The Justice Department trumpeted a recent $2.3 billion criminal plea and civil settlement with Pfizer as its largest healthcare case ever. At its core was the receptiveness of thousands of physicians to the company's overtures of tropical getaways and bogus consulting payments that drove the medical community's willingness to prescribe the anti-inflammatory drug Bextra for acute pain, although the Food and Drug Administration never approved it for that use.
Making them pay
High-cost of healthcare reform is fueling more fraud enforcement, putting hospitals, physicians, other providers on notice
The billions of dollars of public money in healthcare coupled with the complexity of payment mechanisms create incentives for hospitals, physicians, and drug and devicemakers to engage in relationships that the government views as kickbacks or violations of the law restricting physician self-referral.
But the government, too, has incentives to get its money back, and its drive is likely to intensify with the fiscal demands of paying for expanded coverage and other reforms pushed by President Barack Obama and his allies in Congress. The tension between business imperatives and the wrong side of the law is yielding a steady flow of settlement agreements between the healthcare players, the government and often the whistle-blowers who bring them to the government's attention.
Lewis Morris, chief counsel to HHS Inspector General Daniel Levinson, said the government is placing an increased emphasis on pursuing the individuals involved in the alleged misconduct that drives multimillion-dollar—or multibillion dollar, in the case of Pfizer—healthcare settlements. “Under the anti-kickback statute and Stark self-referral law, it takes two to tango,” Morris said. “When we're doing our analysis of the fraud problem, we have come to recognize we're only going to get our arms around this if we address both parties to the scheme.”
That means they're looking at individual physicians on the receiving end of kickbacks or referral relationships that violate the Stark rules, and they're also looking at CEOs and compliance officers who create or approve the relationships. “A corporation is nothing but a legal fiction,” Morris said. “A corporation doesn't do anything, it's just a bunch of paper. It's the people in a corporation that do things.”
In a cluster of cases that's expected to grow substantially, the U.S. Justice Department since May has rolled out seven settlement agreements stemming from an alleged marketing scheme by Kyphon, now a division of Medtronic (Oct. 5, p. 10). The company, according to the government and former employees who triggered the case with a whistle-blower lawsuit, persuaded physicians and hospitals to admit patients overnight for a simple procedure called kyphoplasty.
Medtronic settled the allegations last year for $75 million, and now the government is systematically investigating hospitals that billed Medicare for the admissions on the theory that most of the surgeries, in which cement is injected into small spine fissures, could have been handled appropriately as outpatient procedures.
Similar to the Pfizer case, the alleged scheme was built in part upon a campaign to persuade influential surgeons and later interventional radiologists to routinely admit patients in order to make a solid profit on the procedure using a Kyphon kit that, according to court documents, came at a cost of about $3,400.
Sales representatives promised physicians the company would promote their practices and use of the procedure to referring physicians, in talks to seniors and in newspaper advertisements, according to a whistle-blower lawsuit filed by two former Kyphon employees. Kyphon representatives called “spine education specialists” worked with surgeons to identify and cultivate referral sources.
Those targeted, in turn, were pushing the admission protocols in hospitals that were unaware the physicians were being courted aggressively by Kyphon, according to Ronald Clark, a lawyer who helped negotiate a $2.3 million settlement of kyphoplasty allegations for HealthEast Care System, St. Paul, Minn.
Hospital arrangements with physicians, meanwhile, are an area of intense interest because they create rats' nests of potential kickbacks and self-referral relationships. In an unusual False Claims Act case settled last month for $4.5 million, the government alleged 231-bed Covenant Medical Center in Waterloo, Iowa, paid four of its employed specialists in excess of fair market value, violating the Stark law.
Also in September, the University of Medicine and Dentistry of New Jersey in September agreed to pay $8.3 million to resolve allegations involving part-time employment contracts that the Justice Department alleged amounted to kickbacks for cardiologists who referred patients to its hospital in Newark. According to court documents, the institution was squeezed by declining volumes of cardiac catheterizations and cardiothoracic surgeries that threatened to disqualify its 444-bed University Hospital as a Level I trauma center.
To reverse the trend, the university hired eight community cardiologists as clinical assistant professors under contracts paying them $50,000 to $180,000 a year purportedly for work to include teaching, call coverage and research support. In this case, the government already has gone after the physicians. In 2008, six of them settled the allegations and two, Bakul Desai and Laxmipathi Garipalli, pleaded guilty to criminal embezzlement. They have not yet been sentenced.
The Obama administration has put words and money behind stepped-up attention to fighting healthcare fraud, and healthcare lawyers expect to be navigating more investigations for their clients. “I certainly think they're going to expand their net,” said Mark Armstrong, a lawyer with the law firm Epstein Becker & Green. “Because of the risk that may be involved in going to trial, we'll see providers settling those claims.”
Assistant Attorney General Tony West described Pfizer's admitted and alleged conduct—the agreement combined a $1.3 billion criminal fine and forfeiture with $1 billion in payments resolving a spate of related False Claims Act allegations made in whistle-blower complaints—as a drain on resources available for needed healthcare services and a corruption of medical decisions.
According to the government's version of the facts underlying the criminal charge, Pfizer subsidiary Pharmacia held about 100 consultant meetings from 2001 to 2003, paying airfare for physicians to resorts in the Bahamas, Virgin Islands and elsewhere, where they were entertained with golf outings and massages and paid honoraria of $1,000 to $2,000. Physicians identified as “advocates” were paid to speak at lunches and dinners.
Morris, when he addresses healthcare lawyers on behalf of the inspector general's office, occasionally brings up a deferred prosecution agreement reached in 2007 between the Justice Department and devicemakers Biomet, DePuy Orthopaedics, Smith & Nephew and Zimmer. He has noted pointedly that the companies, as a condition of the deal, promised to identify the surgeons who received alleged kickbacks to use the products (See related By the Numbers chart, p. 9). “We have a number of cases we are working,” Morris said.
Pfizer's plea agreement includes a similar pledge to cooperate “completely and truthfully in any trial or other proceeding arising out of any ongoing civil, criminal or administrative investigation of its current and former officers, agents, employees and customers” related to the admitted criminal conduct.
Independent of whether the Justice Department brings a civil complaint or criminal charge following an investigation, HHS' inspector general's office has the authority to impose civil monetary penalties on organizations and individuals.
Last week, the office issued a news release announcing a settlement with a relatively low dollar figure and characterized as representing the commitment to pursue individual decisionmakers and participants. Michael Bakst, former CEO of 244-bed Community Memorial Health System in Ventura, Calif., agreed to pay $64,000 to resolve allegations that he was personally responsible for improper financial relationships with physicians and gifts to physicians in 2002 and 2003. The hospital in 2007 reached a $1.5 million settlement resolving those and other matters with the government.
Some providers and lawyers, meanwhile, wonder how the fraud enforcers would handle the tension created by proposed reform measures that require hospitals and physicians to share financial incentives toward quality and efficiency.
“We recognize there are a lot of potential ways physicians and hospitals or physicians and other providers can collaborate,” benefiting patients and perhaps saving money for the government, Morris said. “When we think about this brave new world we're coming into, we're open to being educated. We also need to have a candid conversation with the provider community about ways to ensure the program is not abused. There has to be a recognition that there are powerful incentives at play that can distort medical decisionmaking.”
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