Retina Institute Settles with Government for $6.65 Million Over Allegations of False Claims Act Violations

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On October 2, 2019, Retina Institute of California Medical Group (RIC), along with its former CEO and several physicians, agreed to pay $6.65 million to resolve allegations of False Claims Act violations. RIC is a medical partnership of ophthalmologists with multiple locations in California. The medical group was alleged to have defrauded government health care programs by billing for unnecessary exams, improperly waiving Medicare copayments, and other regulatory violations. Eric Young, managing partner of McEldrew Young Purtell’s whistleblower practice, worked on the case with attorneys from the law firm of Berger Montague.

The case, United States ex rel. Smith and Rogers v. Chang, No. 13-CV-3772-DMG (C.D. Cal.), was filed in May 2013. The complaint was unsealed in July 2016 after the government elected not to intervene in the case. The two Relators were both former employees of RIC who provided substantial documentation to support allegations in the complaint. Bobette Smith was the CEO of the practice group from June 2012 to January 2013, and Susan Rogers worked as the manager of the billing department over the same six month period. The allegations in the complaint were based on information discovered by the Relators during the course of their employment, as well as their personal observations and investigation into what they believed to be fraud against the federal government and the State of California.

Routine Waiver of Medicare Deductibles and Copayments Can Result in False Claims Act Violations

Medical service providers are required to collect copayments and deductibles from all Medicare beneficiaries, except in specific cases of financial hardship. Any incentive that generates improper referrals, particularly where a medical service provider offers free or discounted items or services to Medicare beneficiaries, or promotes overutilization of medical services can constitute the submission of false claims to the federal government. Thus, a service provider that routinely waives cost-sharing amounts for Medicare beneficiaries, but bills Medicare for the full allowable amount, can be face substantial penalties under the False Claims Act.

The Office of Inspector General for the Department of Health and Human Services set forth detailed guidance on this issue back in 1994:

“Routine waiver of deductibles and copayments by charge-based providers, practitioners or suppliers is unlawful because it results in (1) false claims, (2) violations of the anti-kickback statute, and (3) excessive utilization of items and services paid for by Medicare.

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A provider, practitioner or supplier who routinely waives Medicare copayments or deductibles is misstating its actual charge. For example, if a supplier claims that its charge for a piece of equipment is $100, but routinely waives the copayment, the actual charge is $80. Medicare should be paying 80 percent of $80 (or $64), rather than 80 percent of $100 (or $80). As a result of the supplier’s misrepresentation, the Medicare program is paying $16 more than it should for this item.

In certain cases, a provider, practitioner or supplier who routinely waives Medicare copayments or deductibles also could be held liable under the Medicare and Medicaid anti-kickback statute . . . When providers, practitioners or suppliers forgive financial obligations for reasons other than genuine financial hardship of the particular patient, they may be unlawfully inducing that patient to purchase items or services from them.

One important exception to the prohibition against waiving copayments and deductibles is that providers, practitioners or suppliers may forgive the copayment in consideration of a particular patient’s financial hardship. This hardship exception, however, must not be used routinely; it should be used occasionally to address the special financial needs of a particular patient. Except in such special cases, a good faith effort to collect deductibles and copayments must be made. Otherwise, claims submitted to Medicare may violate the statutes discussed above and other provisions of the law.”

Retina Institute’s Alleged Systematic Waiver of Medicare Copayments and Deductibles

According the allegations in the complaint, the defendants attempted to induce referrals by routinely waiving Medicare copayments and deductibles for patients without properly investigating or documenting their financial status. In order to disguise the practice, the defendants sometimes allegedly had patients complete a financial hardship form; however, most deductible and copayment waivers were allegedly granted without the completed form. On those limited occasions when the form was used, patients often signed the forms, allegedly without providing any information regarding their financial status.

A ophthalmologist who maintained a general practice near one of RIC’s locations allegedly told an RIC ophthalmologist he expected that copays for Medicare patients to be waived, and that he would not refer patients if copays were not waived. The Relators had records which identified the patients who were referred to RIC by this particular ophthalmologist. The documents showed the receipts for those patients amounted to only 80% of the Medicare allowable amount. Without consideration of financial hardship or any documents to verify such designations, the copayments for these patients were allegedly waived as a matter of course.

Relators independently investigated several patients whose records indicated a financial hardship waiver. They discovered that some of those patients lived in expensive homes, including one residence valued in the millions of dollars.

The Relators each separately explained to Dr. Tom Chang, one of RIC’s physician/owners, that the policy and practice of routinely waiving Medicare copays and deductibles did not comply with Medicare regulations. Dr. Chang allegedly responded, on more than one occasion, that he would prefer to continue using the financial hardship waivers to ensure that RCI did not lose any referrals or patients. Dr. Chang allegedly said he would simply pay the fines if Medicare ever learned about the practice. In light of his former position as a Medicare compliance officer for the Department of Ophthalmology at the University of Southern California School of Medicine, Dr. Chang’s alleged comments and lack of concern are quite noteworthy.

Relator Smith made several attempts to advise RIC’s partners about changing the manner in which financial hardship cases were handled. She even made a presentation to the RIC senior management team and Executive Committee warning of the potential adverse consequences of continuing with the current practice. During the presentation, Dr. Chang allegedly repeated that he would pay the fines if Medicare ever discovered the way in which RCI handled the waivers.

The History and Purpose of the Anti-Kickback Statute

The Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b) (“AKS”), prohibits any person or entity from offering, making, soliciting, or accepting remuneration, in cash or in kind, directly or indirectly, to induce or reward any person for purchasing, ordering, or recommending or arranging for the purchasing or ordering of federally-funded medical goods or services. The statute was enacted in 1972 to address concerns that remuneration provided to those who influence health care decisions would result in services that were medically unnecessary, of poor quality, or harmful to a vulnerable patient population. Congress therefore passed the AKS to prohibit the payment of kickbacks in any form. The statute was amended in 1977, and again in 1987, to ensure that kickbacks could not be disguised as legitimate transactions to circumvent the law.

Retina Institute’s Alleged Violations of the Anti-Kickback Statute

A physician who refers a patient for medical services to an entity in which the physician has a financial interest violates the AKS unless the referral falls within the “safe harbor” regulations.

The physician defendants named in the complaint had financial ownership interests in an ambulatory surgery center known as the San Gabriel Surgery Center. Those physician defendants, as well as other RIC physicians, routinely referred RIC patients in need of surgery to the San Gabriel Surgery Center.  Such referrals would only be covered by the safe harbor regulations if the physician’s investment interest was fully disclosed to the patient.

According to the allegations in the complaint, RIC physicians did not advise their patients that RIC principals had an investment interest in the San Gabriel Surgery Center.  Patients were allegedly given a brochure instead that stated, “The ownership for San Gabriel Ambulatory Surgery Center may be obtained by contacting the center at (626) 300 – [XXXX].”

In order to ascertain whether accurate information was disseminated, Relator Smith asked the scheduling agent at RIC to call the phone number on the brochure to learn who owned the surgery center. The scheduling agent allegedly reported to Relator Smith that the individuals who responded to the call could not provide any information about the ownership of the center nor could they find anyone who could answer the question.

The Government Relies on the Assistance of Whistleblowers

This case illustrates the important role that whistleblowers play in identifying and reporting fraud.  Due to the enormity of claims processed under government-funded health care programs, it is impossible for every instance of fraud to be detected.  Employees are often in the best position to observe fraud and gather evidence to corroborate their observations. The government depends on such individuals to come forward and report what they reasonably believe to be fraud.

The False Claims Act permits a private individual to sue on behalf of the United States and share in any recovery. The government may intervene in the action, in which case a Relator may receive a reward of 15 percent to 25 percent of any monetary recovery.  In cases such as this one, where the government declines to intervene, the whistleblower may pursue the action on their own and can receive a reward of 25 percent to 30 percent of any monetary recovery.

If you have evidence of fraud being committed against the government by an employer, business competitor or contractor, call the experienced whistleblower attorneys McEldrew Young Purtell at (215) 367-5151 for a free, no-obligation consultation.

DOJ Aggressively Pursues Health Care Fraud in 2019

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In the first half of 2019, the United States Department of Justice (“DOJ”) has shown that it intends to aggressively pursue health care providers who engage in fraudulent schemes to enrich themselves at the expense of their patients and American taxpayers. The DOJ has been especially diligent in its investigation and prosecution of health care providers who receive kickbacks and other improper incentives, as well as those on the other side of the transaction who make the illegal payments.

Recent DOJ Settlements Involving Health Care Providers

A review of the 2019 DOJ press release headlines offers insight into the scope and pervasiveness of illegal practices that some health care providers allegedly engage in:

  • Avanti Hospitals LLC, and Its Owners Agree to Pay $8.1 Million to Settle Allegations of Making Illegal Payments in Exchange for Referrals – January 28, 2019
  • Pathology Laboratory Agrees to Pay $63.5 Million for Providing Illegal Inducements to Referring Physicians – January 30, 2019
  • Covidien to Pay Over $17 Million to The United States for Allegedly Providing Illegal Remuneration in the Form of Practice and Market Development Support to Physicians – March 11, 2019
  • MedStar Health to Pay U.S. $35 Million to Resolve Allegations that it Paid Kickbacks to a Cardiology Group in Exchange for Referrals – March 21, 2019
  • United States Files Lawsuit Against West Virginia Hospital, Its Management Company, and Its CEO Based on Kickbacks and Other Improper Payments to Physicians – March 25, 2019
  • Former CEO of Hospital Chain to Pay $3.46 Million to Resolve False Billing and Kickback Allegations – April 30, 2019
  • Pharmaceutical Company Agrees to Pay $17.5 Million to Resolve Allegations of Kickbacks to Medicare Patients and Physicians – April 30, 2019
  • Rialto Capital Management and Current Owner of Indiana Hospital to Pay $3.6 Million to Resolve False Claims Act Allegations Arising from Kickbacks to Referring Physicians – June 3, 2019

The DOJ’s Arsenal in the Fight Against Health Care Fraud

Three statutes are most often implicated in fraud and abuses cases involving health care providers are the False Claims Act, 31 U.S.C. §§ 3729-3733 (“FCA”); the Anti-Kickback Statute 42 U.S.C. § 1320a-7b(b) (“AKS”); and the Physician Self-Referral Law, 42 U.S.C. § 1395nn (commonly known as the “Stark Law”).

The False Claims Act

The federal False Claims Act, 31 U.S.C. §§ 3729-3733, authorizes a private individual, known as a “relator,” to bring a cause of action on behalf of the federal government to recover funds lost because of fraud or other misconduct. A lawsuit filed under the False Claims Act is known as a qui tam action, and it allows a relator to sue on behalf of the government and, if successful, receive a percentage of the recovery.

The FCA was signed into law by President Lincoln during the Civil War. It was originally intended as means to legally pursue unscrupulous contractors who defrauded the Union Army by selling inferior goods, such as sawdust mixed with gunpowder, crippled horses, and boots made of cardboard. Even today, the FCA remains one of the most effective and important tools to prevent the government from purchasing overpriced, inferior, or nonexistent goods or services.

Most FCA violations in the health care industry arise from the submission of false or fraudulent claims for payment to government-funded health care programs, such as Medicare, Medicaid, CHAMPVA, and TRICARE. The civil penalties for violations of the FCA can be substantial. The filing of false claims can result in fines of up to three times the amount of the government’s losses, plus a penalty ranging from $11,463 to $22,927 for each false claim submitted. If a health care provider submits a claim to the government that resulted from a kickback or Stark law violation, it can also render the claim false or fraudulent.  This, in turn, creates liability under the FCA, in addition to liability under the AKS or Stark law. Some examples of FCA violations involving health care providers can be found here.

The FCA’s whistleblower provision allows a relator to file a lawsuit on behalf of the United States. If the government makes a successful recovery based on original information provided by a whistleblower, the whistleblower may be entitled to a reward of 15 to 30% of the government’s recovery.

The Anti-Kickback Statute

The Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), prohibits offering, paying, soliciting, or receiving “remuneration” to induce referrals of items or services covered by Medicare, Medicaid, and other federally-funded health care programs. The AKS is a criminal law that involves any item or service payable by a federal health care program (e.g., drugs, supplies, or health care services for Medicare or Medicaid patients). “Remuneration” includes anything of value and can include items other than cash, such as free rent, expensive hotel stays and meals, and excessive compensation for medical directorships or consulting services.

In certain sectors of the economy, a reward given to someone for a business referral is a commonly accepted and legal practice. However, compensation paid to someone for a referral involving a federal health care program is a crime. The AKS applies to both those who offer or pay remuneration as well as those who solicit or receive remuneration. Since an AKS violation can result in criminal liability, the intent of each party to the transaction is a critical element to determining culpability.

United States v. Greber, 760 F.2d 68 (3rd Cir. 1985) is a landmark case which held that paying a referring physician to use a laboratory’s services, even if the remuneration was compensation for professional services, was a violation of the AKS. Greber was a physician who was board certified in cardiology. Greber’s company, Cardio-Med, Inc., provided diagnostic services, some of which were billed to Medicare. The government eventually charged Greber with, inter alia, Medicare fraud in violation of 42 U.S.C. § 1395nn(b)(2)(B). The charges were based on Cardio-Med’s practice of paying kickbacks from Medicare funds to referring physicians in order to obtain future referrals. Greber claimed that the payments were for work performed by physicians, and future referrals were only one purpose of the payments. Greber was convicted, and he appealed. The Third Circuit affirmed the conviction, holding that a payment to a referring physician is illegal if it is done to encourage future referrals, even if the payment is compensatory. 760 F.2d at 72.

The policy reasons underlying the AKS are based on the premise that kickbacks exploit the health care system, drive up costs for medical services, and impede fair competition in the industry. Kickbacks can also result in patient steering, which can compromise the decision-making process of health care providers and institutions. Hospitals that participate in the Medicare program, or other federally-sponsored health care programs, are required to enter into contracts in which they agree to comply with federal laws and regulations, including the AKS.

Although the AKS is a criminal statute, it provides both criminal and civil penalties for violations. The criminal penalties can include fines of up to $25,000 and five years’ imprisonment for each violation. The Office of the Inspector General for the Department of Health and Human Services can pursue civil penalties of up to $50,000 per violation plus three times the amount of sustained by the government.

The Physician Self-Referral Law

The Physician Self-Referral Law or Stark Law, 42 U.S.C. § 1395nn, prohibits a physician from referring patients for certain “designated health services” payable by Medicare to an entity with which the physician, or his or her immediate family member, has a financial relationship, unless one of a number of specific exceptions applies. A financial relationship can include ownership or investment interests, or compensation arrangements between a physician, or immediate family, and an entity that furnishes designated health services.

Designated health services include:

  • Clinical laboratory services;
  • Physical therapy, occupational therapy, and outpatient speech-language pathology services;
  • Radiology and certain other imaging services;
  • Radiation therapy services and supplies;
  • DME and supplies;
  • Parenteral and enteral nutrients, equipment, and supplies;
  • Prosthetics, orthotics, and prosthetic devices and supplies;
  • Home health services;
  • Outpatient prescription drugs; and
  • Inpatient and outpatient hospital services.

The Stark law is a strict liability statute, which means that a physician does not have to possess the specific intent to violate the law. Much like the AKS, the Stark Law is intended to ensure that a physician’s medical judgment is based only on the best interests of the patient and is not swayed by improper financial incentives.

Penalties for Stark law violations can include:

  • Denial of payment – Medicare will not pay for designated health services that were provided pursuant to a prohibited referral.
  • Refund of payment – Any entity that collects payment for designated health services that were provided pursuant to a prohibited referral must refund all such payments.
  • Imposition of civil monetary penalties – a civil monetary penalty of up to $15,000 can be imposed for each prohibited service, as well as additional civil assessments and potential liability under the False Claims Act.
  • Exclusion from federal health care programs — Physicians and entities can be excluded from participation in government-sponsored health care programs.

The Necessity of Whistleblowers

The government lacks the resources to identify and prosecute every instance of fraud carried out by unscrupulous physicians, medical equipment providers or hospitals. Many settlements and successful verdicts reported by the DOJ are often based on information provided by a whistleblower willing to come forward after hearing or witnessing some type of improper conduct. In the health care sector, a whistleblower is often a current or ex-business partner, a hospital or office staff member, a patient, or a business competitor.

Anyone who is an “original source” of information involving fraud against the government can be a whistleblower. As defined in the False Claims Act, original source means “an individual who either (i) prior to a public disclosure . . . has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.” 31 U.S.C. § 3730(e)(4)(B).

There are many pitfalls to filing a whistleblower claim with a government department or agency. Without proper legal representation, a whistleblower might not receive a reward even though he or she provided information and assisted the government in the investigation that resulted in a successful recovery. The attorneys at McEldrew Young Purtell have a proven track record of success in all types of whistleblower cases. If you have evidence of a fraudulent scheme involving a health care provider or facility, or any other type of fraud against the government, the attorneys at McEldrew Young Purtell will provide a free confidential review of your evidence and recommend the best course of action. For a no obligation consultation, call Eric L. Young or Paul Shehadi at (215) 367-5151 or you can submit your information through the contact form found on most pages of this site.

The DNA of Medicare Fraud & the False Claims Act

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False Claims Act

Genetic Testing Laboratory Pays $2 Million to Settle Allegations of Medicare Fraud

The Justice Department announced a settlement last month with GenomeDx Biosciences Corp. (“GenomeDx”), a genetic testing laboratory based in Vancouver, British Columbia with offices in San Diego. GenomeDx agreed to pay nearly $2 million to resolve alleged violations of the False Claims Act. According to the complaint, GenomeDx committed Medicare fraud by submitting false claims for its “Decipher” post-operative genetic test. The Decipher test measures the activity of genes in prostate tumors to evaluate the risk of cancer recurrence.

Electronic Health Records: A Prognosis for Missteps and Potential Fraud

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The Wall Street Journal recently reported that the Department of Veterans Affairs is in discussions with Apple to provide portable electronic health records (“EHRs”) to military veterans. The plan reportedly calls for Apple to develop specialized software tools that would allow veterans and their families to access their EHRs through Apple’s Health Records EHR data viewer. The proposed plan is intended to simplify and streamline health data access for patients visiting VA healthcare sites.

Doctor House Calls Proposed in Congress Despite Rampant Home Healthcare Agency Fraud

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Doctor house calls may be returning as a bipartisan bill, the Independence at Home Act of 2016, is introduced today into Congress to extend Medicare’s current demonstration project to a nationwide program.

Co-Pay Assistance, Price Hikes and Tarceva Misrepresentations in the News

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There’ve been a few different big health care stories and investigations in the news over the past few weeks that we haven’t really covered here. All three involve government investigations into areas of interest to potential health care whistleblowers. So we thought we’d briefly describe all three of them before the weekend hits.

Medicare FFS’ 3 Year Improper Payment Total: $125 Billion

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From 2013 to 2015, Medicare paid out a total of $125 billion under the Medicare Fee-For-Service program according to a recent article in Bloomberg. The improper payment rates exceeded 10% for all three years examined. As a result, the U.S. Government required a report from the Department of Health and Human Services’ Office of Inspector General regarding plans to address the problem.

Medicare To Test New Doctor Payments for Drugs

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The Obama Administration announced a pilot project this week to alter physician incentives for higher drugs through the Medicare Part B program. Part B reimburses doctors for drugs provided during outpatient hospital and physician treatment according to the average sales price of the drug along with a six percent mark up.

The Explosion of Hospice Fraud and the False Claims Act

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One area of health care where there have been a handful of whistleblowers recently is hospice fraud. Hospice spending has exploded from nearly $3 billion in 2000 to over $15 billion in 2012, according to a Pittsburgh Post-Gazette article on hospice fraud published yesterday.

CMS Issues Final Rule on Retention of Medicare Overpayments

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CMS has issued the final rule to implement section 6402(a) of the Affordable Care Act, which relates to the obligation of providers to repay an overpayment within 60 days of identifying it, for Medicare Part A and Part B claims. CMS Rule 6037-F, as it is known, will go into effect on March 12, 2016.

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