Articles on Compliance Strategies

Featured Health Business Daily Story Oct. 20, 2009

HHS OIG Holds Ex-Hospital Exec Responsible for Alleged Stark Violations and False Claims; More Cases Against Executives Should Be Expected

Reprinted from REPORT ON MEDICARE COMPLIANCE, the nation's leading source of news and strategic information on false claims, overpayments, compliance programs, billing errors and other Medicare compliance issues.

By Nina Youngstrom, Managing Editor, (nyoungstrom@aispub.com)

A former California hospital CEO who doubled as the compliance officer has been held personally accountable by the federal government for the hospital’s alleged payments to physicians for referrals.

In an Oct. 5 settlement with the HHS Office of Inspector General, Michael Bakst, Ph.D., former executive director of Community Memorial Hospital of Ventura, agreed to pay $64,000 to settle allegations that he violated the civil monetary penalty (CMP) law barring kickbacks and caused the submission of false claims. Two years earlier, the hospital paid $1.5 million to settle a False Claims Act lawsuit stemming from the same (and additional) allegations.

This case is a good example of the federal government’s commitment to pursuing the alleged puppetmasters at health care organizations, rather than ending an enforcement action at the corporate level.

Although many other hospitals have settled false claims cases without its executives facing an enforcement action, OIG targeted Bakst because he allegedly personally struck the deals that got Community Memorial Hospital in hot water, knowledgeable sources tell RMC.

Bakst did not admit wrongdoing in the settlement and was not excluded from Medicare. His attorney, Michael Amir of Los Angeles, says the “$64,000 settlement was a bargain” considering OIG wanted $4 million to $5 million. “He only settled out of practical realities,” Amir says.

After 25 years at the hospital, Bakst was removed in 2003 by the board, says attorney Emily Rayman, who has been Community Memorial Hospital’s privacy and chief compliance officer since April 2007. The hospital then hired an auditor, identified the problematic payments to physicians and self-disclosed them to the U.S. Attorney’s Office for the Central District of California. The 2007 False Claims Act settlement followed. According to the U.S. attorney’s office, certain physicians, courtesy of the hospital, enjoyed interest-free loans and below-market rent and gifts, and their family members got jobs. Because no Stark exceptions applied to this largesse, the claims submitted by the hospital for services provided to patients referred by these physicians were false claims, the U.S. attorney alleged.

The settlement did not require a corporate integrity agreement. Community Memorial Hospital now has new management and “a very robust compliance program,” Rayman says

In the case against the former CEO, OIG alleged that from May 2002 to September 2003, Bakst “personally negotiated financial arrangements with physicians and directed improper payments to them,” causing the submission of false claims to Medicare. He allegedly triggered the CMP laws against Stark and caused false claims by arranging the following payments and gifts:

• A $40,000 loan, which was never repaid, to a physician to stabilize his practice.
• A $145,000 loan to another physician to help pay malpractice premiums. By the time the hospital approached DOJ about self-disclosing, the physician had repaid only $12,000. The balance was never repaid.
• A $283,000 payment to an existing group practice for the ostensible purpose of recruitment and retention of a new physician. But the recruit didn’t know about the payment between his new employer and the hospital until he arrived at the practice, and none of the money was ever repaid, sources say. The physician practiced a specialty that provides lucrative inpatient and outpatient services.
• A $4,000 digital camera given to a referring physician. This physician generated a significant amount of smaller-dollar referrals to the hospital, with the number of referrals being unexpectedly large for his medical specialty, sources say.

The alleged misconduct occurred despite Bakst’s dual role as CEO and compliance officer. According to hospital board minutes, board members appointed Bakst compliance officer, and the CFO worked with Bakst on billing and coding compliance, sources say. But Roy Snell, president of the Health Care Compliance Assn., says this type of arrangement is a sham. “The fact he had that title is meaningless,” Snell says. “The implication that a compliance officer has failed this organization is confounding. By definition, you can’t be a CEO and a compliance officer [simultaneously]” because a compliance officer must be independent. Snell notes that Bakst did not get fined for being a wayward compliance officer; he was fined because he was a CEO accused of breaking the law. “If anyone thinks this guy was an effective compliance officer, I have some swampland in Idaho to sell they might be interested in,” Snell adds.

Amir contends that Bakst abided by the hospital’s process for negotiating physician financial relationships. He says the deals that Bakst is accused of making were approved by the board. “It’s not like Bakst was doing it for his own benefit,” Amir says. “Our position is [OIG] was given a one-sided view of what was happening at the hospital.”

But sources say that thousands of relevant hospital documents, including board minutes, show board approval for only one physician loan, which was not part of either settlement. The way the loan payments were accomplished, sources say, is that Bakst allegedly told the CFO to write checks and the CFO complied.

Amir insists that Bakst was never the compliance officer. He said the hospital lacked a compliance program at the time.

Expect More Cases Against Executives

Two former government lawyers caution health care executives to expect the government to increasingly crack down on both the facilities that allegedly engage in fraud and the people whose hands get dirty along the way. “There has been an effort to hold officers culpable in health fraud cases in the past one to two years,” says John Kelly, former assistant chief for health care fraud at the DOJ criminal division. “The fines may not be as large,” but there is tremendous deterrent value.

Howard Young, a former senior OIG attorney, says the government is “trying to send a message that the institution won’t always be held solely responsible for alleged misconduct.” He points to two recent examples: In July, OIG excluded a nursing home chain CEO. In the 2007 Purdue Pharma settlement, the company and three current and former executives pleaded guilty to misleading the public about the safety of its painkiller OxyContin and agreed to pay $634.5 million.

What’s also disconcerting for executives about the Bakst case is the fact that he’s being slammed for conduct from the early 2000s, says Young, now with Morgan Lewis & Bockius in Washington, D.C. If organizations have implemented meaningful compliance programs with checks and balances for financial relationships, executives have less to worry about. “On the other hand, to the extent they haven’t, the individuals have cause for concern, and I think that is exactly the message OIG is trying to send,” he says.

Kelly notes that “there is clearly an ineffective compliance program” when the CEO acts as the compliance officer. When compliance officers find themselves in the uncomfortable position of knowing a senior leader is making illegal deals, sound the alarm to the general counsel or the board, says Kelly, with Fulbright & Jaworski in Washington, D.C. “Document them to protect yourself and the company,” he advises compliance officers. “Hopefully there are effective reporting processes and good people in [other] leadership positions and hopefully good legal people giving sound advice.” But even the best compliance programs can’t always prevent rogue employees from “making decisions that contravene the compliance program,” Kelly says.

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