Broward Health’s $70 million settlement leaves risk of criminal charges

By Dan Christensen, FloridaBulldog.org 

Court documents describe the massive healthcare fraud that led Broward Health to pay $69.5 million to settle a whistleblower’s lawsuit last week as an illegal “scheme of mutual enrichment” between the hospital system and its physicians.

Was it a criminal scheme?

Justice Department attorneys who handled the case aren’t talking. “As a general policy, the Justice Department does not confirm or deny the existence of an investigation,” said Nicole A. Navas, a department spokeswoman in Washington.

Still, the settlement agreement between the North Broward Hospital District, Broward Health’s legal name, and the government leaves open the possibility that the district and some of its past and present officers, commissioners, attorneys and physicians are the focus of a behind-the-scenes criminal probe.

For example, after releasing them all from civil liability the Justice Department specifically reserved its right to prosecute “any criminal liability” arising from the case. And Broward Health and its affiliates agreed to waive “any defenses they may have to any criminal prosecution” under the double jeopardy clause or the excessive fines clause” in the Constitution’s Bill of Rights.

Similarly, the settlement agreement left Broward Health on the hook for any tax liability under the Internal Revenue Service code. That could be a considerable sum given both the large dollar amounts involved and the duration of the fraud scheme, 14 years.

The chairman of Broward Health’s governing board, David Di Pietro, and the whistleblower’s Atlanta attorney, Bryan Vroon, both said they don’t know if a criminal investigation is underway. Vroon added that such a probe would be “rare, historically.”

NEW RULES 

Earlier this month, however, the Justice Department announced new rules for fighting corporate wrongdoing that emphasize holding individuals, not just companies, criminally accountable.

“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing,” says a Sept. 9 memo to top-level prosecutors by Deputy Attorney General Sally Quillian Yates.

Should a criminal investigation be initiated, court records reveal an abundance of evidence describing how Broward Health and its individual administrators and physicians profited personally from the enormous fraud.

The $69.5 million settlement ended a five-year-old federal investigation that began with a 2010 federal False Claims Act lawsuit filed by whistleblower Dr. Michael Reilly, a Fort Lauderdale orthopedic surgeon. The government paid Reilly $12 million as a reward, or a bit more than 17 percent of the settlement amount.

Broward Health must pay Reilly an additional $860,000 for his attorney’s fees and costs, bringing the district’s immediate outlay in the deal to $70.4 million. That doesn’t include more than $10 million the district has already paid to an out-of-state law firm for legal advice in the matter.

Broward Health Chairman Di Pietro said the payout, while huge, wouldn’t require the district to cut services or hike taxes. He said that’s because the money will come from the district’s approximately $800 million in reserve funds.

Nevertheless, Broward Health’s proposed operating budget expenditures for 2015-2016 are 6.8 percent more than last year, or $1.27 billion.

In addition to the penalties, Broward Health Chief Executive Dr. Nabil El Sanadi signed a 46-page Corporate Integrity Agreement with the Department of Health and Human Services (HHS) that requires the district to establish a compliance program. Among other things, the agreement imposes new duties on both commissioners and staff to monitor, report and certify that its financial arrangements with physicians and vendors meet federal requirements.

Dr. Reilly, who court papers say rejected an employment offer that would have required him to join Broward Health’s illegal scheme, blew the whistle in April 2010 when he sued the district on behalf of the U.S. alleging fraud under the False Claims Act. The case was filed under seal as provided by law.

Two years later, Reilly filed a third, highly detailed complaint under seal that was the basis for last week’s settlement.

The 118-page complaint contends that numerous doctors were paid in excess of $1 million even though collections for their personal work were much less. It also says Reilly alerted Broward Health’s leadership to the law breaking in 2003, 2004 and 2009, but was ignored.

U.S. District Judge Jose E. Martinez unsealed the complaint on Sept. 15.

The government’s investigation of Reilly’s claims, led by HHS agents, focused on what turned out to be numerous apparent violations of federal laws enacted to address abuses that occur when doctors have financial relationships with entities to which they refer patients.

THE STARK LAW

The federal Stark Law, for example, generally bars physicians employed by hospitals from referring patients to their employers and prevents hospitals from presenting healthcare claims that flow from prohibited referrals. Exceptions exist for “bona fide employment relationships” in which a doctor’s remuneration takes no account of referrals, is “commercially reasonable” and consistent with fair market value.

Another law, the Anti-Kickback Statute, prohibits hospitals from paying and doctors from accepting “anything of value” as a reward for referrals. The law includes civil assessments of up to three times the amount of the kickbacks. 

Violators can also be barred from participation in federal healthcare programs and face up to five years in prison per violation.

Reilly’s third complaint says that instead of complying with the law “Broward Health has done the exact opposite.”

“In compensating its employed physicians from 2004 through the present, Broward Health has deliberately and repeatedly violated all three of these requirements,” the complaint says.

While Broward Health admitted no wrongdoing, it settled without challenge serious and embarrassing allegations about a long-hidden scheme involving the payment of kickbacks to doctors who referred their patients to Broward Health’s four hospitals and other facilities for expensive testing and treatment.

“I think paying $70 million without litigation says something,” said attorney Vroon.

Representing the government were Justice Department Senior Trial Counsel David T. Cohen and West Palm Beach Assistant U.S. Attorney Mark Lavine.

The settlement agreement, signed by Dr. El Sanadi and lawyers for the district, says the illegal scheme went on from 2000 until last year.

Nine staff doctors are identified in the settlement as having had “improper” contracts that the government contends violated the federal Physician Self-Referral Law. Specifically, it was alleged that Broward Health grossly overpaid those doctors to obtain larger referral profits in return.

The physician who benefited the longest from such overcompensation was cardiologist Michael Chizner, medical director of Broward Health’s Heart Center of Excellence. His contract was in effect from April 1, 2000 until May 31, 2014, the settlement says.

PHYSICIANS TAKE PAY CUTS

FloridaBulldog.org reported in January that Chizner accepted a pay cut from $1.2 million to a maximum of $867,000, and a requirement that he treat poor people after the district threatened him with termination. Broward Health acted to impose those terms after declaring Chizner’s contract illegal in the wake of pressure from federal authorities.

Many other doctors also accepted pay cuts and contracts modified to comply with federal law.

The other Broward Health physicians on the list are cardiologists Violeta McCormack, John Rozanski and Ashok Sharma; orthopedic surgeons George Caldwell and Erol Yoldas, team physicians for the Florida Marlins; Rudolph Roskos, chairman of the department of pediatrics at Chris Evert Children’s Hospital, and pediatrician Hector Rodriguez-Cortes; and Shazia Zafar, a hematologist now with Memorial Healthcare.

More than a half-dozen other doctors are mentioned elsewhere in the third amended complaint as having been paid excessively as part of Broward Health’s scheme to generate lucrative referrals.

Court documents estimate that from 2004 to 2011 Medicare and Medicaid suffered $147.5 million in damages due to improper claims filed as a result of “tainted” referrals by Broward Health physicians. If the case had gone to trial, Broward Health faced the possibility of being found liable for more than $700 million in actual and punitive damages.

The estimates did not include damages prior to 2004 or damages suffered by Tricare, the military’s health system, or other federal health insurance programs for federal employees.

Dr. Reilly’s complaint says Broward Health, a medical safety net that’s obliged to treat patients regardless of their ability to pay, used a secret accounting system to turn up the heat on doctors whose referrals lagged “even when patient care was compromised.”

“When employed orthopedic surgeons had significant concerns regarding the quality of Broward Health’s radiology and MRI imaging services and chose to refer patients to other facilities for such services, Broward Health’s financial strategists pressured the orthopedic surgeons to continue to make referrals of all radiology services to Broward Health,” the papers says.

Broward Health chairman Di Pietro denied that patient care was compromised in a statement released last week. He said the investigation was “focused solely on highly complicated contracts with physicians. This investigation was never about patient care.”

Vroon, however, said the probe “has everything to do with quality of care.” He said that if the case had not settled, government lawyers would have scoured physicians’ medical charts looking for unnecessary patient testing or procedures. “But Broward Health settled way before it got to that point,” Vroon said.

To obtain referrals, the district grossly overpaid doctors in each of its five physician practice groups – primary care, cardiology, hematology/oncology, orthopedics and “other,” the complaint says.

That excessive compensation generated approximately $160 million in losses for Broward Health from 2004 to 2012 alone, the complaint says.

In an interview, lawyer Vroon, said the estimated losses rise to $200 million for conduct dating back to the start of the scheme in 2000.

Thousands of Medicare and Medicaid patients referred to Broward Health for testing and treatment by its staff physicians more than erased those losses.

EXCESSIVE COMPENSATION, BIG LOSSES

In 2009, for example, excessive compensation paid to employed physicians across the Broward health system was cited as the primary factor in a net operating loss of $17.5 million. But $28 million in doctors’ referral profits transformed that loss into an $11.4 million profit, the complaint says.

Doctors went along with the scheme because their pay was “more than fair market value and more than they can ever hope to collect for their personal services,” the complaint says.

Broward Health’s focus on bottom-line profit was part of a “deliberate” scheme in which administrators used what amounted to a second set of books to secretly track and conceal the fraud from Broward taxpayers and federal regulators.

“Broward Health’s physician compensation strategy has been a scheme of mutual enrichment in which Broward Health has paid its employed physicians far in excess of the value of their personal services while Broward Health has received massive profit in inpatient and outpatient referral from such physicians,” the complaint says.

Much of those profits came via federal healthcare programs. Since 2004, Broward Health was paid more than $2 billion by Medicare and Medicaid.

“A significant portion” of those dollars “derived from inpatient and outpatient referrals by employed physicians receiving excessive compensation,” the complaint says.

Broward Health and its doctors weren’t the only ones to make money in the fraud scheme. The complaint cites district “financial strategists” who “personally profited from their scheme under a bonus compensation program based in part on revenues from inpatient admissions and outpatient visits to Broward Health hospitals and clinics.”

Broward Health’s first management incentive plan for executives was approved in 2003. Bonuses were as high as 20 percent of annual salary based on financial performance.

Besides the hospital district, the complaint lists 100 “John Doe” defendants identified only as “contractors, agents, partners and/or representatives” that were part of the conspiracy to submit false healthcare claims.

“The Broward Health defendants have knowingly and repeatedly violated federal Stark and Anti-Kickback laws (and) have knowingly submitted thousands of false claims to federal healthcare programs which arose through tainted referrals from employed physicians receiving excessive compensation,” the complaint says.

The case surfaced in May 2011 when HHS agents served a subpoena on Broward Health seeking records of its business dealings with 27 physicians, including information about compensation, hospital admissions and referrals dating to 2000.

Federal agents went on to build a case based on “extensive evidence” supplied by Dr. Reilly, including information that court papers say was derived from “secretive internal reports kept and concealed by Broward Health and from private communications and private admissions of Broward Health officers.”

FLORIDA’S PUBLIC RECORDS LAW VIOLATED?

The complaint says that before hiring a physician, Broward Health projected the value and volume of their anticipated referrals and used it to calculate compensation. After a doctor was hired, the district tracked their referrals in secret “Contribution Margin Reports,” Broward Health lingo for referral profits, the complaint says.

The complaint notes that those “CMR” reports and other evidence of Stark law violations were “deliberately concealed” from the public even though the hospital district is subject to Florida’s Sunshine and public records laws.

The CMR reports were also used to track physicians’ uncompensated referrals – that is, referred patients whose care is subsidized mostly by Broward tax dollars. Broward Health forced doctors who referred those patients to pay the balance due out of their income, the complaint says.

Similarly, the district tracked charity case referrals and “used such data to discourage employed physicians from making significant charity referrals” that would reduce Broward Health’s profits.

Indeed, the idea of giving back to the community appears to have been foreign to many of Broward Health’s staff doctors.

“The overall charity care numbers for employed physicians are extremely low,” the complaint says. For example, in 2009 25 employed physicians practicing at Broward General produced total revenue from compensated care of just over $13 million, but their total charity care was “a minuscule $88.”

The complaint cites former Broward Health Vice President of Physician Services Brian Ulery as having “touted” CMRs in private meetings and confirming they’d been “concealed and ‘not listed in our financials.’” Ulery resigned four months after the subpoena was served in 2011.

Likewise, the complaint refers to a similar admission by then-Broward Health Chief Executive Frank Nask during a private conversation with Dr. Reilly in May 2009. Reilly had asked Nask why sports medicine orthopedic surgeons were being paid at such high levels to cause operating losses each year.

“We are making money off these guys,” the complaint says Nask replied. “These numbers don’t include what they’re bringing in with labs, P.T. (physical therapy) diagnostics etc.”

Nask was pushed out last fall by the district’s board of commissioners, all appointees of Gov. Rick Scott, amid the pressure of the federal investigation. To get him to step down quietly, one knowledgeable source said, Nask was given a lucrative one-year consulting deal at his CEO salary of $617,000, plus benefits.

“These payments and benefits shall be provided to Nask regardless of whether a request is made for consulting services by the district,” his contract says.

In search of referrals, Broward Health boosted compensation to some cardiologists by awarding them what the complaint calls “sham” contracts as medical directors that required little or no work.

“One medical director does his personal exercise workout and counts such hours as his ‘medical director’ hours. One ‘medical director does not know how to read studies in the laboratory for which he is the director. Yet another ‘medical director’ counts hours doing procedures as ‘director’ hours,” says the complaint, which labeled the practice a “boondoggle.”

The cardiologists identified in the complaint as having gotten those sham medical directorships were Drs. Chizner, Sharma, McCormack, Rozanski and David Perloff.