Wisconsin-based Mercyhealth recently fired its vice president in charge of marketing after finding she engaged in fraud and set up kickback payments with a vendor.
The situation is another reminder for health system executives to make sure their vendor contract processes are iron tight to protect both the individuals and company from improper arrangements.
In a memo to employees, Mercyhealth CEO Javon Bea alleged Barbara Bortner was involved in a series of transactions with a vendor that resulted in an estimated $3 million in a fraudulent scheme. Bea also said that the contract involved a marketing vendor, but didn't go into details.
"It looked like it was a marketing and PR professional that had negotiated the contract independently of supply chain," said Nancy LeMaster, chair of the Institute for Supply Management business survey committee for ambulatory, inpatient and nursing home-type facilities. "One of the first things you can do is to make sure that all of your contracting, whether it's for services like marketing or HR, are done in conjunction with a supply chain professional."
Mercyhealth, which runs seven hospitals in Wisconsin and Illinois, wasn't able to answer questions about how its vendor services contact processes are set up.
It's critical for health systems to create a team involved in vendor contracts to avoid potential impropriety, LeMaster said.
"You want to think of it as a team effort instead of getting into who controls it," LeMaster said, adding that it's a good practice to rotate contract managers a new set of eyes every so often. "Who knows the actual service and products that needs to be purchased? Who is that professional that is good is a good negotiator? And make sure that your selection criteria is objective."
Systems can also create dollar thresholds for which positions can create contracts, and who needs to be involved at each level. For instance, high-dollar services might require someone from the supply chain and finance departments. One-time services under a low amount like $100 might not require additional eyes. Another best practice, creating contract signature authority guidelines, so there's not one person setting up a contract and signing off on invoices.
Mercyhealth's Bea said in the memo that the system is taking steps to protect the system, including recovering improper payments.
"We are confident that our internal financial controls meet or exceed industry standards," Bea said. "Our financial statements and internal control procedures are audited annually by an outside accounting firm. Nonetheless, we are engaging an audit and consulting firm to assist with a comprehensive review of our vendor management and invoicing procedures. We will take all actions necessary to improve the Mercyhealth procedures."
The kickback scheme doesn't appear to run afoul of the False Claims Act or other federal laws, where health providers come under fire for illegally incentivizing other providers to refer patients. But even if the scheme didn't involve Medicare or Medicaid dollars, federal officials can get involved via the Federal Travel Act, which as created in the 1960s as a way to go after organized crime that violated state bribery laws.
"If they violated the state bribery laws, then it's possible that the federal government could actually use the bribery laws to make it a federal crime," said Kim Stranger, a healthcare attorney with Idaho-based Holland & Hart, adding that in those cases misdemeanors can become felonies.
Mercyhealth could also sue their former vice president for fraud, misappropriation or a number of common law violations to recover damages.