims-act-settlements-over-1-5m.html
On an annual basis the federal government publishes a report showing how much money they took in during the year in False Claims Act recoveries. What follows is the section of that report dealing with healthcare fraud cases completed in fiscal 2018.
The Department investigates and resolves matters involving a wide array of health care providers, goods, and services. The Department’s health care fraud enforcement efforts recover money for federal programs that fund health care for our nation’s most vulnerable and deserving citizens, such as Medicare, Medicaid, and TRICARE. But just as important, the Department’s vigorous pursuit of health care fraud prevents billions more in losses by deterring those who might otherwise try to cheat the system for their own gain.
The largest recoveries involving the health care industry this past year came from the drug and medical device industry. In one matter, AmerisourceBergen Corporation and certain of its subsidiaries paid $625 million to resolve allegations that they sought to circumvent important safeguards intended to preserve the integrity of the nation’s drug supply and profit from the repackaging of certain drugs supplied to cancer-stricken patients. Of that amount, $581.8 million was paid to the federal government and $43.2 million was paid to state Medicaid programs. . . .
In another matter, the medical device manufacturer Alere paid $33.2 million to resolve allegations that it sold a materially unreliable testing device that was intended to aid clinicians in the diagnosis of drug overdoses, acute coronary syndrome and other serious conditions. Of the $33.2 million paid by Alere, $28.4 million was returned to the federal government and $4.8 million was returned to state Medicaid program. . . .
The Department has investigated efforts by drug manufacturers to facilitate increases in drug prices by funding the co-payments of Medicare patients. Congress included co-pay requirements in the Medicare program, in part, to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs. This year, pharmaceutical company United Therapeutics Corporation, a seller of pulmonary arterial hypertension (PAH) drugs, paid $210 million to resolve allegations that it used a foundation as an illegal conduit to pay the co-pay obligations of thousands of Medicare patients taking its PAH drugs. In addition, the drug manufacturer Pfizer paid approximately $23.85 million to resolve claims that it used a foundation as a conduit to pay the co-pays of Medicare patients taking Pfizer drugs. The government alleged that Pfizer raised the price of one of those drugs by 40 percent in just three months. . . .
The Department also reported substantial recoveries from other health care providers. In a matter that came to light in part by a voluntary disclosure by the company to the Department, HealthCare Partners Holdings LLC (HCP), doing business as DaVita Medical Holdings LLC, paid $270 million to resolve its liability for providing inaccurate information that caused Medicare Advantage Organizations (MAOs) to receive inflated Medicare payments. DaVita acquired HCP, a large California-based independent physician association, in 2012 and disclosed to the government various improper practices that were instituted by HCP. In addition, this settlement resolved whistleblower allegations that HCP engaged in “one-way” chart reviews in which it scoured its patients’ medical records to find additional diagnoses that enabled managed care plans to obtain added revenue from the Medicare program. At the same time, however, it ignored inaccurate diagnosis codes revealed by its reviews that, if deleted, would have decreased Medicare reimbursement or required the plans to repay money to Medicare. . . .
In a matter that concluded in both a civil recovery and criminal plea, the former hospital chain Health Management Associates (HMA) paid over $216 million to resolve civil allegations that it billed government health care programs for more-costly inpatient services that should have been billed as observation or out-patient services, paid illegal remuneration to physicians in return for patient referrals to HMA hospitals, and inflated claims for emergency department facility fees. In addition to these civil recoveries, HMA’s subsidiary, Carlisle HMA Inc., pleaded guilty to one count of conspiracy to commit health care fraud arising from illegal conduct designed to aggressively increase admissions to the hospital and paid a $35 million monetary penalty.
In another matter, William Beaumont Hospital, a regional hospital system based in the Detroit, Michigan area, paid $84.5 million to resolve allegations of improper relationships with eight referring physicians intended to induce patient referrals. https://www.justice.gov/opa/pr/detroit-area-hospital-system-pay-845-million-settle-false-claims-act-allegations-arising .
As some of the matters described illustrate, the Department continued to place great importance on enforcing the safeguards contained within the Anti-Kickback Statute (AKS). This law was enacted to ensure that clinical decisions and medical services are provided to patients based on their medical needs and not on the improper financial considerations of providers. Congress has made clear that claims submitted to federal health care programs in violation of the AKS are “false” claims for purposes of the False Claims Act.
False Claims Act – the top ten cases.
3...The top ten false claims act cases of all time.
1. Glaxo Smith Kline $2,000,000,000 (yes that was billion) 2012
2.Bank of America $1,850,000,000 2014
3.Johnson and Johnson $1,720,000,000 2013
4. Pfizer $1,000,000,000 2009
5. Tenet Healthcare $900,000,000 2006
6. Abbott Labs $1,000,000,000 2012
7. Eli Lilly $ 800,000,000 2009
8. HCA $ 745,000,000 2000
9. Merck $650,000,000 2008
10. HCA $641,000,000 2003
You will note that with the exception of the Bank of America settlement everyone of the top 10 is either a drug company or a hospital chain. It should also be noted that the many states have enacted their own versions of the False Claims Act that may kick in when the states are paying for services such as they usually do under the Medicaid program. Also worth noting the individuals that filed the Qui Tam case on behalf of the government in the Glaxo Smith Kline case received a fee of $300,000,000
If the giant awards are like earthquakes we are due for a big one.
How do the fines get so high.?
Part of it is the triple damages provision of the statute, and part of it is the statutory penalty. In addition to triple damages, (which for some reason lawyers always refer to by the term “treble” damages), the government is entitled to statutory damages. The statutory damages range from $10,957 to $22,363 per false claim.
Suppose that a hospital chain had in place a program that called for the every patient who was admitted for pneumonia to have an inexpensive, but unnecessary lab test like a calcium test. When those bills get sent to Medicare there is what is referred to as an attestation. This means that the entity sending in the bill makes a warranty to the government that the bills being sent were “reasonable and necessary”. Suppose that the hospital chain did this 500 times before they realized the mistake and quit billing for the unnecessary lab test. If the lab test cost $4.00 watch what happens with the damages.
$4.00 x 500 x 3 = $6,000
$22,363 x 500 = $11,181,500
TOTAL $11,187,500 in damages.
You can quickly see how damages can get very high very fast.
Assignment for lesson seven
Address either numbers 1 below; or numbers 2 and 3
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1.Rigid rules defining outliers as criminals are a very useful tool for prosecutors in pursuing violations of the False Claims Act. Do such rules serve society well or do they hurt society. Explain the reasons for your decision.
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2.In the Yellowstone Hospital kickback hypothetical (see above) why is the one kind of behavior criminalized and the other transaction not criminalized? Does the distinction make sense.?
3.Who are the victims of the crime and in what way are they hurt?