The Ins & Outs of Hospital Lab Outreach - PowerPoint Presentation

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Lions and tigers and bears! Oh my! A Fraud and Abuse Update

David W. Gee, Esq. Partner, Davis Wright Tremaine LLP

2017 CCLA Annual Conference

November 2, 2017Slide2

Overview

Lions: Individual Liability – in the wake of the Yates MemoTigers: Medical Necessity and the FCABears: Commercial Payer Actions/Activity

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Lions . . .

Individual Liability – In the wake of the Yates Memo

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The Yates Memo: Individual Accountability (Sept 2015)

“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing. Such accountability is important for several reasons: it deters future illegal activity,

it incentivizes changes in corporate behavior,

it ensures that the proper parties are held responsible for their actions, and

it promotes the public's confidence in our justice system.”

September 9, 2015 Department of Justice (“Yates Memo”)

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The Yates Memo: Individual Accountability

To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct

.

Both criminal and civil corporate investigations should

focus on individuals from the inception of the investigation

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Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.

Absent extraordinary circumstances,

no corporate resolution will provide protection from criminal or civil liability for any individuals.

Corporate cases should not be resolved without a

clear plan to resolve related individual cases

before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.

Civil attorneys should consistently

focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual's ability to pay

.

September 9, 2015 Department of Justice (“Yates Memo”)

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The Yates Memo: Individual Accountability

DOJ has recovered $60 million in actions against individuals in 2017.Bloomberg BNA 10/19/17

New DOJ website on individual accountability:

https://www.justice.gov/dag/individual‐accountability

11/30/16 Speech by

Former

DOJ Deputy AG Yates:

“We’re getting exactly what we wanted ‐ companies showing up to their first meeting with the government with information about who did what.”

6/6/17 Speech by AUSA Margaret Hutchinson (ED PA):

The Yates Memo is “still in place, and it’s still effective.”

Bloomberg BNA 6/15/17

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Individual Liability: Physicians

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Feb 7, 2017

Laboratory services tainted by kickbacks and improper financial relationships

$18 million

by Dr. Marder, Palm Beach Dermatologist, Owner of Allergy, Dermatology & Skin Cancer Centers --

Medically unnecessary biopsies (sent to Dr. Kendall) and radiology billed by Marder

Billed Medicare over $49 million for procedures not actually performed or supervised by Marder

$2.8 million+ Medicare payments for AP testing billed globally (but not performed) by Marder

$250,000

by Dr. Robert Kendall, Coral Gables pathologist (Kendall Medical Laboratory)--

Performed medically unnecessary AP testing

Diagnosed healthy skin as cancerous

Fraudulent client billing arrangement – KMP performed both TC + PC on all biopsies Slide8

Individual Liability - Criminal CLIA Violation

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Gottfried Kellermann, founder/CEO of NeuroScience and sister company Pharmasan Labs, sentenced:

6 mos home confinement

$50,000 fine

5 years probation

(can’t work at Neuroscience or Phamasan)

NeuroScience sentenced to

$140,000 fine

and

5 years probation

with

CIA

Pharmasan Labs conducted neurotransmitter testing

NeuroScience recommended nutritional supplements to Pharmasan Labs patients based on the test results

Pharmasan Labs’ testing did not produce consistent results, so Kellermann allegedly manipulated the results to normalize using an “optimal range” he created, which identified 40% of patients as abnormal (needing nutritional supplements)

Mar 23, 2017 Slide9

Individual Liability: Lab Tech and Sales Rep

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Jul 12, 2017

Ivar Cantu Maldonado, sales rep for Quality Toxicology – San Antonio

Forged patient signatures, falsified medical records to obtain sales commissions

Omar Solis Sanchez, lab tech for Arrango Family Clinic – Mission, TX

Took urine specimens from Clinic patients and sent to Quality Toxicology without physician order or patient consent to receive commissions and collection fees

$850,000 in fraudulent Medicare claims for medically unnecessary lab testing

Up to

10 years

in federal prison

Possible monetary penalties of

$166,000+ Slide10

Individual Liability: 1099 Marketers + Middlemen

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As part of the Largest Health Care Fraud Enforcement Action in Department of Justice History

, 4 individuals charged for their role in a

$36 million fraud scheme

involving

unnecessary and improperly prescribed toxicology and DNA cancer screening tests

which were billed to TRICARE.

Each defendant faces a maximum statutory penalty of 5 years

in federal prison and a

$250,000 fine.

According to charges:

May 2014 to July 2017, operated ADAR Group in Killeen, Texas

Paid by

Xpress Laboratories and Progen Lab for referring testing orders for TRICARE beneficiaries

Bugen and Sheffield gave Wal-Mart gift cards in exchange for urine and saliva specimens that were mailed to Xpress Laboratories and Progen Lab for unnecessary toxicology and DNA cancer screening tests and billed to TRICARE by

Cockerell Dermatopathology

in Dallas.

Bugen and Sheffield disguised the gift cards as a food assistance program for low-income beneficiaries.

ADAR Group employees

collected urine and saliva samples from up to 200 patients per day

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Bugen and Sheffield

paid doctors a flat fee per month to sign orders for toxicology and DNA cancer screening tests

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The doctors never saw the patients and had no doctor-patient relationship with the patients

. Beneficiaries did not receive the test results.

ADAR employees obtained signature stamps from the doctors and stamped the doctors’ signatures on testing orders before sending the forms to Xpress Laboratories and Progen Lab.

ADAR Group employees also placed false diagnosis codes on TRICARE claim submissions to make it appear that the beneficiary needed the testing…to ensure that TRICARE would accept, and pay, the claim.

July 13, 2017

Matthew Hawrylak

(marketer)

Britt Hawrylak (marketer)

Erik Bugen

(ADAR owner)Slide11

Individual Liability: Lab Owner + Laboratory Director

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Family Medicine Centers (FMC) of South Carolina submitted claims to Medicare that violated the Stark Law

FMC paid FMC’s physicians a percentage of the value of lab and other tests they ordered through FMC, which FMC then billed to Medicare

Dr. Serbin, FMC’s co-owner and CEO, allegedly initiated this compensation program and reminded FMC’s physicians to order tests and other services through FMC:

to increase FMC’s profits

and

to ensure that their take-home pay remained in the upper level nationwide for family practice doctors

FMC, Dr. Serbin, and Victoria Serbin

submitted and caused submission of false claims to Medicare and TRICARE for

medically unnecessary lab services

by:

creating custom laboratory panels of tests not appropriate for routine measurement

performing these tests without an order from the treating physician

implementing standing orders to assure these custom panels were performed with defined frequency and not in reaction to clinical need

programming FMC’s billing software to systematically change billing codes to ensure payment by Medicare

FMC's principal

owner and former chief executive officer

, Dr. Stephen F. Serbin, and its former

Laboratory Director

, Victoria Serbin, have agreed to pay $443,000

Sep 11, 2017 Slide12

Individual Liability: US v. BlueWave

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3 Qui Tam Cases:

US ex rel. Mayes v. Berkeley HeartLab Inc., et al.

US ex rel. Riedel v. Health Diagnostic Laboratory, Inc., et al.

US, et al. ex rel. Lutz, et al. v. Health Diagnostic Laboratory, Inc., et al.

April 2015 - Settlement Announcement: HDL ($47 miliion) + Singulex ($1.5 million)

US declined to intervene vs. Singulex

CEO Phillipe Goix

and Quest Diagnostics

June 2015 - Cases consolidated

August 2015 – US files Intervenor Complaint

April 2017 –

Settlement Announcement:

Berkeley Heartlab / Quest Diagnostics ($6 million)

4 defendants remaining –

3 individuals

:

BlueWave Healthcare Consultants

LaTonya Mallory (former CEO of HDL)

Floyd Calhoun Dent III (BlueWave owner)

Robert Bradford Johnson (BlueWave owner)Slide13

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Individual Liability: NJ Biodiagnostic Lab Scam

Bribery scheme

- millions of dollars in bribes

$100 million+

to BLS from Medicare and various private insurers

50 convictions to date

–

36 doctors

Believed to be the largest number of medical professionals ever prosecuted in a bribery case

$13 million+ recovered to date through forfeiture

6/28/16, BLS - out of business - pleaded guilty and forfeited all of its assetsSlide14

Individual Liability: Closer To Home . . . .

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Tigers . . .

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Medical Necessity and the FCASlide16

Another example of violations OIG has been able to identify in genetic testing using CDAC analysis [Data Mining] involves

CPT code GO452. Used appropriately, GO452 is used to report the interpretation and written report of a medically necessary molecular pathology test, but the interpretation must go beyond simply relaying the test result to the patient.

CDAC analysts were able to track suspicious patterns in claims data, allowing OIG to send subpoenas to

24 doctors and physician practices and one lab

. Further investigation showed that often there was no documentation or narrative report for why the code was claimed

"These physicians were doing the genetic test and doing the same sort of interpretation that they would for any other test, just looking at [the report] and giving the results to the patient and not taking the extra steps that makes that code billable," she said.

The settlements with doctors and the lab have so far totaled nearly $900,000.

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Medically Unnecessary (Genetic) Testing

Karen Glassman, OIG senior counsel at Spring 2017 ACLA Annual Meeting:

"Genetic testing is a very large interest to the government right now … I'm not sure the things we're seeing always existed or they're newer."

“Right now, a lot of [pharmacogenetic testing] is considered not reasonable and necessary, and not payable by the Medicare program….”Slide17

Medically Unnecessary Testing

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According to the government:

Berkeley paid kickbacks to referring physicians disguised as “process and handling” fees.

Berkeley paid kickbacks to patients by routinely waiving copayments owed by certain patients who were legally required to pay for part of their tests.

Berkeley paid the kickbacks to induce both the physicians and patients who received them to choose Berkeley over other laboratories.

[T]hese illegal practices

resulted in medically unnecessary cardiovascular tests being charged to federal healthcare programs

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ASIDE:

According to the Press Release: “The Anti-Kickback Statute also prohibits routinely waiving patient copayments to ensure that patients are appropriately incentivized to refuse unnecessary tests.”

Apr 28, 2017 Slide18

US ex rel. Groat v. Bos. Heart Diagnostics

The Court agrees with the relator that Boston Heart has an obligation to establish that the tests for which it seeks government reimbursement are medically necessary because when it submits the CMS–1500 form, it certifies that the tests performed were medically necessary.

Accordingly, the Court concludes that the relator pleaded facts sufficient to support her claim that Boston Heart's certifications of medical necessity were legally false because it had an independent obligation to certify that the tests for which it requested government reimbursement were medically necessary.

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US District Court, District of Columbia –Memorandum Opinion

Jun 9, 2017 Slide19

Medically Unnecessary (Drug) Testing

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“Dr. Windsor submitted or caused the submission of false claims to Medicare, the Georgia and Kentucky Medicaid programs, TRICARE, and FEHBP for

medically unnecessary … qualitative drug screens

performed in Georgia and Kentucky during the period from January 1, 2010 through June 30, 2014.”

Feb 1, 2017 Slide20

Medically Unnecessary (Molecular) Lab Tests

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#1

referring physician of FISH tests in the country

13,000+ FISH tests on Medicare patients

Dr. Daller submitted claims to Medicare and Tricare for “FISH,” tests that were not medically necessary

Dr. Daller was paid approx.

$2 million in bonuses

based, in part, on the number of FISH tests he referred to lab owned by 21st Century Oncology

Dr. Daller to pay

$3.81 million

to settle FCA action

21st Century Oncology previously paid

$19.75 million

settlement

Individual urologists (Dr. Daller and 2 others) will pay a total of

$5.11 million

in settlements (1 more yet to settle)

Feb 1, 2017 Slide21

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Allegations:

Prestige failed to ensure that physician orders were obtained for the genetic testing

Prestige physicians were not aware of and did not agree with the medical necessity of the testing

Prestige failed to ensure that patients were appropriately informed of the testing prior to its being conducted and provided opportunity to decline the testing

The lack of physician orders and patient consent was discovered during 2015 state survey

April 10, 2017

“As genetic testing technology is evolving, we see the same types of clinical testing abuses that are evident in more established testing … Along with our law enforcement partners, we will investigate and prosecute violations in these newer health care technologies.”

Medically Unnecessary (Genetic) TestingSlide22

Medically Unnecessary (AP) Testing

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Among other things, government asserted that

a pathologist should review the specimen with the routine H&E stain before any special stain is used on the specimen

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Special stains are billed separately to government healthcare programs.

The government considers the use of special stains before the analysis of the routine H&E stained specimen to be

medically unnecessary

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Piedmont Pathology

lacked medical necessity

for the special stains conducted on certain gastric biopsies before a pathologist reviewed the routine H&E stained specimen.

May 2, 2017

May 1, 2017

Poplar, directly and through a subsidiary known as GI Pathology, promoted and billed the government for diagnostic tests that the government contends were

not medically necessary.

Immunohistochemical mast cell tryptase stains were the subject of Poplar’s extensive, multi-year promotional campaign designed to promote the use of the stain, claiming that Poplar could use the test to definitively diagnose “mast cell enterocolitis.”

Poplar’s promotion of the test was not consistent with FDA approval requirements, and not supported by adequate scientific evidence.Slide23

And Bears . . .

23Commercial Payer ActionsSlide24

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“Sham” Hospital Lab Outreach Arrangements

UHC Allegations

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From 2011-2016 Next Health and subsidiary drug and genetic testing labs defrauded UHC of $100 million+ through improper billing and kickback scheme involving:

unnecessary and expensive drug testing

standing test protocols regardless of patients’ medical histories or clinical conditions

performing and billing for testing services not ordered by physicians

billing for services that they did not perform

routine waiver of patients’ payment responsibilities

UHC identified illegal activity via routine claims review

UHC’s investigation revealed Next Health funneled kickbacks to providers in multiple geographic areas for drug and pharmaco-genetic test orders

Jan 2, 2017

TexasSlide25

BCBS Allegations:

$33.8M in “bogus claims” to BCBS of Mississippi for lab testing not performed at Sharkey-Issaquena Community Hospital contracted by BCBS (BCBS paid about $9.8 million)

Hospital contracted with

Sun Clinical Laboratory

and

Mission Toxicology

(in Texas) to perform the testing

Hospital permitted labs (and middlemen) to submit claims to BCBS using Hospital’s name and billing information

Hospital was paid by the

labs

Lab testing was not ordered by a licensed physician with Hospital staff privileges

Hospital leased personnel and space to the

labs “

to further conceal the misrepresented claims”

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“Sham” Hospital Lab Outreach Arrangements

“Blue Cross contracted at this [higher] rate with the hospital as a hospital, and not as a laboratory for non-hospital patients; and, certainly not to allow third parties to take advantage of the percentage of charge rate”.

May 4, 2017

MississippiSlide26

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“Sham” Hospital Lab Outreach Arrangements

August 2017

Missouri

Deposits into the hospital's bank accounts for the months of December 2016 through May 2017, totaled

approximately $92 million

. For perspective, annual hospital revenues were $12.7 million and $7.5 million for fiscal years 2015 and 2016, respectively.

Approximately

80 percent of the new revenue generated from lab activity is disbursed to the laboratory companies

, with an additional 6 percent going to the billing company, and another portion going towards payroll costs for out-of-state phlebotomists.

[T]he laboratory company receiving millions of dollars from the hospital was incorporated a week after the initial management contract

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[A]s of January 23, 2017, the hospital's Unionville, Missouri lab had not begun processing tests

Our review of lab billings received by the hospital indicate the originating activity is for out-of-state patients for lab work not conducted in Putnam County.Slide27

“Sham” Hospital Lab Outreach Arrangements

“During the audit, the State Auditor's Office was contacted by the fraud examiner of a private insurance company in Florida that had recently denied claims of approximately $700,000 from the hospital due to the excessive cost of the claims, a lack of documentation to support the claims, and indications the billings may be fraudulent. This individual referred us to a

fraud investigator for a second, much larger, private insurance company

who stated payments of up to $4.3 million in what the company considered fraudulent claims had been paid to the hospital in recent months. Based on this information, the second insurance company is no longer paying any claims from the hospital because the billings submitted are pass-through billings, which are indicative of a fraud scheme.”

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“SHAM” Outreach Arrangement Features--

Typically Toxicology or Pharmacogenetic Testing

Menu has expanded

1099 Marketers + Middlemen + Aggregators + Brokers

Sometimes physician investors

Focus on HOSPITAL’s commercial payer contracts –

Higher reimbursement rates

In-Network Status

Bill for “purchased testing” using HOSPITAL’s Name and NPI (“under arrangements”)

Percentage-based compensation / Fee Splitting

HOSPITAL has little or no

existing

outreach business or capability

Territory, if delineated, extends far outside HOSPITAL’s usual geographic service area

To physicans outside the community, with NO other affiliation with HOSPITAL (no staffing privileges, etc.)

HOSPITAL neither operates, nor commits substantial financial, capital or human resources to the Outreach business

LAB/Middlemen provide virtually all operations of the Outreach business

HOSPITAL has little or no business risk

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Coverage Response by Commercial Health Plans Slide30

Conclusion: Takeaways

The Yates Memo is “still in place, and it’s still effective.”

Labs must be prepared to support the medical necessity of their testing.

Private payers are on alert.

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QUESTIONS?

David W. GeeDavis Wright Tremaine LLP

Partner

davidgee@dwt.com

206.757.7059

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