15 Medicare/Medicaid Anti-Kickback and Fraud and Abuse Statute Cases Making Headlines in 2009

This is a short summary of 15 anti-kickback and fraud cases and investigations that have made headlines in 2009.  The situations involve a range of participants including hospitals, device companies, physicians, payors and other suppliers.

1. Medtronic whistle-blower suit. A lawsuit filed by two former Medtronic employees of the company's Memphis-based spine business accused 120 leading spine surgeons across the country and 18 medical device distributors of promoting "off-label" use of the Medtronic product Infuse, which is used in spine surgery to promote bone growth between vertebrae. The product is approved by the FDA for use in the lower back but was allegedly being used in neck surgeries by a number of spine surgeons. Although off-label use of the product is not illegal, the plaintiffs claimed that the defendants took a total of $8 million in consulting fees for promoting the product in 2006. A Massachusetts federal judge dropped the suit in March, ruling that the case did not constitute a whistle-blower suit and blocked an amended complaint by the defendant. However, a civil suit is still active in federal court.

2. Orthopedic device maker anti-trust/anti-kickback suit. A lawsuit against Zimmer, Stryker and three other orthopedic device manufacturers accused the device makers of driving the McCulloughs, a family of commissioned salespeople for a competitor of the defendants, out of business. The McCulloughs claimed the defendants provided kickbacks to orthopedic surgeons for using their products over competitors. A federal judge dismissed the antitrust case against the Zimmer and Stryker in March, stating that the plaintiffs lacked standing to bring an antitrust action and lacked insufficient evidence for racketeering charges, which the suit also alleged. The three other device manufactures named in the suit, DePuy, Smith & Nephew and Biomet, previously settled with the McCulloughs.

3. Federal oversight of orthopedic device makers ends. The U.S. Attorney's office ended 18 months of federal oversight of orthopedic device manufacturers Zimmer, Depuy, Biomet, Stryker and Smith & Nephew in March. The federal oversight resulted from charges by the U.S. Attorney's office in 2007 that the device makers violated anti-kickback statutes by paying tens of thousands of dollars to surgeons as incentives to use their products. The companies avoided prosecution by agreeing to new corporate compliance procedures and federal monitoring. Zimmer, DePuy, Biomet and Smith & Nephew remain subject to the terms of separate agreements entered into with the OIG until 2012.

4. NueroMetrix kickback allegations. In February, medical device maker NeuroMetrix agreed to pay $3.7 million as part of a deferred prosecution agreement for federal allegations from the U.S. Attorney's office that it gave kickbacks to physicians. The allegations accused NeuroMetrix of paying physicians in the form of free boxes of disposable biosensors for use with the company's NC-stat System to encourage the physicians to recommend the device to colleagues. NeuroMetrix also allegedly asked physicians to seek reimbursement using a higher valued CPT code under certain circumstances when physicians performed a nerve conduction study using the NC-stat System. Of the $3.7 million, NeuroMetrix agreed to pay $1.2 million as a criminal penalty after admitting that it provided the free biosensors; the remaining $2.5 million in civil damages will settle the kickback and fraudulent up-coding allegations. Under the deferred prosecution agreement, NeuroMetrix will not be prosecuted in connection with the illegal kickbacks if the company complies with the obligations of the agreement for a term of 36 months.

5. Illinois radiology centers kickback suit. Fourteen radiology centers in Illinois that allegedly paid illegal kickbacks to doctors in exchange for referrals agreed to pay a total of $1.2 million to settle a lawsuit filed by the Illinois Attorney General in January. The case, which was filed in 2007, alleged that the radiology centers entered into sham "lease" agreements with doctors under which the doctors paid a reduced rate for MRI and CT scans, charged the patient's insurance carriers a higher rate and then pocketed the difference. The lawsuit asserted that the defendants' actions violated the Consumer Fraud and Deceptive Business Practices Act, as well as Illinois' anti-kickback law, the Insurance Claims Fraud Prevention Act.

6. UnitedHealth Group class action suit. UnitedHealth Group, the nation's second largest health insurer, agreed to pay $350 million to resolve a class action lawsuit with the American Medical Association and the Medical Society, the State of New York and the Missouri State Medical Association in January. The suit alleged that UnitedHealth's wholly-owned subsidiary, Ingenix, rigged the databases that health insurers rely upon to set the "reasonable and customary" rates they charge for out-of-network physician fees so that providers and health plan member were underpaid for these services. The company also settled a separate investigation into these practices by the New York Attorney General for $50 million in January. UnitedHealth admitted no wrongdoing in conjunction with either investigation.

7. Medicaid fraud suits against New York hospitals. Seven hospitals in New York were accused in January of fraudulently billing Medicaid for more than $50 million for alcohol and substance abuse treatment even though the hospitals lacked a state license to provide this treatment. The lawsuits, brought by the New York State Attorney General and U.S. Attorney Benton Campbell, also claim that four hospitals — Columbia Memorial Physicians Hospital Organization in Hudson; Long Beach Medical Center; New York Downtown Hospital; and St. Joseph's Medical Center in Yonkers — allegedly paid kickbacks to Missouri-based SpecialCare Hospital Management Corp. to get more patients into drug treatment programs. The suit also accused Queens' Parkway Hospital, which closed in 2008, of trying to bribe homeless patients to participate in a detox program. The other defendants are the former Our Lady of Mercy in the Bronx and Benedictine Hospital in Kingston. The state settled for $4.5 million with Our Lady of Mercy, now run by Montefiore Medical Center, which denied all wrongdoing.

8. Florida HIV clinic Medicare fraud scheme. The owners and operators of two Miami medical clinics named Medcore Group and M&P Group of South Florida, and a phlebotomist at one of the clinics, were charged and plead guilty in January of conspiring with others to submit approximately $5.3 million in fraudulent claims to Medicare. The defendants admitted that they entered into kickback arrangements with Medicare beneficiaries whereby the beneficiaries were paid every week in exchange for their Medicare billing information, thus allowing the clinics, which claimed to specialize in the treatment of HIV-positive patients, to submit fraudulent bills. The defendants also admitted that none of the Medicare beneficiaries needed the injection and infusion treatments administered and billed to Medicare by the clinics. Four additional co-defendants in the case did not plead guilty and stood trial in March. All four co-defendants, which included two physicians, were found guilty.

9. Texas medical supply companies' Medicare fraud scheme. Rhonda Fleming, who owned several Houston-based medical supply companies and a Medicare billing firm, and her two business associates were convicted by a federal jury in April of healthcare fraud, conspiracy to defraud Medicare and wire fraud. The three were found to have participated in a $36 million Medicare fraud scheme and face sentences of up to 20 years in prison for each count.

10. Biomet spinal product sales investigated. The U.S. attorney's offices in Massachusetts and West Virginia began investigating Biomet, a leading orthopedic device manufacturer, for improper sales, promotion and billing by its spinal device unit, EBI, in January. The company allegedly promoted the off-label use of its spine stimulation devices, which resulted in fraudulent Medicare and Medicaid billing. The federal probe in West Virginia stemmed from a whistle-blower lawsuit alleging that a West Virginia surgeon implanted the devices in clinical research without asking for the consent of the patients. The complaint also alleges that on 15 occasions, a representative of the EBI unit was in the operating room while the spinal products were used for off-label proposes. The Massachusetts investigation may have stemmed from another whistle-blower suit from March 2005 which claimed Biomet was improperly billing bone-growth stimulators as devices that must be purchased rather than rented. Biomet denies both allegations.

11. Yale-New Haven Hospital settles Medicare fraud allegations. Yale-New Haven (Conn.) Hospital agreed to pay $3.77 million in March to settle an investigation by the U.S. Attorney's Office, District of Connecticut, in response to allegations by CMS that it billed Medicare for inflated charges related to infusion therapy, chemotherapy and blood transfusion services. Authorities claimed that the organization billed Medicare for multiple units of these services when the program only allows payments for a single unit of infusion therapy and chemotherapy administration per patient, and one unit of blood transfusion per day. The hospital also disclosed, under the OIG's Provider Self-Disclosure Protocol, that it had inadequately documented claims pertaining to services provided in its oncology infusion services in patients' medical records, including dispensing medication and conducting laboratory studies without written orders signed by a physician; the protocol encourages such voluntary disclosure. Under the settlement, Yale-New Haven Hospital did not admit liability.

12. Illinois physician pleads guilty to fraud. James Durham, MD, of Benton, Ill., pleaded guilty in April to charges that he overcharged Medicare and Medicaid for services while president of Franklin (Ill.) Rural Health Care Clinic. Dr. Durham was accused of instructing employees to bill Medicare and Medicaid for services not covered by the payors. In total, Dr. Durham improperly charged Medicare for $42,503 and Medicaid for $145,388 between Jan. 1, 2003, and May 31, 2006. Dr. Durham faces possible prison time and a $100,000 fine and will be sentenced in July.

13. WellCare settles Medicaid fraud allegations. WellCare, a Tampa, Fla.-based health insurer, agreed to pay $80 million in May to settle allegations that it defrauded Florida's Medicaid program. The U.S. Attorney's Office in Tampa accused WellCare of submitting fraudulent charges to Medicaid and Florida Healthy Kids Corp., which cost the programs around $40 million. Under the agreement, WellCare agreed to a civil forfeiture of $40 million and an additional $40 million in restitution to Medicaid and Healthy Kids. In addition, WellCare agreed to implement new reporting policies, institute corporate financing governance programs and retain and pay an independent monitor to ensure compliance.

14. Houston's Methodist Hospital settles Medicare fraud charges. The Methodist Hospital in Houston agreed to pay $9.9 million in March to settle allegations that it improperly increased charges to Medicare patients. The allegations brought by the Dept. of Justice against the hospital claimed that Methodist inflated charges for inpatient and outpatient care to receive outlier payments — supplemental reimbursement to hospitals to pay for care when it is unusually high — that it should not have received. The hospital denied the allegations.

15. Synthes settles kickback inquiry. Synthes, maker of the ProDisc artificial spinal disk, settled an inquiry in May by the New Jersey Attorney General, which accused the device maker of failing to disclose financial conflicts of interest for doctors researching its products. The Attorney General accused Synthes of compensating physicians who were testing the ProDisc for recommending its use to patients with company stock. Synthes agreed to disclose any future payments or investments held by doctors involved in researching its products through its Web site and will pay $236,000 to reimburse the Attorney General's office for its investigation.

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