Tough medicine for ex­ec­u­tives at com­pa­nies ac­cused of health-care fraud

The Jus­tice De­part­ment is get­ting tougher on med­i­cal fraud cases “These tac­tics had pre­vi­ously been re­served for rack­e­teers”

Bloomberg Businessweek (Asia) - - CONTENTS - −Peter Wald­man

The U.S. De­part­ment of Jus­tice ar­rested a record 301 in­di­vid­u­als on health-care fraud al­le­ga­tions in late June. The num­ber was strik­ing, but so was the word—“take­down”—At­tor­ney Gen­eral Loretta Lynch used to

In health-care cases, “we’re see­ing tra­di­tional crim­i­nal pros­e­cu­to­rial tac­tics against in­di­vid­u­als for the first time on a large scale.” �De­fense lawyer Patrick Cot­ter

de­scribe what was es­sen­tially a white-col­lar en­force­ment op­er­a­tion. “Health-care fraud is not an ab­stract vi­o­la­tion or a be­nign of­fense,” Lynch said at a June 22 press con­fer­ence. “It is a se­ri­ous crime.”

The ar­rests, from Florida to Alaska, in­volved about $900 mil­lion in sus­pect billings. They’re the most vis­i­ble re­sult yet of a pol­icy shift set in mo­tion last fall, when Deputy At­tor­ney Gen­eral Sally Yates is­sued a memo bar­ring pros­e­cu­tors, with­out spe­cial per­mis­sion, from re­leas­ing in­di­vid­u­als from crim­i­nal or civil li­a­bil­ity when set­tling fraud cases against com­pa­nies. Pros­e­cu­tors typ­i­cally used such im­mu­nity deals as lever­age in pur­su­ing civil set­tle­ments with com­pa­nies ac­cused of fraud. “Those days are gone,” says Mark Hardi­man, an at­tor­ney in Los Angeles who rep­re­sents health-care com­pa­nies.

One of Hardi­man’s clients is Dr. Prem Reddy, the founder and chief ex­ec­u­tive of­fi­cer of Prime Health­care

Ser­vices of On­tario, Calif. Prime, one of the fastest-grow­ing hospi­tal chains in the U.S., is the tar­get of a whistle­blower com­plaint al­leg­ing its doc­tors need­lessly hos­pi­tal­ized Medi­care pa­tients to boost prof­its. On June 23 the govern­ment filed a civil com­plaint against Reddy. Pros­e­cu­tors al­leged in an af­fi­davit that he per­son­ally told his emer­gency room doc­tors “to find a way to ad­mit all pa­tients over 65.”

“This par­tic­u­lar case is a shin­ing ex­am­ple of the DOJ’s fol­low-through with re­spect to the Yates memo,” Hardi­man says. He and Troy Schell, Prime’s gen­eral coun­sel, say Prime and Reddy deny the fraud al­le­ga­tions. The Jus­tice De­part­ment didn’t re­spond to re­quests for comment on the Prime case or the shift in health­care en­force­ment.

Pros­e­cu­tors are for­go­ing sub­poe­nas and civil in­ves­tiga­tive de­mands, which rely on a sus­pect’s co­op­er­a­tion, in fa­vor of more force­ful mea­sures such as search war­rants and raids. Patrick Cot­ter, a de­fense lawyer in Chicago who as an as­sis­tant U.S. at­tor­ney in Brook­lyn in the 1990s pros­e­cuted mob­sters in­clud­ing John Gotti, says one of his clients was eating break­fast with his fam­ily ear­lier this year when armed agents burst through the door of his home. The agents or­dered the fam­ily onto the couch while they hauled away com­put­ers, cell phones, and doc­u­ments as part of an in­ves­ti­ga­tion into Medi­care rules vi­o­la­tions.

“In the past, these kinds of cases were han­dled through sanc­tions and set­tle­ments, or it was the cor­po­rate en­tity that was deemed to be re­spon­si­ble,” Cot­ter says. “Now we’re see­ing tra­di­tional crim­i­nal pros­e­cu­to­rial tac­tics against in­di­vid­u­als for the first time on a large scale. These tac­tics had pre­vi­ously been re­served for rack­e­teers, bank rob­bers, and drug deal­ers. This is a sea change.”

The bot­tom line Un­der a new Jus­tice De­part­ment pol­icy, fed­eral pros­e­cu­tors can’t ex­empt ex­ec­u­tives from cor­po­rate charges with­out spe­cial per­mis­sion.

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