Healthcare Executives in Prison


As hospitals gather more power courtesy of Obamacare, some are becoming more daring in terms of extracting cash from non-aligned physicians who don’t control referrals. After all, one can imagine them thinking, if the doctors themselves aren’t employed either directly or indirectly, or locked into a hospital-controlled ACO, there’s got to be some method for aligning the doctor’s dollars, right? Or, perhaps they justify it as getting “support for our overhead?”

In reality, it’s actually nothing new. It’s called demanding a kickback.

Consider this sweet deal:

A hospital tells a hospital-based group that in order to renew its exclusive contract, the group must contract with a hospital-owned “management company” at a significant percentage-based fee. The “management company” provides billing and collection and incidental management services. However, with the exception of an administrator who provides oversight and a few clerical employees, the “management company” is a shell: it outsources almost all of its activities to a billing company at less than 1/3 of the total management fee.

This scheme is akin to that reported in a 1985 case in which a healthcare executive was sentenced to prison for his role in a kickback scheme. His company provided services to both a medical group and a clinical laboratory. The laboratory was required to pay the management company 20 percent of its revenues obtained from the physician group’s referrals.

The defendants alleged that the payments were fair market value for specimen collection and handling services. The court found that the fair market value of these services was substantially less than the amount paid and that there was no question the laboratory was paying for referrals in addition to for the described services.

The healthcare executive went to federal prison.

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