One key government agency is flexing an enforcement muscle as never before, and some legal insiders are wondering if that's because another agency is trying to undermine provider prosecutions.
On the one hand, HHS Inspector General Janet Rehnquist is stepping up the use of civil monetary penalties against providers that engage in Medicare kickback schemes. Those penalties give the government more flexibility in dealing with wrongdoing, giving prosecutors an option between no punishment and criminal convictions that include outright expulsion from the Medicare program.
On the other hand, a leading lawmaker has accused Thomas Scully, head of the Centers for Medicare and Medicaid Services, of trying to weaken the federal False Claims Act. That civil law, an outgrowth of Civil War profiteering, allows whistleblowers to collect a portion of any ill-gotten gains recovered in court and can be filed by the government itself without a whistleblower. The law was updated in recent years by Congress, largely through the efforts of Sen. Charles Grassley (R-Iowa), who has blasted Scully for allegedly trying to water down the act's enforcement.
Scully, who once headed the Federation of American Hospitals, an organization that represents for-profit hospitals, denies the allegation, but others think there is a link between Rehnquist's actions and Scully's views.
James Moorman, president of the Washington-based Taxpayers Against Fraud, contends there is an internal policy debate between officials at the U.S. Justice Department, the CMS and HHS' inspector general's office over interpretation of the False Claims Act in civil kickback cases.
"I think what we're seeing coming out of the inspector general's office is connected to this policy dispute," Moorman says. "But right now it's like the blind man describing the elephant: There's too much that we just don't know."
The target of the dispute is the ongoing crackdown on provider kickbacks-defined as remuneration to induce referrals from federal healthcare program patients done knowingly and willingly. In recent years the False Claims Act has gained popularity in the prosecution of fraud charges. At the same time, HHS' inspector general's office, dating back to former Inspector General June Gibbs Brown's tenure during the Clinton administration, has been promising to increase the use of civil monetary penalties, authority it's had since 1997 to punish healthcare providers who have paid or received kickbacks. Those powers offer greater flexibility in settling cases through intermediate sanctions and other remedies, agency sources say.
In March, Grassley demanded Scully explain reports that he was attempting to influence or direct new federal policy concerning the invocation of the law in civil kickback cases. Scully allegedly believes the law should not be applied to kickback cases and supports administrative resolution of alleged violations. The two have exchanged letters, but Grassley's office says Scully has not been forthcoming in addressing the senator's concerns.
Sources at the CMS and the Justice Department declined to comment on any connection between the alleged behind-the-scenes actions by Scully and the growing emphasis on administrative remedies to resolve kickback allegations. Though Scully denies there is a new interpretation of the law, he declines to comment on any deliberations on the topic between the CMS and the Justice Department.
More civil action
There's no denying that the inspector general's office is increasingly invoking its authority to impose civil monetary penalties in kickback cases, charging that kickback arrangements increase utilization and unnecessarily increase the government's healthcare expenditures.
After securing just one civil monetary penalty settlement from August 1997, when the law was implemented, to January 2001, the inspector general's office has signed on to 12 settlements for more than $950,000, two of which include exclusions from Medicare and Medicaid. The agency has told healthcare lawyers and providers that a host of kickback cases are about to be settled using the penalty powers.
"I know you've heard it before," the inspector general's office Senior Counsel Vicki Robinson recently told a group of healthcare fraud lawyers at an American Bar Association conference in San Francisco, referring to the use of penalty policies in kickback cases. "But this time, I assure you, they are coming."
In a rare public appearance at the same health lawyers' conference, Rehnquist pledged more frequent use of administrative remedies such as civil monetary penalties.
"I think as an enforcement tool, it is currently underutilized," Rehnquist told the lawyers.
Greg Demske, chief of administrative litigation for the inspector general, says the government can choose from three laws to prosecute kickbacks. The 1972 criminal Medicare antikickback statute is by far the toughest. Those convicted under it face prison time, sizable fines and mandatory exclusion from Medicare and Medicaid-a death knell for providers. But prosecutors must meet high standards of evidence, proving guilt beyond a reasonable doubt. And those standards make it difficult to settle criminal kickback cases out of court. Demske says because it's hard to demonstrate a loss to federal health programs to a jury, the government historically has been reluctant to bring criminal kickback charges, except in cases of egregious misconduct. The Stark laws, which mostly prohibit physician self-referrals, have not been widely tested in court.
The False Claims Act allows the government to collect up to three times the amount of a false claim or, as some judicial circuits have interpreted, triple the amount of claims for services tainted by kickbacks, plus up to $10,000 per false claim.
The civil monetary penalty law permits the inspector general to assess a civil penalty of $50,000 per alleged kickback act, plus up to three times the amount of the alleged remuneration. It also includes the option of banning the providers from participation in Medicare and Medicaid.
While the standard for establishing a kickback is the same, the burden of proof differs dramatically between civil and criminal cases. On the civil side the inspector general must establish that the behavior occurred using a lower standard, called a preponderance of evidence.
Demske says the penalties can still achieve the desired results of recovery of federal money and deterrence.
That's why he says Rehnquist has made the penalties a higher priority for the agency in targeting kickback cases.
"She wants us to concentrate on the civil monetary penalty option when it makes more sense for us to pursue administrative remedies than to use other civil tools, like the Stark law or the False Claims Act," he explains.
He notes that each of those laws requires leaping certain legal hurdles. But under administrative sanctions, the inspector general doesn't have to convince a jury that the government was harmed by a kickback or that false claims resulted from billings tainted by kickback referrals.
"We only have to prove they knowing and willfully intended to receive or pay kickbacks," he says.
He acknowledges that settling administrative charges does not carry the same weight as a criminal conviction. "But we can still assess high penalties and exclusions from federal health programs, and our remedy is strong," he says. "What the (civil monetary penalty) does for the government is it gives us flexibility."
Mary Grealy, president of the Washington-based Healthcare Leadership Council and former chief Washington counsel for the American Hospital Association, says she doubts that Scully's alleged disdain for the False Claims Act in civil kickback cases is behind increased use of administrative remedies.
"The inspector general is a pretty independent entity," Grealy says. "I'm not sure that there ever is a lot of coordination among HHS, the Justice Department and the inspector general."
But Grealy says she believes that administrative remedies are much more appropriate than the "heavy-handed" False Claims Act.
"It's a complex healthcare system and it's easy to make errors," she notes. "It is appropriate to discipline within the agency running the program because it has a greater understanding of how Medicare is administered," citing the difference between action by HHS and the Justice Department. "The inspector general has a lot of enforcement power and can send a pretty clear message through (civil monetary penalties)."
Gary Montilla, a former assistant U.S. attorney in Tampa, Fla., now in private practice in San Juan, Puerto Rico, with the firm Lausell & Carlo, also sees valid reasons for expanded use of civil monetary penalties.
"I'm glad to hear it's finally happening," he says.
Montilla, who was known as "King of the Healthcare Kickback Prosecutions" during his 20 years in Tampa and successfully brought more than 100 kickback cases, says he is pleased the inspector general's office is using its powers to impose civil monetary penalties.
"But what took them so long?"
Before leaving the U.S. attorney's office last year, Montilla presided over an ongoing investigation into a Tampa-area kickback scheme implicating hundreds of physicians and several diagnostic and laboratory centers. That probe, which centered on Clearwater (Fla.) Clinical Laboratories but also touched many other firms, has resulted in more than 20 criminal convictions since it began in 1996. Montilla's office turned over more than 100 cases to the inspector general that his office declined to prosecute.
Maintaining a high priority
In a Modern Healthcare interview last year, Rehnquist's counsel, D. McCarty "Mac" Thornton, said kickback cases have always been a significant agency priority, even before the agency gained civil monetary penalty authority.
"What accounts for the increase in numbers? The easy answer is our investigations are finding more kickbacks, mainly directed toward doctors," Thornton said then.
He now says those kickbacks are often disguised as phony medical directorships in which the physicians have no real duties but to collect checks and send referrals. Some have taken the form of free cleaning services for physician homes and offices or exorbitant rents paid to doctors. In at least one case, Thornton says, high rent was paid for office space that turned out to be located in a physician's closet.
"What these arrangements have in common is that they are all illegal," Thornton says. "We're concerned about kickbacks because they can affect the medical judgment of physicians. From medical literature we know kickbacks can affect what doctors order for patients and how often they order it."
Thornton predicts many more cases involving civil monetary penalties in the near future.
As the new cases mount, Michael Kendall, a defense lawyer with the Boston office of McDermott, Will & Emery, says he hopes the inspector general will exercise discretion with these powers.
"Will they go after behavior that truly needs to be addressed by law enforcement?" Kendall wonders. "Or will they take cases rejected by U.S. attorneys, cases that will get caught up in (office of the inspector general) machinery that don't merit that level of penalty or rise to the level of the alleged offense?"
Meanwhile, whistleblower lawyers and others aren't convinced that Rehnquist's increased use of the penalty law is divorced from Scully's alleged end run around the whistleblower law.
"I certainly hope they're not connected," says Los Angeles whistleblower lawyer Mark Kleiman. "The real question is if it's going to be used in tandem with a repression of the False Claims Act."
Kleiman says that under the False Claims Act, if the Justice Department tries to settle a whistleblower suit for a song, the whistleblower can challenge the rationale of the settlement in court and a judge can reject it.
However, he says under the process pursuing civil monetary policies, "the whistleblower has no rights at all. I think the civil monetary penalty process has the potential for abuse. If a (CMS) administrator wanted to sweep something under a rug, that's the rug to sweep it under."
Thomas Crane, a former lawyer with the inspector general's office and now with the Boston office of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, says Rehnquist's push for administrative remedies bears "more than the usual blessing. This is a personal initiative by Janet Rehnquist, an enforcement tool she intends to make a priority."
Crane says one reason for the new focus is convenience.
"The inspector general has the resources to work up cases, and the success of those cases is now dependent largely upon federal (Justice Department) prosecutors to either take or decline them. Having them initiated under the civil monetary penalty authority allows the inspector gen-eral to maintain control of the process. The assumption is that it will be easier to win cases through the administrative remedy process. It's a tool with significant penalty power."