BILL COPELAND’S HEALTH LAW INSIGHTS

During the past few months, the United States Department of Justice seems to have accelerated enforcement actions under the federal Anti-Kickback Statute. These actions involve not only ancillary providers, but hospitals and physicians as well.

The Medicare/Medicaid Fraud and Abuse Anti-Kickback Statute (the "Statute") prohibits anyone from either paying or being paid money or other remuneration in exchange for the referral of patients for goods or services covered by federally funded health care programs such as Medicare.

The prohibited activity is a two way street, and both the payer and the receiver are equally culpable. The definition of remuneration, however, is a gray area. While the Statute provides that remuneration includes "any kickback, bribe or rebate," it does not define these terms. Further, there is a prohibition against remuneration "directly or indirectly, overtly or covertly, in cash or in kind."

Clearly, direct cash payments in exchange for referrals violate the Statute. Many of these enforcement actions involve direct cash payments. However, some involve "indirect payments” which are less obvious. Let us review some of these cases, starting with a large Ohio settlement.

University Hospitals of Cleveland agreed to settle for $13,880,000 a lawsuit brought under the federal False Claims Act by a physician on the hospital’s staff. The lawsuit alleged that University Hospitals Health System and University Hospitals of Cleveland, Inc. entered into illegal financial arrangements with physicians practicing at the hospital to induce referrals. The suit was and was unsealed on August 18, 2006. According to the United States Attorney for the Northern District of Ohio, the physician who sued, Dr. Thomas J. Kirby, will receive $1,500,000, as well as payment of his attorneys’ fees and costs, as his award for exposing the fraud.

In addition to the payment, the hospital has agreed to enter into a corporate integrity agreement that the Department of Health and Human Services Office of the Inspector General will monitor. The hospital did not admit any wrongdoing.¹

Turning to criminal prosecution under the Statute, two Texas women who acted as paid recruiters for a durable medical equipment ("DME") company were sentenced in federal court for receiving kickbacks to refer Medicare who had no medical reason for beneficiaries to the company for wheelchairs and motorized scooters. They told Medicare recipients that Medicare was giving away wheelchairs and that the patient did not need to see a physician to be eligible. One was sentenced to 15 months in federal prison, 3 years supervised release, and restitution of $2,276,876.50; the other to 3 years of supervised release and restitution of $10,311.00.

The DME company owner who paid the kickbacks was convicted of 11 counts of healthcare fraud and one count of conspiracy. When sentenced, he could get up to 10 years federal imprisonment, a fine of $250,000, and three years of supervised release.²

In Florida, a Miami physician received 46 months in federal prison, 3 years of supervised release, and restitution of $2,357,723. She would provide bogus prescriptions after a cursory examination of patients brought to her office by DME companies and pharmacies. The companies or pharmacies would them provide the specified equipment or drugs and bill Medicare. The physician received cash payment from the companies or pharmacies in exchange for the bogus prescription.³

Also in the Southern District of Florida, the grand jury indicted a pharmacy manager on six counts of violating the Statute and one count of conspiring to violate the Statute. According to the indictment, defendant paid illegal kickbacks to numerous medical equipment owners in return for their referral to his pharmacy. He would then deliver respiratory medications to the patients and bill Medicare. He kicked back about 50 percent of the Medicare payment to the DME owners as a referral fee.⁴

In another motorized wheelchair case, a jury convicted the owner of a DME company in Kansas City, Missouri of health care fraud as well as illegally structuring currency transactions and money laundering. According to the United States Attorney’s press release, the defendant "bribed two physicians to falsely verify that Medicare beneficiaries were so physically disabled that they needed motorized wheelchairs." He then provided a less expensive form of scooter or, in some cases, nothing at all. He would then bill Medicare approximately $4,000 for the more expensive chair. When sentenced, he is subject to 145 years in federal prison without parole, a fine of $6 million, and restitution. Several other DME owners involved in the scheme have pleaded guilty and are awaiting sentencing.

The two physicians involved have pleaded guilty and surrendered their medical licenses. They now await sentencing and could face up to ten years in federal prison, fines and restitution.⁵

In New Jersey, the state court sentenced the owners and operators of two residential health care facilities to three years supervised release, fines and restitution for accepting kickbacks from a pharmacy owner. The pharmacist received seven years in the state prison and $1.1 million in restitution.⁶

Most of these cases involve outright payments to induce referrals, obviously in violation of the Statute. However, let us consider the case of University Hospitals. This case involves a suspect joint venture and falls into that grey area of indirect remuneration. As I stated above, indirect and/or intangible payments are also highly suspect.

Before providers of medical services, goods or equipment, who make referrals to each other, enter into a joint venture, even as innocuous as a property or equipment lease, the transaction should be reviewed carefully by an attorney who practices in the healthcare fraud and abuse area. Even where the transaction makes good business sense, and would be completely above board in a non-healthcare setting, the broad net casts by the Statute can snare the unsuspecting participants. The resulting fines and criminal penalties are so severe that it is unwise not to be sure that you are not in conflict with its provisions.

PEER REVIEW DEVELOPMENTS

Next month, I am going to switch gears and discuss Poliner, a credentialing case out of the United States District Court for the Northern District of Texas.7 As you may be aware, in March 2006, a jury awarded $366 million to a Dallas physician in a contested peer review case that lasted over seven years. On September 18, 2006, the federal court, while upholding the majority of the earlier order upholding the jury verdict, reduced the damages to $22,542,106.20.⁸ The case is important, not for its large damage award, but because it deals with many of the issues commonly found in credentialing cases, such as confidentiality of peer review records, the Health Care Quality Improvement Act immunity, state peer review statutes granting immunity, and damages.

I will also discuss some other peer review cases, including Bakare v. Pinnacle Health Hosps. Inc.,⁹ a case from the United States District Court in Pennsylvania finding hospital has HCQIA immunity from suspended physician’s antitrust and breach of contract claims.

¹ News Release, United States Attorney, Northern District of Ohio, August 18, 2006,
http://www.usdoj.gov/usao/oho/news/18August2006.htm
² News Release, United States Attorney, Western District of Louisiana, August 25, 2006,
http://www.usdoj.gov/usao/law
³ News Release, United States Attorney, Southern District of Florida, August 25, 2006,
http://www.usdoj.gov/usao/fls/PressReleases/060825-03.html
⁴ News Release, United States Attorney, Southern District of Florida, September 12, 2006,
http://www.usdoj.gov/usao/fls/PressReleases/060912-01.html
⁵ News Release, United States Attorney, Western District of Missouri, August 30, 2006,
http://www.usdoj.gov/usao/mow/news2006/igbokwe.conv.htm
⁶ News Release, Office of the Attorney General, State of New Jersey, September 6, 2006,
http://www.nj.gov/oag/newsreleases06/pr20060906a.html
⁷ Poliner v. Texas Health Systems, 3:00-cv-01007, 2006 U.S. Dist. LEXIS 13125 (N.D. Tex. Mar. 27, 2006.
⁸ Poliner v. Texas Health Systems, 3:00-cv-01007, 2006 U.S. Dist. LEXIS 13125 (N.D. Tex. Sept. 18, 2006.
⁹ No. 1:03-CV-1098 (M.D. Pa. Aug. 24, 2006).

Copyright 2006 William Mack Copeland. You can reprint any part of this newsletter by providing the following acknowledgement: "Reprinted with permission. William Mack Copeland, www.wmcopeland.com."