Posts in category: Blog

The Securities and Exchange Commission (SEC) Recently Charged a West Palm Beach, Florida based Hedge Fund with Fraud

The Securities and Exchange Commission (SEC) recently charged a West Palm Beach, Florida based hedge fund with fraud. According to the complaint, Weston Capital Asset Management LLC, and its founder and president Albert Hallac engaged in fraud by illegally draining more than $17 million from a hedge fund they managed and transferred the money to a consulting and investment firm known as Swartz IP Services Group Inc.  The transaction went against the hedge fund’s stated investment strategy and wasn’t disclosed to investors, who received account statements falsely portraying that their investment was performing as well or even better than before.  Weston Capital’s former general counsel Keith Wellner assisted the activities. The SEC further alleges that out of the transferred investor proceeds, Hallac, Wellner, and Hallac’s son collectively received $750,000.00 in payments from Swartz IP.  Weston Capital and Hallac also wrongfully used $3.5 million to pay down a portion of a loan from another fund managed by the firm.

“Investment advisers owe their clients a fiduciary duty of utmost good faith and full disclosure about what they’re doing with their money,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “Weston and Hallac dishonored that duty with Wellner’s assistance by secretly steering investor proceeds to a third party and then pocketing some of those funds.”

Weston Capital, Hallac, and Wellner agreed to settle the SEC’s charges along with Hallac’s son Jeffrey Hallac, who is named as a relief defendant in the SEC’s complaint for the purposes of recovering ill-gotten gains in his possession.  Wellner and Jeffrey Hallac each also agreed to pay $120,000 in disgorgement.

Takeaway

While this settlement is by no means a large settlement in financial terms – especially given some of the recent SEC settlements involving fraud, FCPA violations, and other egregious conduct – the settlement is a strong reminder that the SEC will continue to examine more registered investment advisers, including advisers attached to private equity and hedge funds.

Further, in this case, the fund’s general counsel appears to have been actively involved in the fraud.  In fact, indictments of general counsels are becoming increasingly common-place, e.g.,  general counsel’s of GlaxoSmith Kline and Detroit’s Pension Fund. Indeed, Laura Stevens, the assistant general counsel for GlaxoSmith Kline, was acquitted after suffering through two separate indictments, but after resigning from GSK Ms. Stevens cautioned: “I think the criminalization of the practice of law is here, and I don’t think it’s necessarily going away…The government will continue to be aggressive in looking at in-house counsel.” Recognizing that this case did not involve allegations of criminal conduct, the message is the same: general counsels may wind up in the cross-hairs of a civil enforcement action or a criminal investigation.

The SEC press release is available here

Special Fraud Alert Relating to Laboratory Payments to Physicians

The Office of the Inspector General for the Department of Health and Human Services (HHS-OIG) issued its first Special Fraud Alert relating to Laboratory Payments to Physicians. The Alert addressed two specific high risk arrangements which implicate the Federal Anti-Kickback Statute and, by extension, the False Claims Act: (1) blood specimen collection, processing and packaging arrangements and (2) registry arrangements.

Blood Specimen Collection, Processing, and Packaging Arrangements

OIG stated that it has become aware of “arrangements under which clinical laboratories are providing remuneration to physicians to collect, process, and package patients’ specimens” which typically involve payments from laboratories to physicians for certain specified duties which may include collecting the blood specimens, centrifuging the specimens, maintaining the specimens at a particular temperature, and packaging the specimens to avoid damage during transport. Often these arrangements involve a per-specimen or per-patient fee structure and include highly specialized tests.

OIG then set forth some of the characteristics of these arrangements that may be “evidence of unlawful purpose” as follows:

• Payment exceeds fair market value for services actually rendered by the party receiving such payment.
• Payment is for services for which payment is also made by a third party, such as Medicare.
• Payment is made directly to the ordering physician rather than to the ordering physician’s group practice, which may bear the cost of collecting and processing the specimen.
• Payment is made on a per-specimen basis for more than one specimen collected during a single patient encounter or on a per-test, per-patient, or other basis that takes into account the volume or value of referrals.
• Payment is offered on the condition that the physician order either a specified volume or more tests performed using different methodologies that are intended to provide the same reimbursable clinical information), or tests that otherwise are not reasonable and necessary or type of tests or test panel, especially if the panel includes duplicative tests (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information).
• Payment is made to the physician or the physician’s group practice, despite the fact that the specimen processing is actually being performed by a phlebotomist placed in the physician’s office by the laboratory or a third party.

OIG clarified, however, that physicians may still use CPT Code 36145 (blood draw/venipuncture collection fee) and CPT Code 99000 (preparing a specimen to send to a laboratory) in connection with the collection, processing, and transport of blood specimens.

Patient Registry Payments

In addition to blood specimen collection arrangements and attendant fees, the Special Fraud Alert underscored that OIG has become aware of “arrangements under which clinical laboratories are coordinating or maintaining databases, either directly or indirectly or through an agent, purportedly to collect data on the demographics, presentation, diagnosis, treatment, outcomes, or other attributes of patients who have undergone, or who may undergo, certain tests performed by the offering laboratories,” generally, specialized expensive tests. Labs that participate in these types of registry arrangements boast that they are intended to advance clinical research to promote treatment, to provide physicians with valuable knowledge for patients with similar disease profiles, and to provide other benefits to physicians generally.

According to OIG, characteristics of such registry arrangements that may implicate the Federal Anti-Kickback Statute are as follows:

• The laboratory requires, encourages, or recommends that physicians who enter into Registry Arrangements perform the tests with a stated frequency (e.g., four times per year) to be eligible to receive, or to not receive a reduction in, compensation.
• The laboratory collects comparative data for the Registry from, and bills for, multiple tests that may be duplicative (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or that otherwise are not reasonable and necessary.
• Compensation paid to physicians pursuant to Registry Arrangements is on a per-patient or other basis that takes into account the value or volume of referrals.
• Compensation paid to physicians pursuant to Registry Arrangements is not fair market value for the physicians’ efforts in collecting and reporting patient data.
• Compensation paid to physicians pursuant to Registry Arrangements is not supported by documentation, submitted by the physicians in a timely manner, memorializing the physicians’ efforts.
• The laboratory offers Registry Arrangements only for tests (or disease states associated with tests) for which it has obtained patents or that it exclusively performs.
• When a test is performed by multiple laboratories, the laboratory collects data only from the tests it performs.
• The tests associated with the Registry Arrangement are presented on the offering laboratory’s requisition in a manner that makes it more difficult for the ordering physician to make an independent medical necessity decision with regard to each test for which the laboratory will bill (e.g., disease-related panels).

Federal Health Care vs. Non-Federal Health Care Business

Another significant takeaway from the Alert is that OIG concerns are not abated when these arrangements apply only to specimens collected from non-Federal health care program beneficiaries since arrangements that “carve out” Federal health care program business may still violate the Anti-Kickback statute. Indeed, if the remuneration from non-federal health care business is designed to influence future referrals related to Federal health care program business, that arrangement may well implicate the Anti-Kickback Statute. According to OIG, “[b]ecause physicians typically wish to minimize the number of laboratories to which they refer for reasons of convenience and administrative efficiency, [arrangements] that carve out Federal health care business may nevertheless be intended to influence physicians’ referrals of Federal health care program business to the offering laboratories.”

The Special Fraud Alert is available here

OmniCare’s One Hundred Million Dollar False Claims Act Settlement

The Department of Justice recently announced Omnicare’s One Hundred Million Dollar False Claims Act settlement ($124 million, to be precise).

Omnicare Inc., the nation’s largest provider of pharmaceuticals and pharmacy services to nursing homes, has agreed to pay $124.24 million for allegedly offering improper financial incentives to skilled nursing facilities in return for their continued selection of Omnicare to supply drugs to elderly Medicare and Medicaid beneficiaries, the Justice Department announced today .   Omnicare is headquartered in Cincinnati, Ohio. “Health care providers who seek to profit from providing illegal financial benefits will be held accountable,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “Schemes such as this one undermine the health care system and take advantage of elderly nursing home residents.”

“Omnicare provided improper discounts in return for the opportunity to provide medication to Medicare and Medicaid beneficiaries,” said Steven M. Dettelbach, United States Attorney for the Northern District of Ohio. “Nursing homes should select their pharmacy provider based on the best quality, service and cost to the residents, not based on improper discounts to the nursing facility.”

The settlement resolves allegations that Omnicare submitted false claims by entering into below-cost contracts to supply prescription medication and other pharmaceutical drugs to skilled nursing facilities and their resident patients to induce the facilities to select Omnicare as their pharmacy provider.  The facilities were participating providers under agreements with Medicare and Medicaid.   In addition to the facilities’ own claims for reimbursement from Medicare for short-term rehabilitation treatment rendered to patients, Omnicare submitted additional claims for reimbursement to Medicare and Medicaid for drugs Omnicare supplied.

Another False Claims Act Complaint Against Hospitalists  

Recently, the government filed another False Claims Act complaint against hospitalists in United States ex rel Bijan Oughatiyan v. IPC Hospitalist Co., 1:09-CV-05418 (N.D. Ill. June 16, 2014) (DE-48).  IPC Hospitalist Company, through IPC Hospitalist Management Company and its subsidiaries, employs more than 2500 hospitalists across the U.S. across 28 states.

The complaint alleges that IPC Hospitalist Company, IPC Hospitalist Management Co., and their affiliates and subsidiaries, engaged in a systemic pattern of submitting records to IPC’s billing department for the most expensive services claiming higher and more expensive levels of medical services than were actually performed, i.e. “upcoding,” for hospitalist services. According to the complaint, IPC uses an online portal and virtual system to continuously monitor its financial and clinical performance. In addition, IPC audits the billing information entered by hospitalists for completeness and accuracy.

Of import, the complaint also analyzes IPC’s compensation structure which includes a “physician incentive plan.” In addition to receiving a base salary and benefits, IPC hospitalists receive bonuses pursuant to IPC’s physician incentive plan that are based upon the amount billed by the hospitalist. In fact, IPC calculates the total amount billed by each hospitalist on a monthly basis, and subtracts from that amount the cost of the hospitalist’s salary and benefits. Of the remainder, IPC keeps 30 percent and pays the hospitalist 70 percent. Thus, according to the complaint, the more IPC hospitalists bill, the more IPC takes home and the easier it is for IPC to meet their investors’ earnings and revenue expectations.

Further, IPC ranks hospitalists against one another based on their individual billing patters, IPC routinely discussed and compared hospitalist billing patterns at pod meetings, and IPC hospitalists who consistently use lower or moderate billing codes are pressured by IPC trainers to change that practice.

For these reasons, the government alleges that corporate management knowingly pressured hospitalist employees to engage in the pattern of upcoding and to maximize their billings through the physician incentive plan and that was part of a systemic scheme to maximize billings and submit upcoded claims for payments to the U.S.

In light of the recent noteworthy multi-million dollar settlements with Halifax and Tuomey involving physician incentive compensation arrangements between hospitals and physicians, the complaint against IPC Hospitalist is yet another reminder that the government will closely scrutinize these relationships and compensation arrangements although the government’s theory of False Claims Act liability in the IPC Hospitalist complaint is more straightforward than the theories of liability employed in Halifax or Tuomey because it highlights a corporate culture that essentially aided and abetted upcoding.

Nonetheless,the emphasis in IPC on the “physician incentive plan” demonstrates that arrangements between physicians, physician-management companies, and hospitals should be properly evaluated to ensure that any bonuses are based on quality or performance metrics and are not entirely based on the potential to influence or induce referrals to the hospital. Indeed, even if a physician is an employee, the protections provided to physician-employees are not absolute and must comply with applicable self-referral and anti-kickback laws.

Andrew S. Feldman Speaks at Trinity College Reunion Weekend

Mr. Feldman attended his ten year reunion at Trinity College reunion weekend in Hartford, Connecticut over this past weekend. During the reunion, Mr. Feldman enjoyed the unique opportunity to discuss trends in white collar crime and the enforcement priorities of the Department of Justice and the Securities and Exchange Commission.