On April 9, 2018, two Tennessee health care executives, John Davis and Brenda Montgomery, were charged for their participation in a $4.6 million Medicare kickback scheme involving durable medical equipment (DME).
The charging indictment alleges that Davis, former CEO of Comprehensive Pain Specialists (CPS) – a Brentwood, Tennessee based multi-state pain management company – and Montgomery, founder and CEO of CCC Medical Inc., – a DME company with five locations in Tennessee – entered into a conspiracy to defraud the United States around June 2011. Specifically, from June 2011 to June 2017, Montgomery paid Davis approximately 60% of the Medicare proceeds collected on claims billed for DME ordered by CPS providers. In exchange, Davis directed CPS employees and providers to send Medicare DME orders and referrals to Montgomery’s company, CCC Medical.
An agreement to pay kickbacks in exchange for health care referrals violates federal Anti-Kickback Statute 42 U.S.C. 1320(a)-7b, which prohibits the exchange (or offer to exchange), of anything of value, in an effort to induce (or reward) the referral of federal health care program business. This conduct is illegal and actionable under the Civil False Claims Act because kickbacks for health care referrals exploit the health care system by driving up program costs, hindering fair competition in the industry, and compromising the medical decision-making process of physicians and hospitals in the form of patient steering.
To keep the arrangement hidden from their employees, patients, and the public, Davis and Montgomery made kickback payments through a nominee, created and filed false tax documents, and Davis intervened as CEO to prevent the owners of CPS from obtaining their own Medicare DME supplier numbers that would have allowed CPS to bill for its own Medicare DME orders. To further conceal their illegal agreement, the indictment alleges that Montgomery agreed to pay Davis $200,000 for the sham purchase of a shell entity known as ProMed Solutions LLC, although she only paid him $150,000. The indictment alleges that the true purpose of this payment was to induce Davis to continue driving CPS referrals to CCC Medical.
As a result of their scheme, the indictment alleges that Montgomery, through CCC Medical, submitted over $4.6 million in fraudulent claims to Medicare, and that Medicare paid a total of $2.6 million on those claims. The indictment also alleges that Montgomery paid Davis more than $770,000 in illegal kickbacks for CPS referrals. Each Defendant was charged with one count of conspiracy to defraud the United States and to pay and receive health care kickbacks, and seven counts of paying and receiving health care kickbacks.
U.S. Attorney for the Middle District of Tennessee Don Cochran says that the “Medicare program is designed to help those who are most vulnerable and in need of medical services and equipment.” These vulnerable people are placed “at greater risk” by these kickback schemes because “[s]tealing funds from our health care systems… diverts public funds into the pockets of the greedy individuals who exploit those with the greatest needs… at the expense of the taxpayer.” Not only does this diversion limit care available to those needing Medicare services, but it also “distort[s] markets and undermine[s] public trust.” Echoing these concerns, Assistant Attorney General, John P. Cronan, vowed that “the Criminal Division [of the Department of Justice] and our law enforcement partners will continue to root out fraud, waste and abuse in our health care programs, no matter how complex the schemes.”
In addition to the described conduct being a violation of federal criminal law, violations of the Anti-Kickback statute can also be pursued under civil remedies such as the civil False Claims Act. Under the qui tamprovisions of the False Claims Act, whistleblowers with information about similar fraud against the government may bring a civil case on behalf of the United States. If successful, the government can recover three times the amount the defendants fraudulently billed the government as well as civil penalties of up to $11,000 for each false claim submitted to the government. The whistleblower, who originally filed the case, is entitled to 15-30% of the government’s recovery as well as their attorney’s fees. Therefore, in this case, if pursued to the extent of the False Claims Act, the government could recover up to $13.8 million ($4.6 million in false claims multiplied by three) as well as $11,000 for each item of DME for which the Defendants fraudulently billed Medicare. Accordingly, a hypothetical whistleblower in this case could have received 15-30% of the government’s recovery, a potential award in excess of $4.14 million
The False Claims Act also provides protection to whistleblowers who come forward to expose fraud against the taxpayers. This statutory protection includes protection against wrongful termination and other adverse employment actions suffered by individuals who seek to further a False Claims Act case or try to prevent the submission of false claims.
To learn more about the False Claims Act and/or the Anti-Kickback Statute, contact Frohsin Barger & Walthall