June 15, 2018

Patient Referrals: A Healthcare Fraud Risk

By David Glusman, Partner, Advisory Services

Patient Referrals: A Healthcare Fraud Risk

The Federal Department of Justice (DOJ) and the Office of Inspector General (OIG) at the U.S. Department of Health and Human Services (HHS) have been fighting fraud in the Medicare and Medicaid programs for decades. Over the years, DOJ and OIG have become increasingly sophisticated in detecting and combating fraud. One of their primary anti-fraud initiatives is the multiagency Medicare Fraud Strike Force that brings together the DOJ, OIG, FBI, and other federal and state agencies. The task force now operates in nine cities across the country. It has charged nearly 3,500 defendants, who have collectively billed the Medicare program more than $12.5 billion. It has recovered billions from civil and criminal prosecutions.

For May 2018, the OIG’s website lists 36 civil and criminal cases which it has successfully pursued. The criminal cases have resulted in jail sentences for physicians and other providers. The civil actions have resulted in financial penalties and exclusion of providers from the Medicare and Medicaid programs. A significant portion of the fraud prosecutions are derived from whistleblower activity, often employees or former employees of organizations that are viewed as committing healthcare fraud and not responding to internal concerns.

While the federal government has become increasingly successful in its efforts, healthcare fraudsters are very creative and able to stay one step ahead of efforts to combat them.

An interesting trend in the evolution of healthcare fraud is elaborate and widespread kickback arrangements between healthcare companies providing ancillary services, such as home healthcare or diagnostic testing and referring physicians to those services.

In May, the DOJ office for the District of New Jersey announced the criminal sentencing of five individuals employed by a clinical lab, who bribed doctors to refer their patients to the lab for testing. The latest prosecutions are part of a criminal investigation that began in 2013 and is ongoing. The investigation has produced 53 convictions, including 38 doctors who received bribes from the clinical lab company. The DOJ announcement says this case, involving the Morris County Clinical Lab, is believed to represent the largest number of medical professionals ever prosecuted in a bribery scheme. The investigation has recovered more than $13 million from the physicians and executives of the lab.

Perhaps the most interesting aspect of this case is the prosecution of the referring physicians, who in most circumstances were not primary beneficiaries of the fraud scheme. The clinical lab was able to generate millions in revenue from the lab tests. However, individual referring physicians received only a fraction of the revenue, yet they shared the same level of risk and guilt in the scheme. The OIG and DOJ have prosecuted several similar cases involving a wide range of providers, such as home health agencies, imaging facilities, and even pharmaceutical manufacturers.

In Detroit, a physician pleaded guilty to healthcare fraud in a $19 million Medicare fraud scheme. The government reported that Abdul Haq of Ypsilanti, Michigan, pleaded guilty to one count of conspiracy to commit healthcare fraud. Sentencing was being scheduled as this article is being written. As part of his guilty plea, Haq admitted that he conspired with the owner of the Tri-County Network, Mashiyat Rashid, and his co-defendants and others to prescribe medically unnecessary controlled substances, including Oxycodone, Hydrocodone and Opana, to Medicare beneficiaries, many of whom were addicted to narcotics. He further admitted that in furtherance of the conspiracy, Rashid and others also directed physicians, including Haq and others, to require Medicare beneficiaries to undergo medically unnecessary facet joint injections if they wished to obtain prescriptions for controlled substances. In furtherance of the conspiracy, Haq and others referred Medicare beneficiaries to specific third party home health agencies, laboratories, and diagnostic providers, even though those referrals were medically unnecessary, he admitted.

In many situations, individual doctors get caught up in elaborate networks that have primarily enriched the providers of the referred services. In some cases, physicians may be inadvertently lured into these arrangements over time. The first step may involve a routine sales call from the ancillary service to the doctor’s office, simply to explain that its services are available. Then, over time, through additional sales calls, the relationship may evolve to a comfortable situation where a sales call includes the offer of a financial or incentive arrangement for continuing or stepped-up referrals.

The law generally prohibits the paying or receiving of anything of value in exchange for the referral of patients for specified medical goods and services. Thus, a referring physician who receives gifts, travel, discounted services, or office space is likely running afoul of the Stark law or the anti-kickback regulations, if any federal (generally Medicare, Medicaid, or VA) funds are involved. Knowledgeable healthcare attorneys and valuation experts who can opine that relationships are at fair market value and are commercially reasonable are among the best protections healthcare organizations can receive.

The watchword here is for physicians to be cautious and diligent and recognize risk inherent in referral arrangements. The OIG has gone out of its way to provide physicians with resources to understand where fraud and abuse may occur, which can be read here. Patients are a physician’s asset and doctors can protect them and themselves by carefully considering all referrals.

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