Federal criminal indictments handed down this month against two Kansas physicians involved in an alleged kickback scheme with five hospitals send an ear-deafening warning to any hospital that's ever attempted to entice physicians to refer patients to its facilities.
Although none of the hospitals has been indicted, one of the facilities last year agreed to pay a $1.2 million fine to settle civil kickback and false claims charges stemming from its involvement in the scheme.
The hospital, Bethany Medical Center in Kansas City, Kan., admitted no wrongdoing, but the settlement with HHS' inspector general's office doesn't immunize the 249-bed not-for-profit hospital from any criminal charges related to the scheme and requires the hospital to cooperate with the government's ongoing investigation.
Bethany as well as the other hospitals involved maintain that the payments to the physicians were legitimate payments for consulting services, not kickbacks for referrals.
Federal law bars any form of remuneration to induce the referral of Medicare or Medicaid business. But the definition of what constitutes an illegal kickback is a matter of interpretation (See story below).
Bethany's cooperation may have led to the June 11 indictments charging that what two doctors called the Blue Valley Medical Group System was nothing more than a 10-year scheme to use their patients as collateral to extract money from hospitals and Medicare.
The scheme, if proved in court, would be one of the larger and longer-running Medicare kickback scams unearthed, one fraud expert said. The facts as stated in the indictment also reveal some of the weaknesses of the government's fraud-control efforts.
Robert C. LaHue, D.O., and his brother, Ronald H. LaHue, D.O., are charged in a 63-count indictment with submitting false claims to Medicare. Robert LaHue is also charged with 52 counts of money laundering and one count of threatening a witness. The doctors live in Johnson County, Kan.
From 1984 to 1995, according to the indictments, the LaHues operated a scam involving five hospitals in Kansas and Missouri. The hospitals paid the now-defunct Blue Valley Medical Group, owned by the brothers, more than $2 million for sending them Medicare patients. The patients were residents at the numerous nursing homes in the region for which the Blue Valley Medical Group served as medical directors.
The arrangements were set up as consulting contracts between the medical group and the hospitals for developing their geriatric programs, but the government argues no consulting services were rendered. Instead, according to the indictment, the LaHues funneled their nursing home patients into these specific hospitals, allowing the hospitals to boost their Medicare census and billings.
Reached at his practice, Ronald LaHue said: "I can't make any comment about it. I hope you understand." His lawyer, James L. Eisenbrandt, released a statement that said: "Ron LaHue is not guilty of these allegations. He provided appropriate and valuable consulting services under agreements reviewed and approved by highly qualified lawyers. Ron has devoted his life to providing quality care and treatment to nursing home patients. Any referrals to the hospital were based solely on medical need and no other consideration."
Robert LaHue's lawyer, Bruce Houdek, said his client is "not guilty of any offense. His program was beneficial to the hospital and his patients, and saved the hospital and Medicare substantial sums far and above what the government claims he had received."
Houdek said he had "no idea" when a trial would take place.
The doctors are scheduled to appear at a bond hearing July 3.
The indictment states that five hospitals participated in the Blue Valley "system." They allegedly paid a total of about $2.2 million in kickbacks to the physicians for patient referrals that netted the hospitals $59.8 million in Medicare reimbursements.
Those hospitals are:
Bethany Medical Center, which allegedly paid $169,270 in kickbacks and received $4.5 million in Medicare payments from treating Blue Valley patients.
Baptist Medical Center, Kansas City, Mo., which allegedly paid about $1.4 million in kickbacks and received $42 million from Medicare.
St. Joseph Medical Center, Wichita, Kan., which allegedly paid $337,500 in kickbacks and received $5 million from Medicare.
Deaconess Hospital, St. Louis, which allegedly paid $125,000 in kickbacks and received $2.5 million from Medicare.
Alexian Brothers Hospital, St. Louis, which allegedly paid $180,000 and received $5.8 million from Medicare.
U.S. Attorney Jackie N. Williams said Baptist is discussing a possible settlement with the government. Neither Williams nor Baptist officials would talk about the matter publicly until it is settled.
As portrayed in the indictment, Baptist appears at the center of the scheme. In 1985, according to the government, it paid $75,000 annually to each of the LaHue brothers. That arrangement continued through 1993.
Thomas Eckard, a Baptist employee, served as Blue Valley's administrative manager, the government said. He also acted as liaison and recruiter between Blue Valley and the other hospitals, the indictments allege. From 1985 to 1993, Baptist paid Eckard $495,378 in salary.
Eckard, according to federal investigators, invited representatives of other hospitals to visit Baptist's Adult Health Care clinic. Baptist employees would explain the advantages of operating a Blue Valley geriatric clinic, and the increased Medicare admissions and revenues that would ensue.
Eckard pleaded guilty last year to soliciting a $50,000 kickback from Liberty (Mo.) Hospital, which didn't bite on the offer. He was sentenced to five months in prison. He is due to be released June 25.
On May 30, Baptist's chief executive officer, Dan Anderson, unexpectedly left his positions at the medical center and its parent company, Health Midwest. Similarly, Dennis McClatchey, Baptist's chief operating officer during the period in question, took a leave of absence from his post of senior vice president of corporate relations at Health Midwest (June 9, p. 26).
According to the indictments, Anderson's signature appears on nine agreements with Blue Valley, starting Jan. 1, 1985, pledging payments or other arrangements. McClatchey's signature appears three times regarding laboratory arrangements. Neither has been charged with a crime.
Hospitals in Wichita and St. Louis assert that the consulting contracts were legitimate. Robert Heath, general counsel at St. Joseph at the time, said the hospital wanted to build its geriatric services as part of its mission and strategy. "We thought Blue Valley's assistance (would help) to develop a comprehensive system of care for the nursing home patient. They allegedly had expertise in that field." But the relationship with the LaHues didn't fulfill all the hospital's expectations. "As a consequence it was ultimately terminated after a four-year run," he said.
Heath declined to say whether the U.S. Justice Department or HHS' inspector general's office had asked for a settlement.
"Keep in mind this was an indictment of the two physicians in the medical group. None of the hospitals named in the indictment has been charged," he said.
Two hospitals came out of the investigation with their reputations unblemished and perhaps enhanced.
Eckard allegedly solicited Liberty Hospital and Olathe (Kan.) Medical Center to sign consulting contracts. They refused.
Frank Devocelle, Olathe's CEO, declined to be interviewed.
Joseph Crossett, administrator of Liberty Hospital, said what Blue Valley "proposed to provide wasn't something that we needed, and we said no. They were talking about providing medical direction to the patients in our long-term-care clinic. Fairly infrequently do we hire medical directors of units."
He first heard about the investigation when "the FBI showed up on my doorstep. It's been two or three years ago." The FBI subpoenaed documents, and Crossett was asked to testify before a grand jury.
Crossett said he had heard nothing from authorities for a long time until he read of the indictments.
Malcolm Sparrow, a fraud control expert at the John F. Kennedy School of Government at Harvard University, said the activities described in the indictments sounded like typical kickback schemes, and the length of the alleged scheme highlighted the government's inability to uncover them and prosecute offenders.
Sparrow, author of License to Steal: Why Fraud Plagues America's Health Care System, had not read the indictments and couldn't comment on the specifics in the case.
But, he said disguising kickbacks to look like other contractual arrangements is not new to HCFA. The standard defense is to assert that the contracted services were delivered.
"How could it go on for 10 years without some audit or detection system stepping in and making some intervention? That is always the depressing question," he said. "It shows lack of routine controls sufficient to uncover these types of arrangements."
The indictments don't reveal how the alleged scheme was discovered.