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Are those lab payments really kickbacks?


You'd better believe it--or be prepared to serve prison time, pay stiff fines, and be expelled from Medicare, as in this Florida case.



Are those lab payments really kickbacks?

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Choose article section...Others plead guilty to avoid prison Ignorance and naivete, or greed and criminal intent? Was the prosecutor "overly aggressive"? Is the punishment too harsh for the crime? A last chance to reverse the convictions Get a good lawyer to read all lab contracts

You'd better believe it—or be prepared to serve prison time, pay stiff fines, and be expelled from Medicare, as in this Florida case.

By Berkeley Rice
Senior Editor

Suppose a representative from a local lab offered to pay you a monthly sum—call it a "consulting fee" for services to be rendered—in exchange for sending the lab your blood work. Would you consider his proposal? Or would you throw him out of your office?

Better throw him out. A recent Florida case in which a dozen doctors were convicted of or pleaded guilty to criminal charges of Medicare fraud for accepting such an offer proves why. Unlike other highly publicized cases in recent years, this may be the first in which the government went after the doctors who received kickbacks for their referrals as well as the lab owners who paid them.

During much of the 1990s, Clearwater Clinical Laboratory was one of the busiest medical labs on Florida's Gulf Coast, doing blood tests for hundreds of doctors in the Tampa-St. Petersburg area. In 1997, the lab earned about $6.5 million from Medicare billings alone.

When federal agents raided CCL in 1998, they learned that the lab had been engaged in massive Medicare fraud. Agents found that the lab had been billing for tests that had never been ordered, as well as "unbundling" (billing separately for) combined blood tests. They also discovered that the lab had been paying kickbacks to physicians for their referrals.

Based on evidence provided by the owners of the lab, who pleaded guilty to criminal charges, federal prosecutors accused 18 primary care physicians of receiving a total of nearly $1 million in bogus consulting fees and other illegal payments in return for their business over varying periods between 1995 and 1998.

A dozen of those doctors were indicted on criminal charges of Medicare fraud and violating the federal anti-kickback law. Two decided to fight the charges; both were convicted at trial. Michael Spuza, 41, an FP in St. Petersburg, was sentenced to 18 months in prison and ordered to pay $55,400 in restitution (later vacated on appeal). Ira Harvey Liss, 53, an internist in New Port Richey, was sentenced to 15 months in prison and ordered to pay $34,600.

Others plead guilty to avoid prison

Rather than risk similar outcomes, the other 10 indicted doctors pleaded guilty on the advice of their lawyers. In addition to attorney fees of close to $100,000 each, these doctors also paid fines and made restitution based on the size of the kickbacks they received. Instead of doing jail time, however, they got off with probation and community service. But all 12 doctors could be subject to disciplinary action—including loss of license—when the state medical board reviews their cases.

All 12 also face a mandatory five-year exclusion from Medicare and Medicaid. Given the region's sizable elderly population, that may put these doctors out of business. In fact, several of them have already sold their practices and retired. Others have lost their hospital privileges and been dropped by their health plans. In addition, Medicare and Medicaid immediately suspended payments to them for all pending claims—not just those related to the lab referrals.

According to the government, Clearwater Clinical Lab recruited these primary care physicians because they were obvious sources for referrals. With some, the arrangement was simple: In exchange for sending their blood work—or patients needing blood tests—to CCL, the lab paid them monthly fees of $500 to $1,500, based on the volume of their referrals. Most payments took the form of consulting fees for the doctors' duties as "medical review" or "test review" officers, although not all of them actually performed such services.

With other doctors, the lab paid monthly rent for the use of an in-office blood-drawing station, or paid the phlebotomist's salary. In some cases, the lab made no attempt to disguise the kickbacks as payment for medical services. For example, CCL paid the annual fee for one FP's hunting lodge membership and put the wife of an internist on its payroll, although she was essentially a "ghost employee" who did no work.

Ignorance and naivete, or greed and criminal intent?

In their defense, the physicians denied the charge of Medicare fraud, pointing out that all the blood tests they'd ordered were medically necessary and were actually done. (The government did not contest that point.) Several insisted that the payments they'd received from the lab were legitimate fees for services rendered and that they had personally reviewed all test results. Some, however, admitted that their "consultancies" were basically shams.

Most claimed they hadn't realized they were doing anything wrong. Several said they had questioned the legality of the lab's offer, and that CCL's representatives had assured them the contracts were kosher, even producing letters from the lab's lawyers confirming that fact.

Despite the doctors' admission of guilt, few see themselves as criminals. Consider Clearwater GP Russell Bufalino, 62, charged with accepting $28,000 in kickbacks. Upon pleading guilty, he was fined $10,000, sentenced to three years' probation, and ordered to perform 50 hours of community service in each of those years. He has since sold his practice and retired. At his sentencing, when the judge asked why a respected and successful doctor would get involved in such an unsavory scheme, Bufalino replied, "Stupidity."

Was the prosecutor "overly aggressive"?

Local medical leaders complained about the criminal prosecutions of the doctors in the Clearwater case. They accused Assistant US Attorney Gary Montilla of being "overly aggressive" and expressed alarm over reports that he expected to indict 100 more doctors for accepting similar kickbacks from other labs.

In August 2000, with support from the county medical society, the Pinellas County Osteopathic Medical Society organized a protest meeting in Clearwater, attended by a local congressman, government officials, and more than 400 irate physicians and their lawyers. One of those lawyers was Gabriel Imperato, former deputy chief counsel with the Department of Health and Human Services, and now in private practice in Fort Lauderdale.

In a recent interview, Imperato argued that criminal charges were unwarranted in the Clearwater case. "None of these doctors intentionally set out to defraud the government," he points out. "They were approached by the lab and were told by the lab's lawyers that these arrangements were legitimate. Sure, they may have been ignorant, naive, financially stupid, even greedy. But those aren't criminal offenses. Why use an anvil to kill an ant?"

Shortly after the protest meeting, the US Attorney's office in Tampa referred five remaining physicians to the HHS Office of Inspector General for civil rather than criminal action. Those doctors subsequently reached settlements with the OIG in which they agreed to pay civil penalties ranging from $16,200 to $150,000, without admitting liability.

Since they were not charged with felonies, none of them will be reported to the state medical board, and all but one will be permitted to continue treating Medicare patients under a five-year compliance program.

Ben St. John, an OIG spokesman, defends the agency's prosecution of those five physicians. "We don't bring charges against doctors who make 'honest mistakes,' " he insists. "We only take action when we find a consistent pattern of serious misconduct, as we did in this case."

Is the punishment too harsh for the crime?

For the dozen doctors already convicted or who pleaded guilty to criminal charges, it's too late for such deals. Some have already closed up shop and retired. (For that reason, Medical Economics was unable to reach some of them, while others didn't respond to requests for interviews.)

Some of the doctors are struggling to keep going, however. One, an FP, agreed to an interview on condition of anonymity, because his case is under appeal. Although he's still practicing, his income is down by roughly 60 percent, largely because he can no longer see his Medicare patients.

This FP insists that the $1,000 he received each month from the lab was a legitimate fee for services he actually rendered. "I reviewed all those test results myself," he points out. "Most of those patients were transients who had no local doctors and needed monthly blood tests. So I'd order the tests, review the results, and recommend further treatment."

Despite his guilty plea, he remains angry about the "overzealous" prosecutor who "destroyed the careers of a dozen doctors because they made an honest mistake in judgment."

One of those doctors is Fred Leslie, an FP who practiced in the town of Seminole. Upon pleading guilty, he was ordered to pay nearly $23,000 in restitution, fined $3,000, and sentenced to three years' probation. Faced with automatic Medicare exclusion and the probable loss of his license, Leslie, 56, has retired, sold his home and yacht, and moved to a smaller house.

His lawyer, John Trevena, still thinks his client's punishment was unduly harsh, considering the nature of his offense and his ignorance of the law. Pointing out that Leslie earned more than $400,000 in 1999, Trevena asks, "What doctor would knowingly jeopardize that type of income and risk the loss of his practice for what amounts to about $8,000 a year?"

Even prosecutor Gary Montilla admitted at Leslie's sentencing that he and his fellow defendants "aren't bad doctors. But they illegally took remuneration for referring Medicare patients" to the lab. Calling the kickback problem "endemic" in the area, Montilla said, "the fact that a lot of other doctors are doing it doesn't make it right."

A last chance to reverse the convictions

In an attempt to reverse the results of the Clearwater Lab prosecution, the Pinellas County Osteopathic Medical Society has hired Breckinridge Willcox, former US Attorney for Maryland, and now a health care attorney in Washington, DC. He recently filed motions in federal court in Tampa on behalf of several doctors involved in the case, seeking to overturn their criminal convictions and guilty pleas.

In those motions, he accuses the government of deliberately "misleading" the jury by "manipulating" the lab's billing data, knowingly presenting "false evidence," and intentionally withholding vital evidence regarding the lab's fraudulent billing practices.

Willcox calls the criminal charges brought by the government "outrageous, because the evidence of criminal intent is very weak, and the amount of money involved was generally small." (Most doctors received less than $30,000.) Besides, he argues, they did not really commit Medicare fraud: "Even the government recognizes that the blood tests these doctors ordered were legitimate and medically necessary."

Willcox claims that prosecutor Montilla went after "unsophisticated family practice physicians" who received "relatively modest payments" from CCL. Because these doctors were naive, he says, "they were duped by the real criminals"—the lab's owners and manager.

Although those individuals were guilty of more than $15 million in blatant Medicare and Medicaid fraud, Willcox complains, they got off "relatively unscathed." The owners and manager each paid less than $150,000 in restitution, got no jail time, and were permitted to continue doing business with federal health programs. In fact, they eventually sold the lab for $2.5 million.

"The government largely ignored CCL's multimillion-dollar billing fraud—which the doctors were totally unaware of," says Willcox, "and instead used the lab's corrupt executives to convict the doctors of accepting relatively small amounts in questionable payments. That's a travesty of justice."

Get a good lawyer to read all lab contracts

If there's a lesson to be drawn from the Clearwater Lab case, it's that doctors shouldn't wait until they're indicted before learning the laws that govern referrals and kickbacks. Defense attorney Gabriel Imperato says physicians should get good legal advice about their financial relationships with any entity they refer to or get referrals from.

"If any of the doctors in this case had bothered to consult a competent lawyer with experience in health care fraud cases," he adds, "they would have been steered away from signing a contract with a lab under which the amount of their 'consulting fees' depended on the volume of their referrals."

Imperato hopes the punishment the Clearwater Lab doctors received will serve as a warning to all physicians: "If they're not aware yet of their potential liability under the federal anti-kickback statute," he says, "they certainly should be after this case. Ignorance of the law won't be a defense."


Berkeley Rice. Are those lab payments really kickbacks?. Medical Economics 2002;2:74.

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