Fraud Case Involves Claims to Private, Not Just Federal, Payers

A fraud case against a dermatologist for billing public and private health care benefit programs should attract attention of laboratories and all health care providers. First, it is noteworthy according to Robert E. Mazer, health care attorney for Ober Kaler in Maryland, that the charges were brought under a criminal statute that applies to both government and private payers, unlike so many other cases that focus solely on claims to Medicare, Medicaid or other federal programs. Another notable item is how the court addressed evidence the government wanted to introduce to prove the dermatologists’ intent and guilt.
Facts of the case A dermatologist was charged with 1) performing Mohs surgery on patients he diagnosed with skin cancer when they didn’t have cancer; 2) billing for wound closures as if he performed or supervised them when he had unlicensed medical assistants perform the closures; 3) billing for preparation of and analysis of skin pathology slides when he actually paid outside contractors to perform the service. He paid the contractors $15 per slide and billed $300-$450 to payers for that service. The government sought to introduce evidence regarding those specific prices that the dermatologist paid to contractors and billed to payers but the dermatologist argued that would be “unfairly prejudicial” particularly because what he billed was not what he would receive from payers. The government also sought to provide evidence of the dermatologists’ conduct after he became aware he was under investigation, to prove intent and motive. The dermatologist argued this was unfairly prejudicial and was evidence of “subsequent remedial measures” which Federal Evidence Rules prohibit.
Liability for Claims to Private Payers This case involves a criminal prosecution alleging fraud in billing claims to both public and private payers. In this case, the government brought criminal charges under Section 18 U.S.C. 1347. That statute was enacted as part of HIPAA and makes it a crime to “knowingly and willfully execute[], or attempt[] to execute, a scheme or artifice—

1. to defraud any health care benefit program; or
2. to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program, in connection with the delivery of or payment for health care benefits, items, or services.”

Note that conduct violates the statute if it relates to “any health care benefit program”—not just federal or public programs. And, the penalty can be fines or up to 10 years jail time or both, up to 20 years in jail if “serious bodily injury” results from the fraud or even life imprisonment if death results from the fraud. Finally, the statute imposes liability even if the person didn’t “have actual knowledge of” this statute or a “specific intent to commit a violation” of the statute.
Evidence of Financial Gain and Post Scheme Conduct The dermatologist was successful in getting the trial court to exclude evidence regarding the prices he paid contractors and charged the government as well as evidence of his conduct after he was aware he had come under government scrutiny. But the government appealed and the fourth circuit court of appeals reversed, saying the evidence should be allowed. The government intended to use the evidence of conduct that occurred after law enforcement interviewed the dermatologist. It asserted that evidence showed he stopped sending pathology slides to outside contractors, stopped performing the Mohs surgery without a biopsy to support medical necessity, and deleted scheduling records that showed who performed wound closures. The dermatologist claimed the evidence of his conduct after he was interviewed by the government was unfairly prejudicial and also shouldn’t be allowed because it demonstrated “remedial measures.” The government claimed it demonstrated his “consciousness of guilt” and was needed to rebut any argument that the billings at issue were “isolated mistakes” and to show the government didn’t just “cherry pick” certain transactions. The government said the evidence was necessary to prove the entire scheme to defraud. The court concluded that the law doesn’t limit the government to introducing evidence regarding just the specific instances of violations detailed in the complaint. It explained that in large and complex health care fraud cases the government needed “adequate latitude” to show defendant’s criminal intent—in other words, knowing and willful conduct. The dermatologist’s conduct after the law enforcement interview (which the parties referred to as “post-scheme” conduct) was relevant to proving “knowledge and intent to defraud.” The court noted he stopped sending pathology slides to the outside contractors after he was interviewed by federal agents but before the agents were aware of this practice. It also explained the fact that he stopped performing the surgeries without biopsies indicated he was aware that doing so was a violation of a standard of care for diagnosing skin cancer. Additionally, the court said the deleted schedules refuted the dermatologist’s claim that it was honest mistakes that led to billing for services as if he performed them when non-licensed individuals actually performed the service. Finally, the court agreed with the government about the relevance of evidence concerning the disparity between the amount the dermatologist charged payers and the amount he paid outside contractors for the preparation of pathology slides. He paid $15 to the contractors for each slide but billed insurers $300-$450 per slide. The dermatologist argued that evidence was unfairly prejudicial and it was irrelevant because payers paid predetermined rates—so, he knew he wouldn’t receive the billed amount. But the government claimed the “substantial disparity” showed motivation. The court agreed that “evidence of financial gain is particularly probative in a fraud case to establish the defendant’s intent to defraud.” United States v. Bajoghli, No. 14-4798 (4th Cir. May 11, 2015). Takeaway: Remember that laboratories and other providers can be subject to financial liability and even criminal penalties for alleged fraud, not just for claims to federal health care programs, but also claims to private payers as well! And, actions taken after a laboratory has knowledge it is under investigation may be used against it.