Now it’s per­sonal: Top ex­ecs fined for false claims

Modern Healthcare - - NEWS - By Erica Te­ichert

Last year, U.S. Deputy At­tor­ney Gen­eral Sally Quil­lian Yates warned top health­care ex­ec­u­tives they would be held per­son­ally ac­count­able for false Medi­care and Med­i­caid claims and il­le­gal physi­cian re­la­tion­ships. She was se­ri­ous.

The agency in re­cent weeks has reached a pair of mil­lion-dol­lar set­tle­ments that makes it clear ex­ec­u­tives may have to dip into their own wal­lets if they’re in­volved in their com­pany’s al­leged wrong­do­ing. In one agree­ment, Ralph “Jay” Cox III, former CEO of Tuomey Health­care Sys­tem, per­son­ally paid $1 mil­lion to settle al­le­ga­tions over his in­volve­ment in the Sumter, S.C., health sys­tem’s il­le­gal com­pen­sa­tion ar­range­ments with physi­cians.

In an­other case, John Soren­son, board chair­man of skilled-nurs­ing fa­cil­ity com­pany North Amer­i­can Health Care, shelled out $1 mil­lion for billing Medi­care and Med­i­caid for med­i­cally un­nec­es­sary re­ha­bil­i­ta­tion ther­apy ser­vices. North Amer­i­can’s se­nior vice pres­i­dent of re­im­burse­ment anal­y­sis, Mar­garet Gelve­zon, paid an ad­di­tional $500,000 in the set­tle­ment for her al­leged in­volve­ment.

The se­ries of seven-fig­ure per­sonal set­tle­ments paired with Cox’s ex­clu­sion from the health­care in­dus­try for four years shows that the U.S. Jus­tice Depart­ment plans to use ev­ery tool in its en­force­ment arse­nal to curb False Claims Act, Stark law and anti-kick­back statute vio- la­tions. Gov­ern­ment lawyers are in­creas­ingly fo­cus­ing on per­sonal ac­count­abil­ity for bad con­duct.

“I think it’s a new day for C-suite ex­ec­u­tives and boards and for peo­ple down the line too,” said Kath­leen McDer­mott, a part­ner at Mor­gan, Lewis & Bock­ius and former Jus­tice Depart­ment health­care fraud co­or­di­na­tor.

Yates is­sued the con­tro­ver­sial memo a year ago. She pledged to hold in­di­vid­u­als ac­count­able for cor­po­rate mis­con­duct, even if those peo­ple could not afford to pay for their ac­tions. The so-called Yates memo also warned com­pa­nies that they would be able to lower their fines for fraud­u­lent ac­tiv­ity only if they fully co­op­er­ated with Jus­tice Depart­ment in­ves­ti­ga­tions and turned over in­for­ma­tion on the re­spon­si­ble par­ties. The gov­ern­ment wanted a stronger de­ter­rent than merely mak­ing share­hold­ers bear the fi­nan­cial bur­den for false claim mis­con­duct. “There have been cases where the gov­ern­ment has pur­sued in­di­vid­u­als, but it’s been more the ex­cep­tion than the rule,” said Reed Smith part­ner Karl Thall­ner.

The Jus­tice Depart­ment ini­tially stum­bled as it tried to put the memo’s teach­ings into prac­tice. Sep­a­rate fed­eral ju­ries ac­quit­ted ex­ec­u­tives from Ac­clar­ent and Warner Chilcott of felony fraud charges in False Claims Act cases.

But the gov­ern­ment at­tor­neys were un­de­terred. “We’ve seen the DOJ con­tinue to be more ag­gres­sive in (the Stark law) area and take ag­gres­sive po­si­tions in their briefs,” said Troy Barsky, a part­ner at Crow­ell & Mor­ing. “They, out of any agency, have been the ones most out in front set­ting Stark law pol­icy by their pros­e­cu­tions.”

The trend has also height­ened con­cerns that ex­ec­u­tives could face fines over shared-sav­ings ar­range­ments be­tween providers and physi­cians as they heed the CMS’ call to shift to­ward value-based care. This sum­mer, the Se­nate Fi­nance Com­mit­tee held hear­ings to probe the grow­ing gray area of Stark law li­a­bil­ity. It’s un­clear if or when the statute may get a long-over­due makeover.

It’s not just top ex­ec­u­tives who could find them­selves fac­ing pros­e­cu­tors’ wrath. Physi­cians could also find them­selves un­der Jus­tice Depart­ment scru­tiny for ques­tion­able ar­range­ments.

“These very large set­tle­ments against in­sti­tu­tions in­volv­ing re­la­tion­ships with physi­cians where the physi­cians aren’t pur­sued might leave the physi­cians think­ing they’re im­mune from the ef­fect of these laws,” said Ven­son Wallin, con­sult­ing manag­ing direc­tor at the con­sult­ing firm BDO. “There’s been some effort to be­gin to sig­nal to these physi­cians who are of­ten coun­ter­par­ties in these ar­range­ments that they might have some cul­pa­bil­ity.”

It’s dif­fi­cult to know the bound­aries of in­di­vid­ual li­a­bil­ity, though. In many cases, high-level ex­ec­u­tives may not have de­tailed knowl­edge of the schemes, and physi­cians may be un­aware that their ar­range­ments have il­le­gal pro­vi­sions.

But the Yates memo’s fo­cus on gath­er­ing more in­for­ma­tion on in­di­vid­ual wrong­do­ers in Jus­tice Depart­ment in­ves­ti­ga­tions could make mas­sive ex­ec­u­tive fines more preva­lent. “Even though you may not per­son­ally reap any ben­e­fits what­so­ever, if you’re con­sid­ered to be a driv­ing force be­hind what­ever is al­leged to have oc­curred, you’re go­ing to be held re­spon­si­ble,” McDer­mott said.


Ralph “Jay” Cox III, cen­ter, then CEO of Tuomey, leaves the court­house with the hospi­tal’s le­gal team dur­ing a four­week trial in Columbia, S.C., in 2013.

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