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Recent Kickback Convictions Likely to Embolden DOJ in New Administration

The Department of Justice (DOJ) continues to investigate and prosecute allegations of kickbacks involving health care professionals.

With certain exceptions, the federal Anti-Kickback Law, 42 U.S.C. §1320a-7b(b), prohibits offering or soliciting any remuneration in exchange for products or services that are reimbursed by the federal government. The policy concern, of course, is that an improper financial arrangement can cloud a physician’s judgment and cause the physician to order a product or service that may not be in the patient’s best interest. Because the line between a legitimate business arrangement and a kickback is not always clear, a conviction under the Anti-Kickback Law requires the government to prove that, when the defendant entered into the arrangement, he or she knowingly and willfully violated the law; that is, that the defendant offered or accepted a kickback well-aware that it was illegal to do so.

In recent years, the DOJ has devoted substantial resources to kickback investigations involving many categories of health care providers, including clinical laboratories, hospitals and physicians. This trend was on display in February and March with three recent trials, all resulting in convictions for the government. 

 New Jersey Clinical Lab

In New Jersey, the U.S. Attorney’s Office investigated the relationship between Biodiagnostic Laboratory Services, LLC (BLS), a clinical blood laboratory, and numerous physicians. The government charged that BLS paid kickbacks to physicians, in the form of sham consulting agreements and, in some cases, cash in envelopes, private jet trips, and prostitutes, in return for referring physicians to the laboratory. To date, 41 individuals have pleaded guilty in connection with the scheme, including 27 physicians, and $12 million has been forfeited to the government.

Not every charged physician pleaded guilty, however, and a trial was recently completed for one of the holdouts, Dr. Bernard Greenspan, a 79-year old physician, who was charged with conspiracy, accepting kickbacks, and other crimes, in connection with payments from BLS. The government accused Dr. Greenspan of accepting approximately $200,000 in bribes from BLS in the form of exorbitant “rent” payments to house a BLS phlebotomist, bogus consulting contracts, cash to pay for an office holiday party, and other remuneration, in exchange for referring patients to BLS for clinical blood testing. The government claimed that Dr. Greenspan’s referrals generated more than $3 million for BLS.

The 11-day trial featured a number of witnesses, including former employees from BLS who pleaded guilty to paying kickbacks to Dr. Greenspan. In his defense, Dr. Greenspan claimed that legitimate services were provided in connection with the consulting and rental arrangements, which were negotiated by counsel. His lawyers insisted that he used BLS not because of the consulting and rental agreements, but, rather, because they provided superior customer service, such as results within 24 hours.

On Monday, March 6th, the jury convicted Dr. Greenspan on all 10 counts. His sentencing is scheduled for June.

Alabama Physicians

Dr. Xiulu Ruan and Dr. John Patrick Couch jointly owned and operated two pain management clinics and a pharmacy in Mobile, Alabama. In a sweeping 19-count indictment, the physicians were charged with accepting kickbacks from a pharmaceutical company and a pharmacy, in addition to committing health care fraud and running a “pill mill,” i.e., prescribing potent narcotics outside the usual course of medical practice.

Over the course of a seven-week trial, the jury heard from 81 witnesses, including five witnesses who had pleaded guilty to various crimes. The jury heard evidence that the physicians on trial were among the top six prescribers of narcotics in the country. The defendants were recruited by Insys Pharmaceuticals, Inc., the manufacturer of a powerful painkiller, to become paid “speakers” for the company. Government witnesses testified that, in exchange for more than $200,000 to participate in Insys’s “speaker” bureau, the physicians prescribed a large amount of Subsys, a variant of fentanyl that is delivered through an oral spray. Separately, witnesses from a pharmacy dispensary testified that they paid tens of thousands of dollars to the physicians to prescribe drugs that had high reimbursement rates. The jury also heard that numerous patients, including patients from out of state, received narcotics without seeing the physicians at all, while others had very brief interactions with the defendants. In addition, one defendant allowed a nurse practitioner to forge his signature on more than 25,000 prescriptions. Other witnesses testified that the physicians billed insurance companies for expensive, medically unnecessary urine drug tests.

On February 23rd, the physicians were convicted of numerous crimes, including receiving kickbacks, RICO conspiracy, conspiracy to prescribe narcotics outside the usual course of practice, and conspiracy to commit health care fraud. The defendants were ordered to forfeit several houses, beach condominiums, bank accounts, and 23 luxury cars. Sentencing is scheduled for late May.

Louisiana Hospital Administrator

Finally, the DOJ indicted a hospital administrator in Shreveport, Louisiana, for paying kickbacks to solicit patients. Tom McCardell was an administrator at Physicians Behavior Hospital (PBH), a facility providing inpatient and outpatient treatment for patients suffering from psychiatric and chemical dependency. At trial, the government presented evidence that the defendant paid an individual $41,000 to recruit patients to PBH. To disguise the arrangement, the defendant made the payments to the recruiter’s son and ordered hospital personnel to create an employee file in the son’s name. As a result of the referrals, the hospital billed Medicare for more than $6.7 million. On February 9th, after a four-day trial, McCardell was convicted on all 14 counts in the indictment.

* * * * *

These three cases, resulting in convictions after trial less than a month apart in different parts of the country, all involved charges of illegal kickbacks received or solicited by health care professionals. While the DOJ has a long history of investigating health care fraud, the convictions are consistent with recent DOJ emphasis on holding individuals—as opposed to corporations—accountable for white collar crime.  Moreover, kickbacks may also form a basis for actions brought by DOJ and whistleblowers under the Civil False Claims Act resulting in substantial financial liabilities. 

The new administration is being watched closely to determine if it will continue this trend. Although these cases were indicted in the prior administration, the trial victories will likely embolden the DOJ to continue to investigate suspicious monetary arrangements in the health care arena. Hospitals, physicians, and other providers would be well-served by a fresh review of compliance policies to ensure that any if their financial arrangements cannot be perceived as running afoul of federal or state laws.

HLB attorneys are currently handling several high profile criminal and civil investigations involving allegations of kickbacks against health care providers. If you have any questions about the cases covered here or health care fraud prevention and defense generally, please contact David Schumacher in Boston at 617.532.2704, Patric Hooper in Los Angeles at 310.551.8165, Mark Reagan in San Francisco at 415.875.8501,Joe La Magna in San Diego at 619.744.7305, or Precious Murchison Gittens in Washington, D.C. at 202.580.7703.

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For media assistance, please contact Maura Fisher at 202-580-7714.