Grip posted part 1 of an interview with Tama Kudman and Barry Posner today highlighting key strategies to detect and deter healthcare fraud.
The word “fraud” usually conjures images of intentional dishonesty or criminal behavior. But in the US healthcare industry, fraud can result from practices ranging from the intentionally duplicitous to the entirely well-meaning or uninformed.
And if healthcare-related claims are submitted through the government, private whistleblowers can initiate suits under the False Claims Act (FCA), which can lead to civil monetary penalties (CMPs) resulting in treble (3x) damages and $50,000 per false claim, adding up to significant exposure or exclusion or suspension from federal healthcare programs.
For general counsel and compliance officers at healthcare companies, it is critically important to maintain knowledge of the relevant laws and keep open communication channels with employees, consultants and, when relevant, outside counsel, to ensure that claims made to the government are complete and accurate.
I spoke with Barry Posner and Tama Kudman, partners at Kudman Trachten Aloe Posner LLP, about some of these common fraud risks in healthcare. Kudman and Posner defend healthcare providers against complex and often high-stakes litigation in cases involving alleged fraud, waste, and abuse under the federal Anti-Kickback Statute and the Stark Laws as well as represent healthcare providers in commercial and other transactional matters. Both are highly experienced attorneys with over 50 years of combined expertise in the healthcare sector.
Our discussion touched on potential liabilities imposed by those laws, and strategies leveraged to defend against lawsuits brought under them.
Common areas of fraud
“Strictly speaking, fraud requires intent of the parties. However, there are situations where healthcare companies unknowingly run afoul of the rules relating to fraud, waste and abuse, and particularly the Stark Law [covering physician self-referrals] as well. These issues can come up in several ways, including accidentally,” Posner said.
“Many companies lack the necessary experience and knowledge when it comes to healthcare regulations, which is why it’s important to involve legal counsel early on. Tama and I have been lucky to work with clients who understand this and reach out for guidance to avoid common mistakes. Some of these mistakes stem from the complex and detailed language of healthcare laws, which even experienced lawyers have issues with. This area of business and law requires careful attention and expertise, and it’s crucial to have counsel who is deeply familiar with the specific issues involved.”
Counsel can debate what applies, and the Office of Inspector General [OIG] has often been helpful in providing guidance either through advisory opinions or fraud alerts in identifying issues that they consider ‘highly suspect behavior.’
“But many healthcare laws are drafted broadly and ambiguously. By design, these statutes were meant to be broad and to some degree unclear, so people stay well away from fraudulent activity,” Posner added.
How false claims arise
“False claims arise in almost any department or area in a healthcare company” Posner explained. “They can arise in a company’s finance or billing and collections departments. They can also happen through operations and/or sales and marketing.”
An obvious example of false claims is over-billing the government, or somebody who’s being funded by the government. This can be as simple as improperly coding (“up-coding”) an otherwise “good” claim, resulting in higher charges for services than those that were provided.
“People often forget, don’t know, or lose track of the fact that illegal sales and marketing practices resulting in a referral of healthcare items and services under Medicaid, Medicare, or other Social Security Act-funded programs, such as [within] the Department of Defense or Indian Health Service, can result in overpayments, false claims, or fraud,” he said.
Fraud and marketing claims
“Let’s use an example from the pharmaceutical industry,” Posner said. “It is perfectly appropriate for a major pharmaceutical manufacturer to market properly to physicians; by this I don’t mean providing them with lavish lunches, trips to the Bahamas for conferences, which are of course, problematic.
“But if they’re marketing a drug for off-label use to physicians in a systematic or institutionalized way, that may be pursued as a false claim. So, a perfectly appropriate off-label prescription of a drug, through improper marketing practices, can result in a false claim.
“Many companies lack the necessary experience and knowledge when it comes to healthcare regulations, which is why it’s important to involve legal counsel early on.”
Barry Posner, partner, Kudman Trachten Aloe Posner LLP
“There’s also a safe harbor for a bona fide employee to be compensated on a commission basis. The use of 1,099 independent sales forces are often considered low risk by companies. This is simply not the case and can be a very highly suspect practice; billing for items and services because of the sales and marketing efforts of independent contractors, or outside sales consulting companies that employ staff that are not bona fide employees to market to healthcare practitioners, can equally result in false claims.”
Tama Kudman noted: “To add to that, the control over those non-full-time employees and contractors leads to all sorts of problems because when you don’t have oversight over what the sales and marketing team is doing, we often see them employing improper marketing and sales techniques, for example, such as paying kickbacks for prescriptions.
“We see employees and contractors doing things like soliciting unnecessary medical services using scripts or orders that are pre-filled for certain services or items, for example. So again, the concept of separating the business from the sales and marketing sounds great, but it can be dangerous,” she said.
Fraud in financial divisions
“Fraud can be up-coding [fraudulently charging more for services], but ostensibly innocent behavior can be fraud too,” Posner said. “A real example from when I was general counsel for a company: your billing systems submit large numbers of claims which, when paid by third party payers, commercial or governmental, may come in large batches.
“When payments come in big batches, they are not always precisely identified. This limits the ability of the billing party to properly identify the payment to a bill, resulting in unapplied cash, which in turn can result in duplicative billing or keeping payments in excess of the amount actually billed. If this results in overpayments beyond the time period for self-disclosing and refunding payments, an ‘overpayment’ arises.
“In the past, when systems weren’t as sophisticated, you could get double or triple payments. If you don’t know how to apply that cash, it can result in overpayments, which are also considered a false claim by the government. And it’s perfectly innocent.
“In the instance I had to deal with, it was unbeknownst to the company for an extended period of time until that ‘holy shoot’ moment arose. On my advice, the company fully cooperated and fully self-reported, but the cash posting and billing systems needed to be cleaned up and rectified. It took well over $2m dollars to fix the systems and processes; it cost even more to monitor and report under a corporate integrity agreement. It took a lot of time, commitment, and additional human resources to fix those problems.”
Billing and medical necessity
Genetic testing
“Sometimes the government alleges that services are not medically necessary. So, for example, genetic testing right now could be an area where the government claims that the entire business model is problematic,” Kudman said.
“And it’s not that there aren’t legitimate uses for genetic testing. But there are scenarios where, for example the marketers are saying things like, ‘For free, you can get tested to see whether you have a genetic predisposition to a host of cancers.’ And then these prescriptions are either vetted by telemedicine doctors who will write the prescriptions, or sometimes they’re even sent to the patient’s own physician.
“But the range of tests that are ordered is all-encompassing. And the government views that as not medically necessary. There’s no history that would indicate that this person needs every genetic test done. And we’ve seen labs shut down and prosecuted for unnecessary genetic testing,” she said.
Compound pharmacy
Kudman went on: “Compound pharmacy was designed to address the individual needs of patients. It’s supposed to be doctor driven: ‘My patient needs this medication, but they need it in patch form rather than pill form.’ Or ‘my patient can’t tolerate this preservative in the pill.’ So, they have a compounded medication made. Problems can arise when a compounding pharmacy puts together formulations that they ask doctors to write prescriptions for.
“And they’re putting into those formulations medications that are similar to others that do the exact same thing, but perhaps these medications are more expensive. So, in effect, not only is the tail wagging the dog by soliciting prescriptions, they are using formulae driven by profit, not medical necessity.”
Telehealth
Posner stated: “Telehealth medicine, when done properly, is an appropriate and effective way of providing access and care to people who aren’t necessarily in highly populated areas, are mobile, or otherwise lack access to in-person care.
“It’s become a helpful way of delivering psychiatry for those who feel more comfortable talking to somebody on a phone or screen rather than face-to-face, which is perfectly appropriate. But for telehealth to be valid, there must be a legitimate physician-patient relationship.
“What gets scary in healthcare is how quickly the value of the loss to Medicare or other government programs or to commercial insurance stack up.”
Tama Kudman, partner, Kudman Trachten Aloe Posner LLP
“What Tama was alluding to before and what we’re seeing some less-than-reputable companies doing with GLP-1 compounding for instance, is, ‘Fill out this questionnaire online, we’ll have a telehealth two-minute conversation, you’ve checked the box, and now you can get compounded non-manufacturer-made prescription drugs for weight loss.’ So, the work plan can be very helpful in identifying those things.”
Kudman added: “In terms of defense, those cases that are based on the lack of medical necessity are generally the most defensible, as opposed to Stark and anti-kickback cases, where the compensation model often speaks for itself.
“But when you’re talking about a debate over medical necessity, that’s where you can get into some interesting defense arguments. And there’s always this tension between the advancement in medicine and the government’s view of what’s medically appropriate and necessary.”
Defensive strategies
“In terms of defending individuals, very often what we look at is advice of counsel. What kind of compliance plan did the person rely upon? What advice were they getting? And sometimes even the indirect advice of counsel. Sometimes we’re dealing with the advice that was given to, let’s say, a business owner that was then conveyed to the employees, and the employees believed that what they were doing was compliant and had been vetted,” Kudman stated.
“What gets scary in healthcare is how quickly the value of the loss to Medicare or other government programs or to commercial insurance stack up. And so, we get these wildly crazy loss amounts which drive up the sentencing guidelines. And sometimes what we’re trying to do is damage control. We’re trying to show that the value of the loss or the intended loss isn’t as great as the government has projected.
“And so, we often use statisticians to get at improved loss figures. For example, people will say, ‘Look, I’m just not paying my marketers the right way.’ They think it’s a minor thing. They don’t realize that that error infects all the billing that occurred through those referrals,” Kudman clarified.
Posner added: “When your entire sales program and compensation is based on improper payments, every single claim that you submit to a federal program is now violative. As mentioned earlier, each false claim can be very costly.”
About Kudman Trachten Aloe Posner LLP
Kudman Trachten Aloe Posner LLP is a full-service commercial firm that focuses on commercial transactions, buy- and sell-side mergers and acquisitions, corporate finance, white collar criminal defense and complex commercial litigation, including bankruptcy and creditors’ rights, healthcare fraud, waste and abuse, commercial and governmental reimbursement, and day to day corporate work, including tax, intellectual property, real estate and employment law. See https://www.kudmanlaw.com for more information.
