It's not enough, apparently, to indict hospital executives and doctors for fishy business deals. Now federal prosecutors are baiting their hooks for hospital lawyers.
A 12-count indictment handed up July 15 in Kansas City, Kan., charged three executives at Baptist Medical Center in Kansas City, Mo., and two doctors with conspiring to pay and receive bribes in exchange for patient referrals (July 20, p. 2).
But this time the grand jury also indicted two Kansas City, Mo., lawyers who advised the hospital: Ruth Lehr, 55, and Mark Thompson, 42.
The unprecedented move in a hospital fraud case is sending a shiver down the spines of members of the healthcare bar.
"It's an extraordinary thing to do, to indict the lawyers," said Alice Gosfield of Philadelphia. "I have to say, it's a shocker."
Jeff Ellis, who practices in Kansas City with Lathrop & Gage, said: "We used to think malpractice was our outside risk. Jail is a whole different scenario. It's sort of like charging doctors with criminal sanctions if they have a bad outcome and the patient dies. Everybody's kind of in shock and finds it pretty upsetting."
According to the 54-page indictment, the doctors, Robert LaHue, D.O., and Ronald LaHue, D.O., set up a scheme to receive kickbacks in return for referrals of nursing home patients covered by Medicare. Baptist allegedly co-conspired in the scheme and served as the LaHue brothers' cover in extending it to four other hospitals.
The lawyers who advised Baptist on how to structure their relationship with the LaHues were, according to the indictment, instrumental in the crime.
"Defendants Ruth Lehr and Mark Thompson (facilitated) the offer and payment of monetary bribes and other remuneration by crafting sham agreements to conceal the fact that Baptist Medical Center was paying for patient referrals," the indictment says.
Lehr performed legal services for Baptist from 1984 through 1992, and Thompson did so from 1990 through the present, according to the indictment. Lehr and Thompson are charged with conspiracy to solicit and receive offers and pay bribes. Lehr also is charged with one count of offering and paying bribes. Thompson was indicted on a separate count of offering and paying bribes.
Prosecutors don't suggest that either Lehr or Thompson profited from the conspiracy beyond their usual legal fees.
The indictment quotes Lehr and Thompson's legal correspondence that, the government alleges, creates the appearance they were trying to evade the law.
For instance, a letter from Lehr allegedly says: "It is absolutely essential that there be no documentation of any intent to refer patients for services or items for which Medicare or Medicaid might pay."
The federal anti-kickback statutes bar any form of remuneration to induce the referral of Medicare or Medicaid business.
Thompson allegedly arranged for communication between the hospitals and the LaHues to be made through attorneys "to conceal information under an ostensible claim of attorney-client privilege," the indictment said.
"The fact that it's in the indictment doesn't mean it's true," Gosfield countered. Or the indictment might have taken Lehr's words out of context. "She may have said, `Not only can you not document anything about referrals, you can't pay for referrals either.' "
James Gaynor, with McDermott, Will & Emery in Chicago, said, "If you can't seek advice from your lawyer on what the statutory requirements mean, that certainly undermines the utility of consulting lawyers."
Edward Hopkins, with Steel, Hector & Davis in West Palm Beach, Fla., said he has never heard of attorneys being indicted under the kickback statutes.
But he added, attorneys, "don't enjoy any special insulation if they get involved in an illegal conspiracy."
By the same token, he's not aware of any case in which conspiracy charges included attorneys along with the actual parties to the arrangement if the attorneys only drafted the consultation agreement.
It's generally accepted that lawyers who draft documents or give advice are not part of the transaction, Gosfield said, because they derive no direct benefit.
In any event, the lawyer has no control over what the client does with the advice. "They're going to have to show that this lawyer affirmatively knew that this transaction was designed to reward referrals in a way that is inappropriate," Gosfield said.
Apparently, the prosecutors intend to do so. A recent federal appeals court ruling sheds some light on their case.
Last week the American Health Lawyers Association's Health Law Digest published a two-page summary of a case in the 10th Circuit Court of Appeals in which two lawyers tried-and failed-to quash subpoenas from a grand jury requiring them to testify in a hospital criminal investigation. The attorneys in the case are referred to as "Doe" and "Roe," and the hospital's name is never mentioned, but circumstances of the case suggest the parties might be Lehr, Thompson and Baptist. (The 10th Circuit includes Kansas.)
On being subpoenaed, the attorneys asserted attorney-client privilege and declined to answer questions before the grand jury. Prosecutors moved to compel the two to testify, and the U.S. District Court in Kansas City, Kan., agreed.
An appeal was brought to the 10th Circuit in Denver. That court on May 15 affirmed the district court's ruling that the government had "established by substantial and competent evidence a prima facie case that (the hospital and its CEO) have committed a crime, that (the hospital and its CEO) used the legal services of Roe and Doe in furtherance of that crime, and that Roe and Doe were aware of the criminal conduct."
Therefore, the "crime-fraud exception," in which the attorney-client privilege is suspended if the lawyer has aided in criminal or fraudulent conduct, applies to this case, the court ruled.
James Sheehan, an assistant U.S. attorney in Philadelphia, supports that view. One of the most aggressive prosecutors in healthcare, Sheehan piloted the civil case that led the University of Pennsylvania to pay $30 million to settle charges that its physicians billed Medicare improperly.
"There are certain situations in which the object of the conspiracy cannot be accomplished without the assistance of a lawyer," Sheehan said. "So, where that occurs, where the lawyer is a conscious and active participant in the scheme, the lawyer should not enjoy protection not available to the other participants."
