Recent Texas Prosecutions Reveal New Federal Enforcement Tools and Focus on Private Insurance

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Three cases recently wrapped up in the Northern and Southern Districts of Texas reveal an increased focus on health care fraud committed against private commercial third-party payors, as well as the tools that the Department of Justice (DOJ) is using to prosecute these schemes.  Historically, many of the prosecutions in the health care industry have focused on waste, fraud and abuse in federal health care programs, such as Medicare and Medicaid.  However, these prosecutions show that US Attorneys and regulators have a renewed interest in prosecuting fraud even outside of those programs.  This should give providers and others pause when they consider arrangements that exclude Medicare or Medicaid claims or patients, and which have traditionally been thought of as safe or low-risk.
 
Forest Park Medical Center
 
Forest Park Medical Center (“FPMC”) was a physician-owned hospital in Dallas that opened in 2009.  In 2016, 21 individuals associated with FPMC or its business partners were indicted in the Northern District of Texas for various health care offenses, including conspiracy to violate the federal Anti-Kickback Statute.  However, the most novel part of the indictment was the charge of violation of the federal Travel Act (18 U.S.C. §1952), which punishes the use of various means of interstate commerce for the purposes of carrying on unlawful activity under another statute, here the Texas commercial bribery statute (Texas Penal Code §32.43).  The DOJ alleged that individuals associated with FPMC bribed physicians (either directly or indirectly) with cash payments and other incentives (gifts, discounted leases, etc.) to send patients with commercial insurance or certain federal programs to FPMC, and used cash to steer patients with lower-reimbursing federal programs, including Medicare and Medicaid, to other facilities.  FPMC was also engaged in routine waivers of patient responsibility amounts, such as copayments and deductibles.  FPMC and the conspirators engaged in extensive tracking of referrals and referral sources, and rewarded physicians accordingly.  On April 10, 2019, seven of the indicted defendants were found guilty by a federal jury.  Ten other defendants already pled guilty to charges.  Two other defendants were found not guilty or the jury deadlocked on charges against them.
 
Palo Pinto General Hospital
 
Palo Pinto General Hospital (“PPGH”) is a hospital owned and operated by a county hospital district.  In March 2019, the CEO of PPGH, Harris Brooks, agreed to plead guilty to several charges, chief among them conspiracy to commit healthcare fraud (18 USC §1347).  It was alleged that Mr. Brooks had conspired with others to defraud commercial third-party payors by submitting false claims for laboratory services.  In particular, PPGH was engaged in a fraudulent pass-through billing scheme, where laboratory services were performed by other laboratories, and other entities who were in contractual relationships with PPGH would market these services to physicians, but all claims and services were billed through PPGH, which had no relationships with the laboratories or the patients whose claims were billed.
 
Red Oak Hospital
 
In February 2019, a federal jury found two individuals, Harcharan Narang, M.D. and Dayakar Moparty, guilty of conspiracy to commit health care fraud.  A third indicted co-conspirator pled guilty before trial.  Dr. Narang and Mr. Moparty, who owned and managed Red Oak Hospital in Houston, were engaged in a scheme to submit claims for medical unnecessary diagnostic tests.  These tests were ordered routinely, without regard to medical necessity for that individual.  In addition, some services were billed but never performed.  In some cases, when one payor would not pay Red Oak for a test, the parties would submit the bill through other entities, none of which had treated or seen the patient.  The conspirators enriched themselves by paying distributions of these fraudulently obtained proceeds.
 
Key Takeaways
 
These three prosecutions reveal two particularly important facts for providers and others involved in the health care industry in Texas.  First, an arrangement which does not take Medicare or Medicaid is not per se safe or without risk.  Regulators are focusing on schemes and conspiracies that have the effect of driving up costs in the commercial healthcare industry.  One interesting side note is that Texas has a statute, the Texas Patient Solicitation Act (Tex. Occ. Code §102.001 et seq.), which is worded similarly to the federal Anti-Kickback Statute, but includes all payors.  However, historically, it has never been enforced on a state or federal level.  This statute did not come up in any of the above indictments, even though some of the accused had arguably violated it.  It remains to be seen whether regulators or state officials will take notice of this potential enforcement tool.
 
Second, the government is using new tools to prosecute health care fraud.  This is most apparent in the Forest Park Medical Center case, which introduced the use of the federal Travel Act.  Travel Act prosecutions depend on the use of interstate commerce to commit some other criminal act.  Thus, it depends on some other predicate offense, such as the Texas Patient Solicitation Act.  In the Forest Park case, it appears to have been use to federalize the prosecution of a Texas commercial bribery case, of which it would be the first of its kind.  Because the most significant parts of the conspiracy did not involve Medicare or Medicaid claims, the more frequently utilized Stark Law and Anti-Kickback Statute were presumably not available.
 
Recommendations
 
Providers and others involved in the healthcare industry in Texas should review their operations and arrangements and take precautions as necessary in light of these recent prosecutions.  In particular:
  • Watch out for sham arrangements– In the Forest Park case, there were written agreements governing payments made to referral sources.  The agreements purported to pay physicians for marketing services.  However, the government’s investigation determined that these arrangements were a sham, and that no legitimate marketing services were involved.  Rather, the payments were a quid pro quo for referrals.  When entering into any arrangement for services with any person, and in particular a referral source, make sure that the services described are bona fide, commercially reasonable, and actually performed.  The parties should be able to document the quantity and result of any services performed.  Be diligent about reviewing the outcomes and performance of any party with which your organization has a contract.  If the purpose of an arrangement is not to pay for referrals, you likely have no legitimate need to track referrals.
  • Do not assume you are safe in a “no federal program business” arrangement– For many years, health care industry participants have assumed that their arrangements were sound if they did not involve federal program reimbursement (particularly Medicare and Medicaid).  While it is true that the Stark Law and Anti-Kickback Statute would not apply in such circumstances, these recent cases reveal that the DOJ is taking an increased interest in fraud that only affects commercial third-party health plans.  Examine any existing arrangements that do not cover Medicare or Medicaid and determine if there is any fraudulent activity, or if the arrangement appears to be a sham or fraudulent.
  • Focus on medical necessity and patient consent– No service, under any type of health plan, should be performed without being medically necessary.  Medical necessity is a conclusion, but it is built on the back of evidence and observation.  Be sure that your medical records adequately document the physician’s support and reason for medical necessity, not just the conclusion.  In addition, any time a patient is referred to another provider or if bills or invoices will appear in the name of any other provider, patients should be notified in writing and in advance of this fact, and a signed acknowledgment of the patient’s receipt of that notice should be obtained and kept in the patient’s medical record.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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