On October 10, 2023, the Department of Justice (DOJ) issued a press release discussing an $85 million settlement with Cardiac Imaging Inc. The Cardiac Imaging settlement provides valuable lessons to DME suppliers.
The press release states:
Cardiac Imaging Inc. (CII), headquartered in Illinois, and its founder, owner, and CEO Sam Kancherlapalli, a resident of Florida, have agreed to pay a total of $85,480,000 to resolve False Claims Act allegations that they paid referring cardiologists excessive fees to supervise PET scans in violation of the Anti-Kickback Statute (AKS) and the Physician Self-Referral Law (Stark Law). CII agreed to pay $75 million, plus additional amounts based on future revenues, and Kancherlapalli agreed to pay $10,480,000. These settlements are based on their ability to pay.
“Healthcare providers that pursue patient referrals through illegal kickbacks and other unlawful financial arrangements will be held accountable,” said Principal Deputy Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. “We will continue to safeguard federal healthcare funds by rooting out financial relationships between healthcare providers and referring physicians that can corrupt medical decision making and increase the cost of care.”
The United States alleged that between March 1, 2014, and May 31, 2023, CII and Kancherlapalli knowingly caused false or fraudulent claims to federal health care programs arising from violations of the AKS and the Stark Law. Specifically, with Kancherlapalli’s oversight and approval, CII allegedly paid kickbacks to referring cardiologists in the form of above-fair market value fees of $500 or more per hour, ostensibly for the cardiologists to supervise the PET scans for the patients they referred to CII. The United States alleged these fees substantially exceeded fair market value for the cardiologists’ services because CII paid the referring cardiologists for each hour CII spent scanning the cardiologists’ patients, including time the cardiologists were away from CII’s mobile scanning units providing care for other patients or were not even on site. CII’s fees also purportedly compensated the cardiologists for additional services beyond supervision that were not actually provided. CII purported to rely on a consultant’s fair market value analysis that the United States alleged CII knew was premised on fundamental inaccuracies about the services referring physicians provided and that the consultant ultimately withdrew.
“Paying illegal kickbacks to cardiologists so they refer patients undermines the integrity of federal healthcare programs and needlessly increases costs,” said U.S. Attorney Alamdar Hamdani for the Southern District of Texas. “Patients deserve care based on their medical need and not on a doctor or company’s financial interest or gain. This outcome emphasizes my office’s commitment to pursing justice, ensuring the public’s trust in the federal healthcare system and holding the corrupt accountable.”
“Illegal kickback payments not only corrupt the medical decision-making process but also cause harm and financial loss to Medicare and other federally funded healthcare programs,” said Special Agent in Charge Jason E. Meadows for the Department of Health and Human Services Office of Inspector General (HHS-OIG). “HHS-OIG works closely with our law enforcement partners to root out and hold accountable those who put profit and personal gain ahead of legitimate medical services.”
In connection with the settlement, CII and Kancherlapalli entered into a five-year Corporate Integrity Agreement (CIA) with the HHS-OIG. The CIA requires, among other compliance provisions, that CII implement measures designed to ensure that arrangements with referring physicians are compliant with the AKS and the Stark Law. The CIA also requires that CII implement a centralized annual risk assessment and internal review process to identify and address the AKS and the Stark Law risks associated with arrangements and retain an Independent Review Organization to perform a systems and transactions review of arrangements.
The civil settlement resolves claims brought under the qui tam or whistleblower provisions of the False Claims Act by Lynda Pinto, a former billing manager at CII. Under those provisions, a private party can file an action on behalf of the United States and receive a portion of any recovery. The qui tam action also raises claims against CII’s former President and part-owner Richard Nassenstein, which are not resolved in this settlement. The qui tam case is captioned U.S. ex rel. Pinto v. Cardiac Imaging, Inc., et al., No. 18-cv-2674 (S.D. Tex.). The relator’s share of the settlement has not yet been determined.
There are a number of lessons for DME suppliers:
Referral Source – The Medicare anti-kickback statute states that a health care provider (such as a DME supplier) cannot provide anything of value (money, golf clubs, trip to Cozumel, etc.) to a person (such as a physician) or entity in exchange for referring, or arranging for the referral of, patients covered by a government health care program (e.g., Medicare, TRICARE, Medicare Advantage, Medicaid). Violation of the anti-kickback statute is a criminal offense. The payor and the payee are equally liable under the statute. Courts have enumerated the “one purpose” test which states that if one purpose behind a payment to a referral source is intended to induce referrals, then the anti-kickback statute is violated notwithstanding that the primary purpose of the payment is to pay for legitimate services and notwithstanding that the payment is the fair market value equivalent of the referral source’s services. Because the anti-kickback statute is so broad, the Office of Inspector General (“OIG”) has published a number of “safe harbors.” A safe harbor is a fact situation. If the arrangement falls within the fact situation, then the compensation paid does not violate the anti-kickback statute. A relevant safe harbor is the “Personal Services and Management Contracts” safe harbor (“PSMC safe harbor”). This safe harbor contains a number of requirements, including the following: (i) the DME supplier and physician will enter into a written agreement with a term of at least one year; (ii) the supplier will pay the physician for legitimate services; (iii) the methodology for calculating the compensation will be set one year in advance (e.g., $6000 over the next 12 months) and will not take into account the expected volume of business between the parties; and (iv) the compensation will be the fair market value equivalent of the physician’s services.
Physician Self-Referral– The federal physician self-referral statute (“Stark”) states that if a physician (or immediate family member) has an ownership/compensation arrangement with a provider that furnishes “designated health services” (“DHS”), then the physician cannot refer patients, covered by Medicare or Medicaid, to the provider. A DME supplier falls within the definition of a provider that furnishes DHS. Unlike the anti-kickback statute, Stark imposes civil (not criminal) liability. There are a number of exceptions to Stark. Two of the exceptions are (i) the nonmonetary compensation exception and (ii) the personal services exception. The nonmonetary compensation exception states that a provider can expend up to a certain dollar amount per calendar year on non-cash/non-cash equivalent items for a referring physician. In 2023, that amount is $489. The physician’s staff is not covered by this exception. Cash, gift cards, gift certificates and similar “cash equivalent” items do not fall within this exception. The personal services exception is similar to the PSMC safe harbor.
Billing High Reimbursement Codes – If a DME supplier submits a large number of high reimbursement claims, then it is highly likely that the supplier will be looked at by CMS and/or a government enforcement agency. To quote the movie Jerry Maguire: “Follow the money.” Here is an analogy from the pharmacy world. Several years ago, a number of pharmacies purchased a software program that allowed them to engage in “data mining.” Utilizing the software, the pharmacies would review their most commonly billed prescriptions and determine if there were similar drugs that commanded higher reimbursement. The pharmacies would contact the prescribing physicians and convince them to switch their patients to the higher reimbursed drugs. This type of “data mining” does not pass the smell test. It is no surprise that the Department of Justice is now issuing Civil Investigative Demands (“CIDs”) to pharmacies engaged in the data mining.
Whistleblowers – There is an old saying: “If a health care provider is doing something wrong, someone knows about it.” That “someone” is normally an employee. In the Cardiac Imaging case, the whistleblower is Cardiac Imaging’s former Billing Manager. A whistleblower (“Relator”) will surreptitiously gather documents and then hire an attorney who specializes in filing whistleblower (qui tam) lawsuits. The Relator will file a federal lawsuit against the provider. The lawsuit will be in the name of the Relator and “in the name of the United States of America.” The lawsuit will be placed “under seal” … meaning that no one knows about the lawsuit except for the DOJ and other government enforcement agencies. The lawsuit will be delivered to a civil Assistant U.S. Attorney (“AUSA”). The AUSA will coordinate an investigation, which can take months…or even a couple of years. If the AUSA concludes that the lawsuit has merit, then (i) the DOJ will “intervene” (i.e., take the lawsuit over) and (ii) the lawsuit will be served on the provider. If the AUSA finds the facts to be egregious, then he/she may hand the file over to a criminal AUSA who will determine if a parallel criminal case needs to be brought against the provider. We do not know what transpired at Cardiac Imaging before the whistleblower lawsuit was filed, but the odds of Cardiac Imaging being subjected to such a suit would likely have been reduced if (i) Cardiac Imaging had a robust compliance program and (ii) Cardiac Imaging had a functioning Compliance Officer. In most instances, (i) the Billing Manager would recognize the problem, (ii) the Billing Manager would report the problem to the Compliance Officer, and (iii) senior management would address the problem. Normally, an employee will go to a qui tam attorney only when the employee concludes that his/her employee is not taking steps to correct a fraudulent practice.
Ability to Pay – The $85 million settlement was based on Cardiac Imaging’s “ability to pay.” Cardiac Imaging agreed to pay $75 million, plus additional amounts based on future revenues. The damages and penalties under the FCA would have been in the stratosphere. The DOJ reviewed the financial statements of Cardiac Imaging (and most likely its individual owners) to determine how much Cardiac Imaging could physically pay. $85 million is what the parties agreed on. This type of “ability to pay” approach is fairly common in settling cases under the FCA.
Corporate Integrity Agreement (“CPA”) – Cardiac Imaging signed a five-year CIA with the Office of Inspector General (“OIG”). This is a form of civil probation. During the term of the CIA, Cardiac Imaging must perform certain obligations. These can include (i) implementing a robust compliance program; (ii) hiring a Compliance Officer and establishing a Compliance Committee; (iii) training existing and future employees on their compliance responsibilities; and (iv) contracting with an Independent Review Organization (“IRO”) to (a) review Cardiac Imaging’s operations once a year and (b) submit a report to the OIG. If Cardiac Imaging violates the terms of the CIA, then Cardiac Imaging will likely face exclusion from directly or indirectly having any connection with federal health care programs and the imposition of additional fines.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, a law firm based in Texas with a national health care practice. He represents pharmacies, infusion companies, HME companies, manufacturers, and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or firstname.lastname@example.org.
Jacque K. Steelman is a member of the Health Care Group at Brown & Fortunato, a law firm with a national health care practice based in Texas. She represents pharmacies, infusion companies, HME companies, manufacturers, and other health care providers throughout the United States. Steelman can be reached at (806) 345-6316 or email@example.com.