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