Articles on Compliance Strategies

Strategies to Limit Your Exposure to Potential Whistle-blower Cases

Reprinted from the Dec. 12, 2005, issue of 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.

One 76-year-old patient, upset that his explanation-of-benefits (EOB) form exaggerated the physical therapy provided to him by HealthSouth Corp. and frustrated by Medicare's indifference to his complaints, set in motion the chain of events that led to HealthSouth's $325 million false claims settlement last year. It took just this one outsider, San Antonio resident James DeVage, armed only with his Medicare EOBs and the power of the whistle-blower provision of the False Claims Act, to get the ball rolling.

Similarly, Joseph Gerstein, M.D., then medical director of Tufts Health Plan in Boston, didn't appreciate the kind of deals that the salespeople from TAP Pharmaceutical Products offered him to get the drug Lupron onto the HMO's formulary. So Gerstein wore a wire under the direction of federal prosecutors, which led to a criminal prosecution, and Gerstein and Tufts filed a false claims lawsuit against TAP. When all was said and done, TAP settled the false claims case for $559 million and paid a $290 million criminal fine.

Stories like these are starting to pile up: When one person can't get his or her concerns about misconduct addressed, the False Claims Act makes it possible for that single person to expose even the largest hospital chains, pharmaceutical companies and other firms to huge liability by suing on behalf of the government. It's classic David vs. Goliath. Think back to Columbia/HCA Healthcare Corp. and more recently AdvancePCS and Gambro Healthcare; a huge whistle-blower-initiated false claims lawsuit against Medco Health Solutions, Inc. is pending. In fact, Taxpayers Against Fraud (TAF), the nonprofit organization that's a resource for whistle-blowers, just awarded its first "whistle-blower of the year" award, and it's a statue of David slaying Goliath. The award went to DeVage, the HealthSouth whistle-blower, "with a standing ovation from most of the False Claims Act bar," says TAF spokesman Patrick Burns. "[It's] a pretty fitting award for a very brave 'giant killer.'"

With no sign that whistle-blowers are slowing down, the stakes have never been higher for organizations to respond effectively to patient and employee complaints and ferret out potential problems through the usual compliance functions, such as audits, investigations and exit interviews.

One important strategy for nipping whistle-blowers in the bud is to manage employees' complaints more effectively. Many employee complaints that come into the compliance office — either directly to the compliance officer or through other channels, such as the hotline — appear to be human resource problems, and are typically referred to the HR department. But it's time for compliance offices to slow down and reconsider referrals to HR. Don't take employee complaints at face value, says Kevin McPoyle, associate corporate compliance and privacy officer at Jefferson Health System/Frankford Hospital in Philadelphia.

For one thing, a compliance problem may be wrapped inside the HR complaint, McPoyle explains. "Sometimes you have to listen to the total story because peppered in there may be a concern from a compliance standpoint," he says. For example, employees may gripe about their supervisors and how badly they treat employees in the department, which seems like an HR issue. "But before you bounce them to HR, listen closely to what they are saying about the supervisor and inefficiencies and whether they could result in a compliance issue," McPoyle says. "Depending on the department, if an employee is calling from the billing department and talking about management in a way that [indicates] the employee is pressured to get bills out the door, could that mean there is the same pressure on all employees in the department, and could that be creating mistakes on the bills?"

Also, if the employee just feels foisted off on HR, you may start sowing the seeds of a whistle-blower, he says. "You want to investigate the concerns employees raise to see if there's any validity and also to show employees that you are following up and showing due diligence, even though your first impression is that the employee is raising an HR issue, not a compliance issue," he says. "If you push them away and say, 'what you are saying is really an HR problem,' the fear is they may legitimately have something, and they may be angry their complaint fell on deaf ears with management. That could convert them to a whistle-blower."

Therapists Allegedly Just Greeted Patients

So what creates whistle-blowers? They have come from all walks of life, from inside the organization and outside. They have been clerks, doctors and patients, and two even have been former government fraud-busters, frustrated with failed cases. Burns doesn't think money is the main motivator - the cases take too many years, and people get blacklisted in their careers and may lose anyway.

Even after all these cases, organizations may continue to be vulnerable to whistle-blowers sometimes because the person receiving the complaint may be a middle manager who sweeps a subordinate's complaint under the rug, says Steve Morreale, until recently assistant special agent in charge of OIG investigations for New England and now a consultant near Worcester, Mass. That manager is not representative of the entire organization, but if he is the only person who knows about the problem and doesn't address it, it may fester with the subordinate while the manager keeps dismissing it. "If you are trying to tell someone something is wrong and no action is taken, it forces the employee to go outside [to a lawyer or the government]," Morreale says.

In the HealthSouth case, DeVage said he just wanted to make the company play by the rules and return the taxpayers' money. DeVage signed up for physical therapy starting in 1996 when he hurt his back. He was shocked when, after the initial session, the therapy allegedly consisted of his working out with the equipment by himself, while the therapist basically just said, "Good morning; how are you?" When he saw his EOBs, DeVage tells RMC, he was disgusted to see that Medicare was paying HealthSouth for individual physical therapy sessions.

The former Army lieutenant colonel and career IRS revenue agent — who likes things done by the book — questioned HealthSouth about the billing. The therapists were dismissive, telling DeVage that they were billing the proper way, he says.

Then he reported the alleged fraud to the Medicare fraud hotline, twice. After getting no response, he heard about the qui tam provision of the False Claims Act. So in 1998, then-78-year-old DeVage filed the lawsuit against HealthSouth for allegedly billing for physical therapy services that weren't provided as charged. A second, unrelated whistle-blower added allegations, and then the government intervened in both lawsuits and piled on its own false claims contentions around various kinds of alleged improper billing, says DeVage's lawyer, John Clark.

The rehab giant settled the suits in late 2004 for $325 million, Clark says, and about $50 million was attributable to DeVage's allegations. DeVage's whistle-blower suit was launched without a single piece of insider information, Clark notes.

The whistle-blower says it was a long haul; the case took eight years. He is now 84. But DeVage says he did it because it was the right thing to do. He wanted to put a stop to a fraud for which taxpayers footed the bill. And he has attracted a lot of attention and admiration.

Wearing Wire on Pharma Giant

As medical director for Tufts Health Plan in Boston from 1991 to 2001, Gerstein had influence over something on which drug companies coveted a place: the formulary. It turned out that TAP was willing to put its money where its covet was.

Gerstein had spent three years persuading eight urologists and then eight months convincing his colleagues on the HMO's pharmacy and therapeutics committee to cover the cost of Zoladex — a drug that he says is therapeutically equivalent to Lupron — to treat prostate cancer because Zoladex is $1,200 cheaper per patient per year than Lupron.

But TAP wanted to get Tufts to forget all that and resume its use of Lupron, which dominated the market despite its high cost. So the TAP salespeople essentially offered Gerstein this deal: Restore Lupron to the formulary, and TAP will give Tufts a steep discount on gynecological Lupron, another form of the drug not billed to Medicare, as well as $65,000 in "medical education grants" that, it appeared, could pretty much be used for any purpose. "They were attempting to induce us to change our policy," he says.

At the same time, TAP was "marketing the spread" between the price of Lupron that it reported to Medicare and the price at which it sold Lupron to physicians. Marketing the spread is a way for drug companies to lure physicians to prescribe medications they manufacture. The drug company inflates the "Average Wholesale Price" (AWP) — the price the drug company tells Medicare it charges (until the 2003 Medicare reform law changed that price determination method). Then the drug company charges physicians less when it sells the drug directly to them, allowing the physicians to make a bundle when they bill Medicare and other payers. That's what TAP did with Lupron, and it was the heart of the government's case against TAP — which was set in motion by one angry medical director. TAP also gave free samples to physicians and told them to bill Medicare for the samples.

When local and national media weren't interested in Gerstein's arcane tale of AWP and marketing the spread, Gerstein became a whistle-blower and filed a false claims lawsuit. With the False Claims Act, you don't need to convince anyone except a lawyer — and if you can pay a lawyer, you don't even need to convince him or her. Whistle-blowers can represent the government with or without the government's support. (There also was a second, unrelated whistle-blower in the case.)

Feds Got Involved After Suit Was Filed

But once that lawsuit was filed, the government paid attention. Prosecutors wired his office in time for Gerstein's next meeting with the TAP salespeople. To avoid any accusations of entrapment, Gerstein tells RMC, prosecutors didn't give him any guidance. "It was very scary. I was flying by the seat of my pants," he recalls. He says he caught their offers of inducements on tape, and the government launched a full-scale investigation.

TAP ultimately agreed to pay $875 million in 2001 to settle criminal and civil allegations that it illegally manipulated Medicare and Medicaid. Somewhere along the line, Gerstein had invited nonprofit Tufts Health Plan to share the risks and rewards as a whistle-blower. So, of the $17 million that went to the whistle-blowers, Gerstein collected about $1 million, and he donated half to establish a foundation to help inner-city children in Roxbury, near Boston.

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