Health Care Fraud: Texas Style

On Oct. 15 a federal jury in Houston convicted the owner of a firm that operated 14 pharmacies, on fifteen counts including conspiracy to commit mail fraud, conspiracy to violate the anti-kickback statute, bribery concerning programs receiving federal funds, conspiracy to commit bribery, five counts of healthcare fraud, and six counts of money laundering, resulting in $160 million in fraudulent claims that were paid by Medicare. 

As described by the Office of the U.S. Attorney for the Southern District of Texas:

From 2014 through 2021, Mohamad Mokbel led a company called 4M Pharmaceuticals which operated 14 pharmacies with straw owners. The jury heard evidence that Mokbel illegally purchased thousands of Medicare beneficiaries, including their identification number, personal health and physician information. Mokbel targeted elderly diabetic patients who are dependent on diabetic testing supplies to manage their blood sugar levels. Mokbel paid $16 to $40 per Medicare beneficiary.  

To maximize reimbursements and without regard for medical necessity, Mokbel then directed 4M employees to use the Medicare beneficiaries’ patient data to run insurance claims to determine if Medicare or other insurance plans would cover and reimburse at a high rate for the topical creams, Omega-3 pills and other medications that Mokbel intended to sell through 4M pharmacies.

At Mokbel’s direction, 4M employees would then fax pre-filled prescription requests to the patients’ doctors appearing to be for diabetic testing supplies with topical creams added at the bottom. They also included false representations that the patient was requesting a 4M Pharmacy fill their medications. In reality, Mokbel had previously purchased the patient’s personal information, the patient had not selected a 4M Pharmacy and the patient was often unaware the request was being made on their behalf. 

Many doctors apparently took the representations in the fax at face value and did sign and send back the prefilled prescription requests to 4M. Mokbel’s call center in Houston and later in Egypt then contacted the patients and made false and misleading statements about the topical cream and their doctor’s order. Mokbel’s pharmacies then shipped out numerous topical creams, often on auto-refill, and excessively billed Medicare, Medicaid and private insurance plans. 

Mokbel made over $200 million as a result of the scheme. 

The money value of the fraud is considerably less than the record for Medicare fraud, but what caught my eye was the complexity of the scheme and the lineup of law-enforcement agencies involved in the case: Homeland Security Investigations (HSI) Houston, the FBI, IRS Criminal Investigation, the U.S. Department of Health and Human Services, the U.S. Food and Drug Administration, and the Texas Attorney General’s Medicaid Fraud Control Unit. This was a big, big deal for these investigators.

More Healthcare Fraud Enforcement Actions: The Beat Goes On

  It's hard to know who is winning the battle against healthcare fraud -- the fraudsters or the enforcers. The list of enforcement outcomes (charges, verdicts, sentencing) is pretty darned impressive, both for the brazenness of the crimes and the success of the prosecutors. 

The HHS Office of Inspector General has a useful website that list 9,232 enforcement actions over the past decade. For my purposes, it's over-inclusive, because it lists "[c]riminal, civil or administrative legal actions relating to fraud and other alleged violations of law, initiated or investigated by OIG and its law enforcement partners" -- in other words, way more than only criminal prosecutions for health care fraud. The site does have some filters, but none are specific to health care. The listings for the past week alone, however, show the heavy concentration of health care fraud and the use of the criminal-justice system to punish wrongdoers:

• Florida Felon Sentenced to Prison for Role in Multi-Million Dollar Health Care Kickback Scheme After Pleading Guilty to COVID-19 Fraud and Unlawfully Possessing Firearm (May 30, 2024)
• Attorney General Ken Paxton Secures 84-Month Prison Sentence for Clinic Owner in $15 Million Medicare Fraud Scheme (May 30, 2024) (Note: Paxton's a terrible model of a public servant, but his fraud task force has done admirable work over the years going after healthcare fraudsters)
• Medical Device Manufacturer Innovasis Inc. and Two Top Executives Agree to Pay $12M to Settle Allegations of Improper Payments to Physicians (May 29, 2024) 
• Wisconsin Attorney Sentenced To Five And A Half Years In Federal Prison For $2.3 Million Fraud And Tax Evasion Schemes (May 28, 2024) 
• Penn Highlands Healthcare To Pay $735,000 To Settle False Claims Act Allegations (May 28, 2024) 
• Doctor Convicted Of $70M Medicare Fraud Scheme (May 24, 2024)
• Florida Businessman Daniel Hurt To Pay Over $27 Million For Medicare Fraud In Connection With Cancer Genomic Tests (May 24, 2024) 

Is it characteristic of fraudsters that, in their heart of hearts, they really believe they won't be found out by the authorities? Of do they take a (misguided) risk/reward calculation? 

$100 Million Medicare Fraud => 9-Year Sentence

Defendant Andrew Chmiel got a one-way ticket to federal prison for 9 years following his conviction for Medicare fraud, courtesy of the U.S. Attorney's office in the District of South Carolina. He was also ordered to pay $98,935,533.00 in restitution.

Touting this as one of the biggest Medicare fraud cases ever, the press release on this case described the essentials of the scheme (emphasis added): 

Chmiel’s charges were brought in 2019 as part of Operation Brace Yourself, an investigation that originated in South Carolina. Operation Brace Yourself, which was prosecuted in conjunction with the Department of Justice’s Criminal Division Fraud Section, was a multi-jurisdictional investigation that involved the execution of more than 80 search warrants in 17 federal districts.

As for Chmiel’s criminal conduct, evidence presented to the court showed that Chmiel controlled and operated at least 10 DME companies, which were located throughout the United States. These DME companies were used by Chmiel and his co-conspirators to submit false and fraudulent claims to Medicare for braces that were not medically necessary and/or were obtained through the payment of kickbacks and bribes. 

To effectuate the scheme, these DME companies entered into agreements with an offshore call center to purchase completed doctors’ orders so the DME companies could bill Medicare. This offshore call center was advertising through television and internet advertisements.  Once a Medicare beneficiary called a 1-800 number that was on the advertisements, that Medicare beneficiary would be screened for eligibility and then convinced that he or she needed a brace, and oftentimes upsold on other braces.  The call center would then contact a telemedicine company whose physician and/or or nurse practitioner would issue a prescription without regard to the medical necessity.  Throughout the investigation the evidence revealed that beneficiaries were prescribed braces without ever being examined by, seeing, or, in some instances, even speaking to a medical professional. Evidence presented showed that Chmiel was attempting to hide that he was purchasing completed doctors’ orders by creating fraudulent and false invoices for alleged marketing and business processing services.

Throughout the health care fraud scheme, Chmiel’s companies, which included 10 DME companies, two dropship companies, and two additional companies that were used to facilitate the fraud – D.O. Delivery and Pain Center – billed Medicare in excess of $200 million and Medicare paid Chmiel’s companies in excess of $95 million.

For the past two decades, durable medical equipment has been a fertile field for fraud and, correspondingly, for federal fraud prosecutions. The perpetrators of these schemes apparently fail to take into account the investigatory tools available to the Department of Justice and the fact that the government has computers that can crunch a lot of Medicare claims. $200 million worth of DME orders from 10 DME companies was bound to be picked up by some computer's filter or algorithm. 

False Claims Act: Causation Standard Up for Grabs

On February 13 AHLA posted a nice, lengthy analysis of the circuit split over the appropriate standard for proving "causation" in False Claims Act (FCA) cases. The FCA is probably the principal vehicle for bringing claims for violations of the Anti-Kickback statute (AKB). I previously published a lengthy post of this issue on December 5 (here).

Unfortunately, the AHLA analysis is behind two firewalls: a members-only firewall and another that limits access to members of AHLA’s Fraud and Abuse Practice Group.

Fortunately, the two authors -- John H. Lawrence & Michael H. Phillips, both of K&L Gates LLP -- have kindly posted for the full piece on their firm website. It's well worth a read, especially because, as the authors note, "the growing confusion and disagreement among district and circuit courts over this issue, coupled with the issue's import in FCA jurisprudence, make it a strong bet to be the next FCA issue decided by the Supreme Court."

One Guy, $234 Million Medicare Fraud Scheme

 

With a name that could be right out of Dickens novel, Imran Shams puts most other health care fraudster to shame. What he lacks in imagination -- his fraudulent conduct was pretty middle-of-the-road stuff -- he more than makes up with old-fashioned doggedness. The DOJ-OIG summary is illuminating:

A California man was sentenced today to 10 years in prison for conspiring to conceal his involvement in operating a laboratory and billing Medicare approximately $234 million for various lab tests, including COVID-19 and respiratory pathogen panel tests, despite his decades-long exclusion from the Medicare program.

“Criminals who cheat federal health programs and profit at the expense of American taxpayers will be met with the full force of the Justice Department,” said Attorney General Merrick B. Garland. “As our country was battling the COVID-19 pandemic, this individual was fraudulently billing Medicare for hundreds of millions of dollars. Today, thanks to the work of the Justice Department’s Criminal Division, he will now spend 10 years in federal prison for his crimes. We will continue to disrupt schemes that defraud the federal health programs the American people rely on, and we will hold accountable those who perpetrate those schemes.”

According to court documents, Imran Shams, 65, of Glendale, was convicted of Medicare and Medicaid fraud in separate 1990 and 2001 cases in New York and California, respectively. After each conviction, he was excluded from participation in Medicare and all federal health care programs, and advised by the Department of Health and Human Services Office of Inspector General (HHS-OIG) that he had to submit a written application to be considered for reinstatement in federal health care programs. Shams never sought reinstatement, yet he continued to operate health care clinics in New York that billed federal health care programs. In November 2017, Shams pleaded guilty to conspiracy to pay and receive health care kickbacks and other charges in the Eastern District of New York related to his operation of these clinics.

By 2018, Shams was an owner, operator, and manager of Matias Clinical Laboratory, doing business as Health Care Providers Laboratory (HCPL), a Baldwin Park, California-based clinical testing laboratory that billed Medicare and other federal health care programs. In order to maintain HCPL’s status as a Medicare provider and enable it to receive payments from Medicare for its testing services, Shams and a co-conspirator fraudulently concealed Shams’ role in HCPL from Medicare, including failing to submit required enrollment documentation identifying Shams’ ownership, management position, and prior convictions; causing the submission of false documentation to Medicare identifying another person as HCPL’s sole owner and managing officer; submitting false documentation concerning HCPL’s ownership and management to the California Department of Public Health; and making false statements to the U.S. Probation Office and Pretrial Services Agency while Shams was on federal court supervision following his 2017 conviction. Between August 2018 and April 2022, when the grand jury returned the indictment in this case and Shams was arrested and ordered detained without bond, HCPL fraudulently billed Medicare approximately $234 million. Medicare paid HCPL approximately $31.7 million based on these fraudulent claims.

Shams pleaded guilty in the Central District of California on Jan. 24, 2023, to conspiracy to commit health care fraud and concealment of his exclusion from Medicare.

In addition to the term of imprisonment, Shams was ordered to forfeit $31,761,286.21, including $4,513,106.30 in funds that the government previously seized from two bank accounts, as well as his interest in two residential properties and one business property in the Los Angeles area. Shams was also ordered to pay $31,761,286.21 in restitution.

“Shams engaged in a years-long scheme in which he billed American taxpayers nearly $234 million and lined his pockets with millions of dollars of funds intended for the health and welfare of patients,” said FBI Director Christopher Wray. “This case demonstrates the FBI’s commitment to rooting out fraud to help ensure critical healthcare funds go where they are needed most.”

Latest Fraud Enfocement Actions include $148 Million Scheme

Here's the latest rundown from USDOJ, with some details on a couple of the most notable actions:

Lab Owner Pleads Guilty To $1.7 Million COVID-19 Test Fraud Scheme (December 1, 2023; U.S. Attorney's Office, Northern District of Texas)

Physician Sentenced For $1.2M Pill Mill Scheme (November 30 2023; U.S. Department of Justice)

Philadelphia Pharmacy Pleads Guilty To More Than $500,000 In Fraudulent Insurance Claims As Part Of Prescription Medication Scam (November 28, 2023; Pennsylvania Attorney General)

▶︎Man Charged In $148M Medicare And Medicaid Fraud Scheme (November 30 2023; U.S. Department of Justice)

A federal grand jury in Baton Rouge, Louisiana, returned an indictment today charging a Louisiana man for his role in a scheme to defraud Medicare and Medicaid of over $148 million in medically unnecessary definitive urine drug testing services.   

According to court documents, Brad Paul Schaeffer, 48, of Zachary, was a co-owner and chief executive officer of MedComp Sciences LLC (MedComp), a diagnostic laboratory located in Zachary. From approximately January 2013 through approximately August 2022, MedComp, at the direction of Schaeffer, allegedly billed Medicare and Medicaid for definitive testing of at least 15 substances in urine specimens it received, regardless of the patient’s treatment plan and history, or the request of the referring provider. 

To perpetuate the fraud, Schaeffer, through MedComp, allegedly took several actions, among them, writing off patient co-pays, directing MedComp staff to fill out and submit order forms on providers’ “behalf,” concealing the true nature, permissibility, and extent of testing from providers, orchestrating a pass-through billing scheme using hospitals, and paying kickbacks to physicians disguised as laboratory ownership interests. Schaeffer then allegedly used the fraudulent proceeds for his own benefit, including spending thousands of dollars to renovate a pool and on a pool house in his backyard, and to restore a truck. 

▶︎Caretaker Charged With Involuntary Manslaughter, Neglect For Failure To Renew Patient’s Medications Which Led To Fatal Seizure Episode (November 29, 2023; Pennsylvania Attorney General)

Kelly Gonzales, 48, was the administrator at ARC of Lawrence County, a personal care home in New Castle, when she failed to renew a prescription for the patient’s anti-seizure medication. Gonzalez then altered medical records to indicate that a health care provider discontinued the medication — which was not true.

As the administrator of the personal care home, Gonzales was responsible for the administration and management of the home, including the health, safety, and well-being of the residents. This included ensuring the residents’ paperwork was complete, that they attended all medical appointments, and received their prescribed medication in a timely manner.

According to the complaint, the resident was diagnosed with a seizure disorder and was prescribed anti-seizure medication to control his seizures. He died at the care home on Dec. 2, 2021 after not receiving his medication for over 10 days. Upon autopsy, it was discovered that the seizure disorder caused his death and that the levels of anti-seizure medication in his system were well below therapeutic levels.

Gonzales was charged Tuesday with felony counts of neglect of a care dependent person and tampering with records, and misdemeanor involuntary manslaughter. Gonzales surrendered Tuesday, was arraigned and released on her own recognizance.

What's the Test for Causation in a False Claims Act Suit Based Upon the Anti-Kickback Act?

This is an issue only a lawyer could love, but there's already a circuit split, and two federal judges in the Massachusetts District have reached opposite conclusions, with one of them asking for a resolution by the First Circuit, which will either deepen the split or (if it comes up with a third approach) broaden it. Considering the large number of qui tam actions for AKB violations that are litigated each year, this is an important issue that cries out for resolution by SCOTUS. 

How much do lawyers love this issue? Here is a collection of law firms' commentary on the issue in the last couple of months --

• Haynes and Boone, Another Win for Defendants on the Issue of Causation in AKS-Based FCA Cases (Oct. 5) (extensive analysis)
• Sidley: District of Massachusetts Adopts But-For Causation Test for FCA Claims Premised on AKS Violations (Oct. 3)
• WilmerHale: Government Setback “Resulting From” Another Court Adopting the “But For” Causation Standard for False Claims Act Cases Furthering Court Split (Oct. 19)
• DLA Piper: Massachusetts District Judge rules that government must clear high causation bar in False Claims Act cases (Oct. 10)
• ArentFox: Federal Judge Rules Government Must Demonstrate “But-For” Causation for Anti-Kickback Statute Claims (Oct. 6)
• Goodwin Procter: “Greenfield Fraught with Problems”: District of Massachusetts Holds But-For Causation Required in False Claims Act Cases Based on Kickbacks (Oct. 5)
• Bradley: District of Massachusetts Split on Causation Standard in Kickback FCA Cases (Oct. 30)
• Mintz: Courts Continue to Grapple with the Causation Standard for False Claims Act Suits Based on Alleged Kickback Schemes, While the Supreme Court Stays on the Sidelines (Oct. 5)
• Squire Patton Boggs: Federal Courts Continue to Grapple with Causation in Anti-Kickback-Based False Claims Act Cases (Nov. 29)
• Bass Berry & Sims: District Courts Wrestle with Causation in Kickback Cases While Circuit Courts Remain Divided (Oct. 5)
• Weiner Brodsky Kider: Mass. Federal Court Adopts More-Stringent Causation Standard for FCA Claims Based on Alleged Unlawful Kickbacks (Oct. 12)
• McGuireWoods: The Growing Causal Divide: But-For Causation in AKS/FCA Actions (Dec. 4) (citations and some hyperlinks to opinions)
• Akerman: Teva FCA Decision Sheds Light on Varying Interpretations of the Elements of an FCA Claim (Aug. 10)
• Hogan Lovells: Anti-kickback causation in FCA suits: text or purpose? (undated, but apparently written before the D. Mass. split)
• Ropes & Gray: Sixth Circuit Requires But-For Causation and Narrowly Defines Remuneration under AKS (April 4) (before the D. Mass. split)
• Arnold & Porter: More Disagreement About the Causation Standard for AKS Cases Under the FCA (July 21) (before the Regeneron case created a split within the Mass. District)

For a very brief introduction to the laws involved in this split, you can start with the HHS OIG website.