Take a ride with Mark as he discusses the latest compound medicine kickback scheme to result in prison time.
Tag: federal
Former CEO Michael Babich pleaded guilty last week to charges related to the plethora of kickback allegations surrounding Insys Therapeutics, Inc., and its fentanyl drug, Subsys.
Ride along while Mark discusses the expanding case involving Insys Therapeutics and kickbacks paid to induce prescription of its drug, Subsys.
Criminal and, at least, serious civil, liability lurks in many neat neighborhoods. Create your own neighborhood watch to make sure that it’s not lurking behind your medical group’s otherwise metaphorical neat lawn.
Comment or contact me if you’d like to discuss this post.
Mark F. Weiss
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The federal Anti-Kickback statute makes it illegal to receive anything of value for the referral of federal health care program patients. How are you managing this potential pitfall?
Comment or contact me if you’d like to discuss this post.
Mark F. Weiss
Podcast: Play in new window | Download
On October 25, 2017, another physician, Jerrold Rosenberg, M.D., pleaded guilty to charges related to the plethora of kickback prosecutions emanating from Insys Therapeutics, Inc., and its fentanyl drug, Subsys.
Couch and Ruan Sent to Prison
In February of this year, I wrote in my post Pain Medicine Doctors Alleged to Have Received $115,000 in Kickbacks … Plus $40 Million in Illicit Profit, about the cautionary tale of two Mobile, Alabama pain medicine doctors, Drs. John Couch and Xiulu Ruan, both then in the midst of their federal court trial for, as was then alleged, receiving $115,000 in kickbacks from Insys in connection with Subsys.
Among the allegations:
• That Couch and Ruan prescribed, and also sold through their owned pharmacy, large quantities of Subsys, based on misleading diagnoses, defrauding payors.
• That their profit of $40,000,000 from dispensing Subsys and other controlled substances was an illicit profit from a “pill mill.”
• That they received “speaking fees” from Insys based on the number of Subsys prescriptions they wrote.
Subsequently, Couch and Ruan’s trial moved forward to guilty verdicts and then to sentencing: Crouch was sentenced to prison for 240 months and Ruan received an even stiffer sentence, 252 months behind bars.
Neither of the Mobile, Alabama physicians currently reside in the state: Dr. Couch passes (or, does) time at the Federal Correction Institute in Forrest City, Arkansas, while Dr. Ruan enjoys the view from behind bars at the Federal Correction Institute in Oakdale, Louisiana.
In addition to their lengthy prison sentences, the duo was ordered to make restitution of $6,282,023.00 to Medicare, $3,649,092.97 to Blue Cross/Blue Shield of Alabama, $2,285,170.70 to Tricare, and $1,695,929.00 to United Heath Group.
Fanto, Seth, and Gingerich Indicted
In my post dated September 5, 2017, Drugs, Sentencing, and Lock (and Roll on to Another Kickback Prosecution), I wrote about criminal charges brought by the State of Arizona against three pain medicine physicians, Steve Fanto, M.D., Nikesh Seth, M.D., and Sheldon Gingerich, M.D.
The allegations: That the physicians collected sham educational “speaker fees” in exchange for writing prescriptions for Subsys.
The criminal complaint claims that from March 2012 to April 2017, more than $33 million, or 64 percent of Subsys sales in Arizona, came from prescriptions written by Fanto, Seth, and Gingerich.
In additional echoes of the Couch and Ruan prosecution, it was alleged that Drs. Fanto, Nikesh, and Gingerich gave insurers false and misleading information, including that patients had cancer when they did not, to obtain prior authorization for Subsys prescriptions.
Rosenberg Pleads Guilty
And now, in the most recent echo of Subsys “addiction” (addition, that is, to illegally gained money), Jerrold Rosenberg, M.D., a Providence, Rhode Island physiatrist, pleaded guilty last week to federal charges that he committed healthcare fraud and conspired to receive kickbacks in the form of “speakers fees” from Insys in order to induce him to prescribe Subsys.
In their case against Dr. Rosenberg, the United States Attorney General’s office alleged that between 2012 and 2015, he entered into an illegal scheme to take kickbacks from Insys. Specificially the payments were disguised as speaker’s fees from Insys. The “fees” were then a major factor in Rosenberg’s decision to prescribe Subsys to patients.
In an echo of the charges brought against Drs. Couch and Ruan, it was also alleged that Dr. Rosenberg upped his prescriptions of Subsys by fraudulently representing to insurers that his patients suffered from cancer pain when they did not.
Dr. Rosenberg is set to be sentenced to prison in January. Pursuant to a plea deal, the now 63 year old physician could spend up to the next 15 years in prison, perhaps actually a life sentence.
He also agreed to pay $754,736 in restitution to healthcare benefit programs.
Insys Executives Indicted
Just so that you don’t think that physicians were the only targets of Insys/Subsys related prosecutions, in December 2016, the federal government indicted a slew of now-former Insys executives for conspiracy to commit racketeering, mail and wire fraud, and conspiracy to violate the anti-kickback law, relating to what the U.S Attorney alleges was a nationwide conspiracy to bribe medical practitioners to unnecessarily prescribe Subsys and defraud payors.
The indicted executives are Michael L. Babich, the former CEO and President of Insys Therapeutics, Alec Burlakoff, the former Vice President of Sales, Richard M. Simon, the former National Director of Sales, Sunrise Lee and Joseph A. Rowan, both former Regional Sales Directors, and former Vice President of Managed Markets, Michael J. Gurry. Each pleaded not guilty to the charges.
Insys as Target
And, the company itself, Insys Therapeutics, Inc., has already paid $9.45 million to resolve state level investigations into the kickback-related affairs.
The Federal Anti-Kickback Statute and Other Prohibitions
In general terms, the federal Anti-Kickback Statute (“AKS”) prohibits the offer, demand, payment, and acceptance of remuneration—that is, of anything of value—for referrals
The federal government, and many courts, interpret the AKS to apply even when an arrangement may have many legitimate purposes; the fact that one of the purposes is to obtain money for the referral of services or to induce further referrals is sufficient to trigger a violation of the law.
State laws differ in their treatment, scope and interpretation, but generally contain similar provisions barring remuneration for referrals, sometimes expressed as anti-kickback or fee-splitting prohibitions.
In addition, federal laws such as wire fraud statues and the Travel Act turn what are “simple” violations (a huge simplification!) of state laws into federal criminal offenses. The federal Controlled Substances Act permits prescribing and dispensing only for legitimate purposes, not in respect of “pill mill” and other massive prescribing activities. Additionally, the federal statute of healthcare fraud makes it a crime to defraud a healthcare benefits program, including a commercial insurer.
The Takeaways for You:
1. Money: The are many legitimate ways for physicians to increase their practice income. They include, depending on state law, investments in pharmacies and the direct dispensing of pharmaceuticals.
2. Structure: But any deal must be structured in compliance with the federal Anti-Kickback Statute, the Controlled Substances Act, Stark, and numerous other federal laws, as well as with various state law counterparts and other restrictions. Your investment in structuring things correctly is an investment in yourself and your jail-free future.
3. Compliance Auditing: No matter how well structured, it’s essential that you engage in periodic compliance audits coordinated through legal counsel. Laws change and actual behavior impacts all of the structure and planning. Even the best planning can be made worthless if illegal conduct takes place within the context of what was planned to be a proper structure.
4. Investigations: If you learn that you (or any person or entity connected to the operation) are under investigation, immediately engage a team of experienced healthcare attorneys and criminal defense counsel. Many potential prosecutions are resolved at this stage.
5. Indictment and trial: Again, immediately engage a defense team of healthcare and criminal defense counsel.
Comment or contact me if you’d like to discuss this post.
Mark F. Weiss
The unfettered growth of hosptial-centric medicine, usually touted as bringing “better care,” “enhanced safety,” and “more efficiency,” often brings less caring care, hospital acquired infections, and . . . control over the market with its “efficient” byproduct, higher prices.
The growth of hospital systems can be seen as a reaction to the fact that procedures are moving out of the hospital at a quickening pace.
But why grow when the future requires that they shrink? In a sense, it’s the same reason that a government bureaucracy grows like a rhizome: self-protection. Stop the progress, stop the future, and stop the competition.
Consider the following: Hospitals attempt to prevent competition by (1) turning to regulators and legislators to ban or severely restrict competition (e.g., prohibitions on physician ownership of hospitals, certificates of need), (2) acquiring physician groups in order to bind the providers to the hospital, taking them “off the table” in a manner of speaking, and (3) acquiring competing freestanding facilities (e.g., ASCs) and either converting them into hospital outpatient department facilities receiving higher reimbursement, or simply closing them down.
On August 31st, Washington State’s Attorney General filed an antitrust suit in federal court against Franciscan Health System d/b/a CHI Franciscan Health, Franciscan Medical Group (which I’ll refer to collectively as “CHI Franciscan”), The Doctors Clinic (“TDC”), and WestSound Orthopedics (“Westsound”).
The lawsuit seeks to unwind the deals in which CHI Franciscan acquired WestSound, a seven physician orthopedic practice, and entered into an affiliation via a professional services agreement, a management services agreement, and other agreements (collectively, the “PSA”) with TDC, a 45-physician multi-specialty group. It also seeks disgorgement of profits plus civil penalties.
The State alleges that the deals violate a number of pro-competitive laws, including the Sherman and Clayton Acts (i.e., federal antitrust law), and counterpart Washington State law. In fact, the State alleges that the deal is so blatantly anti-competitive that it constitutes a per se antitrust violation.
The Deal
Prior to the deal, WestSound was a 7 physician orthopedic group in Silverdale, Washington.
In July 2016, CHI Franciscan acquired WestSound and folded the physicians into its captive group.
Then, in September 2016, CHI Franciscan entered into a set of agreements with TDC, also based in Silverdale. The deal with TDC was not structured as an acquisition of the medical practice itself. TDC remains a separate legal entity.
Instead, via the PSA, TDC and CHI Franciscan agreed that TDC would provide services exclusively for CHI Franciscan in exchange for CHI Franciscan’s negotiated reimbursement rates with payers, and CHI Franciscan acquired TDC’s ASC, imaging, and lab facilities. TDC agreed to provide management services back to CHI Franciscan.
The Allegations
The State argues that the acquisition of WestSound and the arrangement with TDC weren’t simply deals entered into in order to improve care and provide better access for patients, but were instead anticompetitive schemes in connection with healthcare services on the Kitsap Peninsula, the area of the state that lies west from Seattle across the Puget Sound.
As to the deal with TDC, the State alleges that it’s simply a price-fixing conspiracy between competitors via the PSA.
Under the PSA, the CHI Franciscan negotiates reimbursement rates both for itself and for TDC, but CHI Franciscan doesn’t share any financial risk with TDC. As mentioned above, TDC remains an independent entity with its own governance, provides most of its own administrative functions, and has its own EHR system. CHI Franciscan and TDC are neither clinically nor financially integrated.
After the deal was inked, CHI Franciscan closed outpatient facilities that it acquired from TDC, allegedly shifting cases to CHI Franciscan’s HOPDs in order to receive higher reimbursement.
According to the Complaint filed by the Washington State Attorney General, the impact of the arrangement between CHI Franciscan and TDC is higher prices, lower quality, and decreased patient choice.
The Attorney General’s attack on CHI Franciscan’s acquisition of WestSound is based on traditional anticompetitive merger grounds. The AG claims that the relevant market is the Kitsap Peninsula and that following the TDC and WestSound deals, CHI Franciscan controls 55% of orthopedic services and is monopolistic.
None of the defendants have yet filed a response to the Attorney General’s Complaint.
The Takeaways For You
1. Hospitals have had a rather free hand in acquiring physician groups, especially because many deals are too small to attract US Department of Justice or Federal Trade Commission attention. But there are other routes to challenge their metastasis, including, as in this case, action by the state government.
2. Anti-competitive arrangements do not arise solely from true mergers and acquisitions. Ongoing deals between separate legal entities, as in the CHI Franciscan case, between a hospital system and a large medical group, can trigger antitrust investigations and lawsuits.
3. The Complaint (let me know if you’d like a copy) demonstrates the the AG has detailed knowledge of internal CHI Franciscan communications. I’m not suggesting that anyone break the law and hide it, and the allegations in the CHI Franciscan case are of a civil, not criminal, nature. Rather, it’s self-immolating to document unlawful intent. Emails don’t just go away. Loose lips sink ships.
4. As the future gets bleaker for hospitals, expect more to attempt to try to lock up physician referrals through questionable deals. Be ready.
Comment or contact me if you’d like to discuss this post.
Mark F. Weiss
Back in February of this year, I wrote in my post Pain Medicine Doctors Alleged to Have Received $115,000 in Kickbacks … Plus $40 Million in Illicit Profit, about the cautionary tale of Drs. John Couch and Xiulu Ruan, both then in the midst of their federal court trial for, as was then alleged, receiving $115,000 in kickbacks from Insys Therapeutics, Inc. in connection with its fentanyl drug, Subsys.
Among the allegations:
- That Couch and Ruan prescribed, and also sold through their owned pharmacy, large quantities of Subsys, based on misleading diagnoses, defrauding payors.
- That their profit of $40,000,000 from dispensing Subsys and other controlled substances was an illicit profit from a “pill mill.”
- That they received “speaking fees” from Insys based on the number of Subsys prescriptions they wrote.
As I commented then, the federal Anti-Kickback statute makes it illegal to receive anything of value for the referral of federal health care program patients. Wire fraud statues, the federal Travel Act and other laws turn what are “simple” violations (a huge simplification!) of state laws into federal criminal offenses. The federal Controlled Substances Act permits prescribing and dispensing only for legitimate purposes, not in respect of “pill mill” activities. Federal healthcare fraud makes it a crime to defraud a healthcare benefits program, including a commercial insurer.
Update
Over the ensuing months, Couch and Ruan’s trial moved forward to guilty verdicts and then to sentencing: Crouch was sentenced to prison for 240 months and Ruan received an even stiffer sentence, 252 months behind bars.
In addition, the duo was ordered to make restitution of $6,282,023.00 to Medicare, $3,649,092.97 to Blue Cross/Blue Shield of Alabama, $2,285,170.70 to Tricare, and $1,695,929.00 to United Heath Group.
And Another Subsys Prosecution
Just last week, the State of Arizona brought criminal charges in state court against three pain medicine physicians, Steve Fanto, M.D., Nikesh Seth, M.D., and Sheldon Gingerich, M.D., as well as against Insys and Insys executives.
The allegations: That the physicians collected sham educational “speaker fees” in exchange for writing prescriptions for Subsys.
The criminal complaint claims that from March 2012 to April 2017, more than $33 million, or 64 percent of Subsys sales in Arizona, came from prescriptions written by Fanto, Seth, and Gingerich.
In additional echoes of the Couch and Ruan prosecution, it’s alleged that Drs. Fanto, Nikesh, and Gingerich gave insurers false and misleading information, including that patients had cancer when they did not, to obtain prior authorization for Subsys prescriptions.
Once Again, the Takeaways for You:
1. Money: The are many legitimate ways for physicians to increase their practice income. They include, depending on state law, investments in pharmacies and the direct dispensing of pharmaceuticals.
2. Structure: But any deal must be structured in compliance with the federal Anti-Kickback Statute, the Controlled Substances Act, Stark, and numerous other federal laws, as well as with various state law counterparts and other restrictions. Your investment in structuring things correctly is an investment in yourself and your jail-free future.
3. Compliance Auditing: No matter how well structured, it’s essential that you engage in periodic compliance audits coordinated through legal counsel. Laws change and actual behavior impacts all of the structure and planning. Even the best planning can be made worthless if illegal conduct takes place within the context of what was planned to be a proper structure.
4. Investigations: If you learn that you (or any person or entity connected to the operation) are under investigation, immediately engage a team of experienced healthcare attorneys and criminal defense counsel. Many potential prosecutions are resolved at this stage.
5. Indictment and trial: Again, immediately engage a defense team of healthcare and criminal defense counsel.
We’ve established a strategic alliance with noted white collar defense attorney Lawrence Brown and his firm, Brown PC, in order to bring a wider set of skills and experience to select clients at the auditing, investigation and indictment/trial phase. Please contact me for additional information.
Comment or contact me if you’d like to discuss this post.
Mark F. Weiss
It was a neighborhood like many others.
Neat, but not too neat front yards. Newspapers brought in by 8:00 a.m. and maybe by 10:00 a.m. on weekends.
And, all was within the bounds of normal, giving, of course, wide birth to the meaning of the word, for this is nonfiction, not fiction. But with one outlier, of course.
They assembled just before daybreak, approximately a dozen SWAT-clothed FBI agents accompanied by the local police and, of course, a reporter with a camera. Then, they raided the gray house with a just as neat front yard but, to the well-eyed, just a tad too many security cameras.
Later that day, the reporter wrote that the man living in the house ran a 7 to 8 figure financial scam out of his, I suppose, just as neat den.
Ah, crime lurking in the “normal” neighborhood.
Unfortunately, crime and other misdeeds lurk in other neighborhoods, too. For example, inside of a provider agreement between a medical group and a payor.
Standard form provider agreements often closely and specifically define who, by classification, may be considered within the group for purposes of billing the payor. Many such define group physicians as the group’s employed physicians, thereby excluding subcontractors.
Yet, at the same time, it’s equally common for many medical groups to either regularly or from time to time staff using subcontracted physicians.
Although a set of concerns (breach of contract, fraud, and so on) is present in any such situation, the potential for trouble explodes when the provider agreement covers federal healthcare program patients. For example, many provider agreements cover both commercial and Medicare Advantage patients.
In that case, when the group submits a claim for a procedure on a covered Medicare patient performed by a subcontracted physician, the claim is potentially a false claim, triggering liability under the federal False Claims Act. And, although the FCA is a civil statute, it has a criminal cousin, 18 U.S.C. 287, commonly referred to as the criminal false claims act.
As if that weren’t enough, the same lurking billing violation can trigger liability under a host of federal criminal statutes, from mail and wire fraud, to the Travel Act, to federal health care fraud.
Criminal and, at least, serious civil, liability lurks in many neat neighborhoods. Create your own neighborhood watch to make sure that it’s not lurking behind your medical group’s otherwise metaphorical neat lawn.
Comment or contact me if you’d like to discuss this post.
Mark F. Weiss
Oh what a tangled web they weave; multiple professionals caught up marketing an ineffective medicine in return for disguised kickbacks.
