AHLA Podcast on Tax-Exempt Joint Ventures

AHLA has a nice, 19-minute podcast that offers a useful overview of the types of issues that arise when a tax-exempt entity enters into a joint venture (mostly ancillary jv's rather than whole-hospital jv's) with a for-profit entity. The participants include the indefatigable Gerry Griffith, Partner, Jones Day (Detroit), as well as Jennifer Noel, Corporate Director of Tax, Christiana Care Health System, and Robert Friz, Partner, PricewaterhouseCoopers. Nerd that I am, I love these tax issues and look forward to teaching them in my Health Law course each year. 

This podcast is actually a teaser for AHLA’s upcoming "Tax Issues for Health Care Organizations" program in Washington, DC on October 23-24. The program and faculty all look great.

Disclaimer: AHLA didn't ask me to post this plug for the program. 

Fourth Circuit Reinstates ERISA Claim Against Administrator (and Contractors) of Self-Insured Plan

Here are the facts as stated in the Fourth Circuit's opinion in Rose v. PSA Airlines et al., (4th Cir. 9/11/2023):

The Employee Retirement Income Security Act's § 502(a)(1)(B) allows a beneficiary to “recover benefits due to him under the terms of his plan.” And ERISA's § 502(a)(3) allows a beneficiary to sue for “other appropriate equitable relief.” This case requires us to answer when—and under what conditions—a plaintiff may seek monetary relief under one of those provisions.

Jody Rose's son had a rare heart condition. He died at the age of twenty-seven, awaiting a heart transplant, which Rose says that Defendants—who administered her son's employer-based health benefits program—wrongfully denied. So she sued on behalf of his estate, seeking monetary relief under both § 502(a)(1)(B) and § 502(a)(3). The district court dismissed both claims. As to Rose's (a)(1)(B) claim, the court held that money was not one of the “benefits” that her son was owed “under the terms of his plan.” And, as to her (a)(3) claim, the court held that her requested monetary relief was too similar to money damages and was thus not “equitable.”

We now affirm in part and vacate in part. The district court correctly held that money was not one of the “benefits” that Rose's son was “due” “under the terms of his plan.” So it was right to dismiss her (a)(1)(B) claim. But we must vacate its complete dismissal of Rose's (a)(3) claim. While the district court correctly noted that compensatory, “make-whole” monetary relief is unavailable under § 502(a)(3), it did not consider whether Rose plausibly alleged facts that would support relief “typically” available in equity. Montanile v. Bd. of Trs., 577 U.S. 136, 142, 136 S.Ct. 651, 193 L.Ed.2d 556 (2016). We thus remand for the district court to decide in the first instance whether Rose can properly allege such a theory based on a Defendant's unjust enrichment, including whether an unjust gain can be followed to “specifically identified funds that remain in the defendant's possession” or to “traceable items that the defendant purchased with the funds.” Id. at 144–45, 136 S.Ct. 651.

So the district court will now decide whether unjust-enrichment damages are available under § 502(a)(3). And unless the case settles, there will be the inevitable appeal to the Fourth Circuit no matter which way the lower court rules. And then cert.?

This case is worth watching. The Supreme Court ruled 30 years ago that § 502(a)(3) does not authorize damage actions, at least under the narrow facts of that case. See Mertens v. Hewitt Assocs., 508 U.S. 248 (1993). Yale law professor John Langbein has written that the Court got it wrong in Mertens. The Court has repeated its no-damages refrain in later cases over the decades. Is an unjust-enrichment claim the way to crack open that ruling? 

Texas Attorney Convicted for Role In Kickback Scheme

It's relatively rare for an attorney to be such an integral part of a kickback-for-referrals scheme that he gets convicted of money-laundering (as well as a charge of perjury for lying about the scheme under oath), but that's what happened this summer to Houston lawyer Peter Bennett. See Law360, 7/17/2023. Bennett was convicted on charges that he created sham corporations and sham trusts to launder money paid for referrals to a local hospital. His motion for acquittal or a new trial is pending before District Judge Jeremy Kernodle in the Eastern District of Texas. See Law360, 9/11/2023.

If there's ever an opinion in this case, it would provide a cautionary tale for my health law students . . . 

How Many Separate Fraud Schemes Can You Spot in This Picture?

This doesn't quite match the $200 million health care fraud scheme I reported on yesterday, but it could still be a great final exam "issue spotter" in my Health Care Law class. It reminds me of those children's puzzles that have 10 or 15 errors partially hidden in a picture. Here's the picture (from the DOJ press release; emphasis added):

[T]he United States has filed and settled a civil fraud lawsuit against KLAUS PETER RENTROP and his medical practice GRAMERCY CARDIAC DIAGNOSTIC SERVICES P.C. (“GRAMERCY CARDIAC”) for paying millions of dollars in kickbacks to physicians and their practices for patient referrals.

RENTROP and GRAMERCY CARDIAC offered and paid physicians and their practices millions of dollars in kickbacks in the form of inflated “rental payments” and referral fees to induce them to refer patients to Gramercy-contracted cardiologists and to Gramercy Cardiac for diagnostic tests and procedures, in violation of the Anti-Kickback Statute and the Stark Law. 

RENTROP and GRAMERCY CARDIAC’s scheme worked as follows.  RENTROP and GRAMERCY CARDIAC entered into office space rental agreements, often in excess of fair market value, with primary care and other physicians or their medical practices (the “Rental Practices”).  These agreements typically provided for the use of an exam room once or twice a month, as well as for the use of basic equipment (e.g., a telephone and a computer) and front desk staff to assist with scheduling.  The defendants often agreed to pay thousands of dollars each month in rent.  RENTROP and GRAMERCY CARDIAC also entered into independent contractor agreements with dozens of cardiologists (the “Gramercy-Contracted Cardiologists”) who were sent to see patients at the Rental Practices.  In exchange for the purported “rental payments,” the Rental Practices referred patients to the Gramercy-Contracted Cardiologists, who in turn referred many of these patients to a GRAMERCY CARDIAC office to undergo cardiac diagnostic tests and procedures.  RENTROP and GRAMERCY CARDIAC paid the Gramercy-Contracted Cardiologists a flat fee for each test or procedure performed on referred patients at a Gramercy Cardiac location, with larger fees paid for tests and procedures for which GRAMERCY CARDIAC received a greater reimbursement.  These per-procedure fees were the only compensation paid to some Gramercy-Contracted Cardiologists.

To ensure the kickbacks paid to the Rental Practices were working, RENTROP directed his staff to calculate GRAMERCY CARDIAC’s return on investment from the “rental payments” paid to each Rental Practice.  RENTROP insisted on a minimum return on investment of at least 300% from the kickbacks. 

These Rental Practices referred tens of thousands of patients to the Gramercy-Contracted Cardiologists, who in turn referred more than 23,000 patients for PET and SPECT scans at GRAMERCY CARDIAC.  A significant proportion of these patients were Medicare or Medicaid beneficiaries: GRAMERCY CARDIAC billed Medicare or Medicaid for tests or procedures provided to tens of thousands of Medicare or Medicaid beneficiaries who were referred by the Rental Practices, including for PET and SPECT scans for many thousands of these beneficiaries.  As a result, the claims submitted for payment for these tests and procedures were false and violated the federal False Claims Act. 

As part of the settlement, RENTROP and GRAMERCY CARDIAC each admits, acknowledges, and accepts responsibility for the following conduct:

From 2010 through 2021, GRAMERCY CARDIAC, at RENTROP’s direction, entered into rental agreements (the “Rental Agreements”) with more than 130 physicians and medical practices (the “Rental Practices”) under which GRAMERCY CARDIAC leased a portion of the practice’s office space, usually one or two exam rooms for certain days or hours each month.  RENTROP took part in the negotiation of the Rental Agreements and signed them on behalf of GRAMERCY CARDIAC.  GRAMERCY CARDIAC paid a total of more than $11 million to the Rental Practices pursuant to the Rental Agreements. 

From 2010 through 2021, GRAMERCY CARDIAC, at RENTROP’s direction, entered into independent contractor agreements (the “Independent Contractor Agreements”) with more than 50 cardiologists (the “Gramercy-Contracted Cardiologists”) or their medical practices.  RENTROP took part in the negotiation of the Independent Contractor Agreements and signed them on behalf of GRAMERCY CARDIAC. 

GRAMERCY CARDIAC sent the Gramercy-Contracted Cardiologists to the rented office space one or more times each month to see patients who were referred for an assessment by the healthcare providers at the Rental Practice.  The Gramercy-Contracted Cardiologists in turn referred these patients to GRAMERCY CARDIAC to undergo diagnostic tests and procedures, such as PET and SPECT scans.

GRAMERCY CARDIAC paid many of the Gramercy-Contracted Cardiologists a flat fee for each diagnostic test or procedure which the cardiologist referred to GRAMERCY CARDIAC provided that the patient received the test or procedure at a GRAMERCY CARDIAC location.  These “per procedure” fees were the only compensation GRAMERCY CARDIAC provided to the Gramercy-Contracted Cardiologists.

Certain versions of Independent Contractor Agreements stated that the Gramercy-Contracted Cardiologist was to be paid not for the referrals to GRAMERCY CARDIAC, but rather for the “[a]dministration and supervision” of the PET and SPECT scans to be performed at GRAMERCY CARDIAC.  However, in many cases, the Gramercy-Contracted Cardiologists did not, in fact, administer and supervise the PET and SPECT scans and were nonetheless paid by GRAMERCY CARDIAC based solely on the number of tests and procedures referred.

At the time the Rental Agreements were executed, it was understood that the Rental Practices would refer their patients to the Gramercy-Contracted Cardiologists.  Indeed, GRAMERCY CARDIAC calculated the number of hours per month that GRAMERCY CARDIAC leased the office space based on the volume of expected patient referrals.

GRAMERCY CARDIAC calculated its return on investment from its Rental Agreements — which it internally referred to as the “efficiency” of the Rental Agreements — by comparing the revenue GRAMERCY CARDIAC generated from the patient referrals to the payments it made to the Rental Practice.  

When a Rental Agreement’s return on investment fell below the minimum threshold, GRAMERCY CARDIAC, at RENTROP’s direction, would often refuse to pay the Rental Practice the amounts due under the Rental Agreement.  In addition, at RENTROP’s direction, GRAMERCY CARDIAC Physician Liaisons advised Rental Practice physicians that if the volume of referrals to Gramercy-Contracted Cardiologists did not increase, rent would be decreased, or the Rental Agreement would be terminated.  GRAMERCY CARDIAC terminated a number of Rental Agreements because the return on investment through patient referrals was too low.

When negotiating or re-negotiating the monthly rental payment to be made under a Rental Agreement, GRAMERCY CARDIAC took into account the expected or historic return on investment based on the volume of patient referrals generated from the Rental Practice.

The rental fees paid by GRAMERCY CARDIAC under the Rental Agreements were in excess of fair market value for at least some Rental Agreements.

That's a whole lotta kickback-payin' goin' on! How much fraud are we talking about? The defendant physician and his practice are paying $6.5 million to settle the charges, but if they fail to pay, there is "a Consent Judgment in the amount of $64,416,515, which may be enforced if Defendants do not make the payments required under the settlement agreement." 

Health Care Fraud Case of the Week

 

Here's the headline from the DOJ news release on this conviction: "Nurse Practitioner Convicted of $200M Health Care Fraud Scheme." There were a few other parties involved, as you might imagine, but this one NP was at the center of a $200 million fraud scheme. As audacious as that sounds, the facts are equally breathtaking:

According to court documents and evidence presented at trial, [the defendant] signed thousands of orders for medically unnecessary orthotic braces and genetic tests, resulting in fraudulent Medicare billings in excess of $200 million. As part of the scheme, telemarketing companies would contact Medicare beneficiaries to convince them to request orthotic braces and genetic tests, and then send pre-filled orders for these products to Hernandez, who signed them, attesting that she had examined or treated the patients. In reality, she had never spoken with many of the patients.

There's more: 

In 2020, Hernandez ordered more cancer genetic tests for Medicare beneficiaries than any other provider in the nation, including oncologists and geneticists. She then billed Medicare as though she were conducting complex office visits with these patients, and routinely billed more than 24 hours of “office visits” in a single day. Hernandez personally pocketed approximately $1.6 million in the scheme, which she used to purchase expensive cars, jewelry, home renovations, and travel.

The truly astonishing thing about this is the defendant's apparent confidence that the CMS computers wouldn't pick up on the fact that she ordered more cancer genetic tests than any other Medicare provider in the entire country. 

Love is blind, and so is greed.

Nonconsensual Pelvic Exams

Over the years (decades, actually), I've heard reports from med students who were disturbed by what they witnessed during their ob-gyn clinical rotation: pelvic exams performed on sedated women who had not consented to the exam. Following up, I've been told repeatedly that this doesn't happen, that consent was obtained from all women who experienced pelvic exams, but the med students didn't know about the consent. That sounds kind of sketchy. Why wouldn't the consent process be included as an essential part of the med students' training? 

That's certainly not the story by way of NBC News (courtesy of the Hastings Center):

NBC TV Nightly News featured a Hastings Center Report study estimating that more than 3.5 million patients in the U.S. may have been given pelvic exams without consent, often while sedated for surgery. Doctors interviewed by NBC called the practice a “violation of medical ethics” and of “patient autonomy.” Watch the NBC segment. 

Labor Day Weekend Post #2: Hospital Cancels Bargaining Session After Nurse 'Walk-in'

  The Ascension hospitals in Austin and Kansas have been stuck in place for months in contract negotiations with the National Nurses Union. "Ascension Seton Medical Center in Austin, Texas, said it canceled a recent bargaining session after members of the National Nurses Organizing Committee, an affiliate of National Nurses United, held a "walk-in" [on Aug. 31] to hand deliver their staffing proposal to leaders." (Becker's Hospital Review (9/1/2023)). 

The nurses claim that current conditions in their hospital -- including a 1:6 nursing ratio in critical-care settings -- are unsafe for patients. There is a nationwide nursing shortage -- partly, but only partly, the result of COVID -- that has driven up salaries to retain nurses and attract new ones. Seton's reason for cancelling the bargaining pales somewhat in comparison: "Ascension Seton condemned the union's actions Aug. 31 as 'unprofessional, disrespectful and in blatant violation of the decorum by which negotiations are managed' and said they canceled the day's bargaining session to protect the well-being of the bargaining team." Right. I guess they'd have preferred a walk-out?

Labor Day Weekend Post #1: Hospitals Need to Do More to Protect Workers from Rudeness

There's a growing sense out there that we are experiencing a worldwide uptick in rudeness, probably brought on or at least exacerbated by COVID-related stress and isolation. It's a labor-and-employment issue for hospital managers, who have also seen an increase in workplace violence. Becker's Hospital Report picked up on a recent post in The Atlantic by Olgha Khazan in March 2022 ("Why People Are Acting So Weird") (may be free, but might be behind a paywall).

Mass General Brigham exemplifies the way back and the problem, in that order. They have enacted an explicit code of conduct for patients (and visitors?) to protect employees from rude and discriminatory behavior. Good. But: "On rare occasions, patients who violate this code may be asked to seek care elsewhere, the Somerville, Mass.-based health system said." On rare occasions . . . may be asked. Presumably only the worst behaviors will provoke the administrators to use the policies on their books to address unacceptable conduct.

The problem is a messy one. Hospitals tend to be places that can, and often do, bring out the worst in people. Pain, uncertainty, anxiety, loss of control . . . some folks deal with these stressors by lashing out. Health care professionals typical try to counsel patients and families unless there's a credible threat of violence. And safety-net hospitals are often loathe to evict patients because these institutions are the only option the patients have. 

On the other hand, a marked increase in rude and threatening and violent behaviors can't be treated in a business-as-usual manner. COVID-related stress and isolation is everywhere. We all need to have effective coping mechanisms. Hospitals are no different.