Health-Care Fraud Cases Catching More Than Just Medical Providers

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By Eric Topor

More nonmedical provider companies are finding themselves ensnared in health-care fraud lawsuits, and paying out multimillion-dollar settlements, as business interests clash with clinical priorities at the doctor’s office.

A recent settlement between the Department of Justice and Kool Smiles, a pediatric dental chain, for $23.9 million over alleged False Claims Act violations for the dental chain’s Medicaid claims is emblematic of this trend as it also involved the dental chain’s affiliate, dental management company Benevis, a nonprovider entity that also facilitates the purchase and sale of dental clinics.

More FCA actions are focusing on nonprovider entities that are associated or transact business with health-care providers, according to health-care fraud attorneys who spoke with Bloomberg Law. These nonprovider entities need to be aware of the potential for liability and how to insulate themselves from potential pitfalls that may be well known to health-care industry veterans, but not to corporate entities entering unfamiliar regulatory territory.

“If you are a provider that is even tangentially involved in federal health care, you need to be careful,” said Jason P. Mehta, a partner with Bradley Arant Boult Cummings LLP in Tampa, Fla. Mehta, a former DOJ prosecutor, said nonprovider entities, like Benevis, “really need to focus on what payment arrangements you have with your medical providers” because they can trigger potential FCA liability for that nonprovider.

Outliers, Certifications

Mehta said the key to preventing FCA liability in these arrangements is to focus on Stark self-referral law and anti-kickback law issues. “By focusing on these concerns, and running to the ground any possible problems, providers can negate an inference of intentional conduct,” Mehta said.

Mehta also said that nonproviders involved in federal health-care programs should “really scrutinize the top billers” in their provider affiliates. It’s important to find out why certain providers are billing outliers, and be able to explain to government investigators why those providers are such high billers.

Certifications made by nonprovider entities to government payers can also lead to potential FCA liability if those certifications turn out to be false. Electronic health records vendor eClinicalWorks LLC paid $155 million to resolve FCA allegations that its software misrepresented compliance with “meaningful use” standards tied to incentive payments.

Daniel R. Miller, a shareholder with Berger & Montague PC in Philadelphia who represents whistleblowers in FCA litigation, told Bloomberg Law that for-profit hospital systems are “another type of entity whose profit motive and provider reimbursement structures” could lead to claims alleging medically unnecessary care.

Health-Care ‘Profit Centers’

The increase in nonprovider fraud scrutiny from investigators and whistleblowers “is driven by private equity finding profit centers in health care,” Miller said. These entities “treat health care like a retail store in a shopping mall instead of letting providers make decisions based purely on patients’ needs,” he said.

That sentiment certainly tracks with the allegations made against Benevis and Kool Smiles by the DOJ and several whistleblowers who filed FCA actions against the companies. The DOJ alleged Kool Smiles used a combination of bonus and disciplinary actions to push dentists to perform more procedures and obtain additional reimbursements, while ignoring concerns from its dentists about overutilization of treatments.

The allegations against Kool Smiles and Benevis remain just allegations, and the companies didn’t admit to any wrongdoing in the Jan. 10 settlement with the DOJ.

But while applying pressure or influence on affiliates to hit quotas and increase revenue is uncontroversial in many business settings, applying pressure on an affiliated medical provider to hit quotas or bill for certain procedures can run afoul of the FCA, even if the nonprovider entity isn’t the company submitting bills to Medicare or Medicaid. Miller said that nonprovider entities “claim that they aren’t running afoul of the law because they aren’t directly making clinical decisions,” but if that nonprovider affiliate “set[s] revenue goals and quotas high enough, you incentivize clinicians to conduct medically unnecessary procedures.”

A company can incur FCA liability by causing the submission of false claims to the government under the statute, regardless of whether it actually submitted the claims. That’s where business pressures influencing medical decisions can land nonproviders in hot water.

Rick Morgan, a whistleblower attorney with Morgan Verkamp LLC in Cincinnati, illustrated the potential vector for liability. “If a venture capital fund only contributes funds” to a provider that is submitting false claims, “then implicating the venture capital fund is a stretch,” Morgan told Bloomberg Law. But if the fund invested in a provider because extremely high and improper utilization rates boosted Medicare or Medicaid reimbursements, “and the utilization was material to funding,” then the fund could incur liability if it learns about the improper practices and pressures the provider to keep up utilization rates to justify its investment.

Another example of these allegations came Jan. 29 in an FCA complaint filed by a former regional manager for Tralongo, another company that facilitates the sale and purchase of dental offices and provides management support services. Whistleblower Nelson Wyllie alleged that Tralongo management found itself in a similar situation as the example described by Morgan after purchasing certain dental offices that were improperly inflating Medicaid and Medicare claims, which inflated profit margins at the time Tralongo purchased the offices.

Wyllie alleged that his concerns about continued fraudulent billing at the office were ignored and he was terminated because of his efforts to end the fraud. Tralongo didn’t respond to Bloomberg Law’s request for comment on the lawsuit.

Medical Necessity in Litigation

A lack of medical necessity for the dental procedures performed was one component of the Benevis FCA allegations, and Mehta said the DOJ is focused on those cases, “particularly in egregious cases,” and especially where the alleged scheme also includes some of the more traditional health-care fraud hallmarks like kickbacks.

Morgan said that even allegations of patient harm alone “can be challenging” to prosecute through the FCA. He said allegations that include overutilization of services are better suited for FCA litigation.

Hanging an FCA case on medical necessity alone can be tricky for the DOJ and whistleblowers, especially with recent court decisions that have cast some allegations of medically unnecessary care as simply differences of medical opinion. One federal trial court said allegations of medically unnecessary hospice claims to Medicare essentially amounted to differences in professional medical judgment between defendant AseraCare’s clinicians and the government’s expert witnesses.

The DOJ appealed the AseraCare decision and is awaiting a ruling from the U.S. Court of Appeals for the Eleventh Circuit. Mehta said defendants facing medical necessity allegations increasingly will “couch these as ‘battle of the experts’ cases.” Mehta said these are the types of court fights the DOJ would rather avoid, “particularly because the risk of bad case law is high.”

Benevis took that exact approach in a statement concerning its settlement. Benevis characterized the substance of the allegations as “professional disagreements between qualified dentists in determining the appropriate level and cost of the care.” Benevis said it was “disappointed that reasonable disagreement between dentists can become a FCA case.”

To contact the reporter on this story: Eric Topor in Washington at

To contact the editor responsible for this story: Peyton Sturges at

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