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Kickback case holds lessons for risk managers
The recent high-profile conviction of a hospital CEO involved in kickbacks and providing unnecessary care to homeless patients shows that risk managers always must be on alert for illegal activities that may be hidden behind the doors of an executive suite.
Rudra Sabaratnam, MD, was CEO of City of Angels Medical Center before being charged with two counts of paying for illegal patient referrals. He recently pleaded guilty, admitting that he had billed government programs for unnecessary care given to homeless people. Sabaratnam could face up to five years in prison on each charge, and he also has agreed to pay more than $4.1 million in restitution to Medicare and Medi-Cal. In his guilty plea, Sabaratnam admitted that he had paid almost $500,000 to recruit homeless people to receive unnecessary treatments that the hospital billed to public health programs.
Sabaratnam was arrested on Aug. 6, 2008, with Estill Mitts, who operates a health center on Skid Row in Los Angeles. Authorities accused the two men of using homeless people to falsely bill Medicare for millions of dollars. When he pleaded guilty to the charges, Sabaratnam admitted to paying Mitts and others to refer homeless Medicare and Medi-Cal beneficiaries to City of Angels for inpatient treatment. Sabaratnam created a false contract to conceal the illegal kickbacks. The arrest came after an investigation that has been ongoing since 2006.
The total amount of illegal kickbacks that Sabaratnam paid and caused to be paid to Mitts and others was about $493,382. City of Angels billed Medicare and Medi-Cal for inpatient services to the recruited homeless beneficiaries, including those for whom inpatient hospitalization was not medically necessary.
U.S. Attorney Thomas P. O'Brien, JD, called the arrangement "a sophisticated scheme to defraud health care programs that are financed by taxpayers." A judge ordered Sabaratnam to appear for sentencing on June 8, 2009.
The case should be a reminder to risk managers that even the executive offices must be watched closely for signs of fraud, says Charles H. Cole, JD, chairman of the Public Policy Committee of DRI The Voice of the Defense Bar, a group representing defense attorneys, based in Chicago. When it comes to ferreting out fraud and financial shenanigans, you can't stop when the possible perpetrator is your boss, he says.
"It probably has become necessary to engage in careful monitoring of even the chief executive officers of medical centers who receive public funding," he says. "Very clear rules exist to prevent Medicare and Medicaid fraud. Implementation of those rules and a determination of compliance with those rules may determine the survival of the health care institution."
Cole notes that the ramifications for the institution are significant. The medical center could face separate prosecution if it was part of a criminal enterprise. In addition, the federal government could place the center on probation or suspension in obtaining Medicare or Medicaid reimbursement.
Cole does not see a trend in such fraud, even though the difficult economy has heightened the sensitivity of publicly funded medical institutions to the need for funds. Fraud such as that uncovered in Los Angeles usually is driven more by the individual's desire for money than any effort to save the institution, he says.
"Delays in funding can create problems but does not usually result in criminal activity," Cole says. "We all understand that greed can, unfortunately, be an important motivator."
Preventing and uncovering high-level fraud can be difficult, he says. Clear policies must be established in the rules and regulations of the health care institution prohibiting such conduct.
"Whistle-blowing policies may be necessary to halt unlawful behavior or even behavior that presents the appearance of impropriety," Cole says. "The chain of command must be established, so the competent risk manager has protection and encouragement to resolve this matter as soon as practicable."
Kimberly Baker, JD, past co-chair of the Medical Liability and Health Care Law Seminar of DRI the Voice of the Defense Bar, says the culture of the hospital can determine whether such fraud takes place, or how quickly it is rooted out. Risk managers should promote a culture of openness and zero tolerance for fraud, she says. Baker also says risk managers should encourage a more thorough vetting of executives than often takes place.
"We need to know more than where they went to medical school and where they got their business degree," she says. "We need to make further inquiries to see if there have been complaints about their billing, whether there have been questions about finance in their departments. I think people too often focus on the clinical picture or the resume highlights vs. the whole picture of this person who is going to be leading an organization."
Baker notes that people hired to work in billing typically do get this kind of scrutiny, but it does not often extend to CEOs and other executives who are minding the whole store. That thorough investigation should extend to physicians as well, she says.
"We ask about past malpractice cases, but we also should be asking if there have been complaints by the attorney general or state consumer fraud departments about their billing and their physician recruitment," Baker says. "Sometimes, it's not fun to peek under the bed and see what's there; but if you don't, the whole organization is at risk."
By the same token, she adds, it is important to educate staff about how to watch for suspicious activity and to create a culture that supports reporting. If a nurse notices anything suspicious, such as a sudden spike in a certain type of treatment, there must be a mechanism for reporting that suspicion without fear of retribution. External auditors of both financial records and medical charts can be key for detecting fraud, Baker says.
Never underestimate what someone will do for money, she cautions.
"We saw it in the investment banking, where the banks were pretty untouchable for years and greed was running amok. And now here we are with that problem," Baker says. "I think if hospitals are not vigilant about looking at their whole operation as a business and not just as a health care provider, they could see the same thing happen."
For more information on preventing and detecting fraud, contact:
Kimberly Baker, JD, Past Co-Chair, Medical Liability and Health Care Law Seminar, DRI The Voice of the Defense Bar, Chicago. Telephone: (312) 795-1101.
Charles H. Cole, JD, Chairman, Public Policy Committee, DRI The Voice of the Defense Bar, Chicago. Telephone: (312) 795-1101.