ABA Health eSource
 May 2006 Volume 2 Number 9

by Olabisi A. Onisile 1 , Porter Wright Morris & Arthur LLP, Washington, DC

Olabisi A. OnisileOn April 4, 2006, after 62 days of deliberation, a second mistrial was declared in the illegal-kickback trial of Alvarado Hospital Medical Center, its former chief executive, and the hospital’s parent company, Tenet HealthSystem Hospitals, Inc. (“Tenet” or “Alvarado”). 2 The case against Tenet started in 2003 with a multi-count federal indictment related to payments made by Alvarado under physician relocation agreements that had been entered into over several years in the 1990s. 3 Tenet was accused of funneling millions of dollars to doctors in exchange for patient referrals to the hospital in violation of the Medicare Anti-Kickback Statute. 4

The Medicare and Medicaid Anti-Kickback Statute broadly criminalizes the solicitation or receipt of remuneration in connection with items or services for which payment is made under Medicare or Medicaid. 5 There are statutory exceptions for discounts, payments pursuant to a bona fide employment relationship, group purchasing organizations, waiver of coinsurance obligations, and risk-sharing agreements of managed care organizations. 6 Administrative regulations also create specific safe harbors, and advisory opinions address a number of other arrangements. 7 Violations of the Anti-Kickback Statute are subject to criminal and civil penalties and exclusion from participation in the Medicare and Medicaid programs.

The Tenet case centered on the recruitment policies that Barry Weinbaum, the hospital’s former chief executive, oversaw during his 13-year tenure. The case is particularly important because the government brought criminal charges against Weinbaum personally, which underscores the danger for executives -- that they could go to prison if their hospitals enter into illegal contracts. Weinbaum allegedly oversaw a conspiracy to pay $10 million to more than 100 doctors over a decade in exchange for their referral of patients to the hospital for surgeries and other procedures. Many allegedly illegal relocation agreements that Mr. Weinbaum signed with doctors are specified in the indictment. In 1998, for example, Tenet agreed to pay a doctor $70,000 to improve her office space and buy equipment; $180,000 for office expenses; and $132,000 for a one year “collections guarantee,” up to a maximum obligation of $312,000. 8 The government argued that these payments were kickbacks disguised as relocation agreements (which are otherwise-legal arrangements used by hospitals to help a physician defray the costs of setting up an office in the hospital’s service area). 9 According to the government, since Alvarado’s agreements were overly generous, they amounted to bribes to get the doctors to refer patients to the hospital. 10

The first mistrial in the Tenet case happened in February 2005 after almost four months of trial testimony. Although one of the government’s top experts in healthcare fraud, U.S. Attorney Carol Lam, personally tried the second trial, it concluded with a hung jury. The government was unable to convince either jury that Tenet knowingly and willfully bribed the doctors. The fact that the jurors said they never were close to a unanimous verdict on any counts for any of the defendants reflects the complicated and confusing nature of the law. Given the widespread nature of physician recruitment agreements similar to those used by Tenet, it is not that surprising that a second jury was unable to reach a verdict.

Is Third Time a Charm?

The government continues to believe that the relocation agreements involved in the Tenet case were kickbacks. Similarly, Tenet believes its agreements did not violate the law. Upon hearing news of the second mistrial, Tenet’s general counsel, Peter Urbanowicz, issued the following response: “Tenet continues to believe that physician relocation agreements such as those entered into by Alvarado are a common practice used by many hospitals to bring needed health care resources to their communities. This case has amply demonstrated that the law surrounding physician relocation agreements is complicated and subject to differing interpretations.” 11 The jurors in the second Alvarado trial confirmed that the law regarding physician relocation agreements is complicated and subject to differing interpretations. 12

Despite the disclosure that the jurors were never close to a unanimous decision, it is still unclear whether the government will attempt a third trial against Tenet. According to U.S. Attorney Carol Lam, the government will report to the court as to whether there will be a third trial, which announcement is expected on May 22, 2006. 13 Regardless of the government’s decision, hospitals and providers should be more vigilant when negotiating recruitment agreements.

Not All Good News for Tenet and Other Providers

Although the second mistrial is a victory of sorts for Tenet, the case was not only time consuming but also a huge drain on financial resources. Furthermore, Tenet continues to deal with several other similar doctor relocation probes against its hospitals. While the mistrials in Alvarado make it less likely that other prosecutors will move forward with their investigations of Tenet’s physician contracts, there is no guarantee that the government will not find additional ways to aggressively discourage the types of agreements involved. For example, although the revised Stark Law provisions 14 that took effect in 2004 more clearly define what constitutes a violation than does the broader Medicare Anti-Kickback Statute at issue in the Alvarado case, the Stark Law still presents a problem for hospitals and providers. Unlike the threat of imprisonment that individuals face for violating the Medicare Anti-Kickback Statute and related offenses, violations of the Stark Law are civil matters that can result in fines, denial of payment, and possible exclusion from the Medicare and Medicaid programs. Moreover, Stark violations can occur without the finding of an intent to deceive or any expectation of compensation for referrals. 15 Furthermore, similar to the Anti-Kickback Statute, the provisions and exceptions to the Stark Law are complex and new information and interpretation of the exceptions are continually released.

Minimize or Eliminate Your Chance of Being Investigated or Prosecuted

As demonstrated by the Tenet mistrials, the line between a legitimate recruiting agreement and a kickback is not easily defined or understood. Since prosecutors and investigators will continue to look closely at the type of financial arrangements involved in the Tenet case, providers and hospitals should do the same. The government’s aggressive prosecution of relocation agreements, however, should not deter hospitals from recruiting doctors, especially considering the continued increase in the cost of living. However, providers must be very careful to avoid the appearance of impropriety when drafting these agreements. In order to prevent, or at least minimize, a protracted investigation and/or litigation, providers should thoroughly review current and past financial arrangements to ensure they do not violate the law, particularly in light of the Tenet case and the 2004 Stark Laws.

First, hospitals and providers should definitely reevaluate their practices regarding physician recruitment and be more conservative in terms of the number of deals they are willing to enter into and the dollar amounts attached to each deal. Second, providers should consider imposing repayment obligations on the money advanced to doctors. Finally, providers must promptly respond to the government’s requests for information regarding financial relationships. By following these steps, providers can greatly decrease, if not eliminate, the possibility of being investigated and prosecuted by the government.

1 Olabisi A. Onisile is an associate in the Washington, DC office of Porter Wright Morris & Arthur LLP.
Ms. Onisile represents healthcare providers and others in the area of white collar criminal defense, compliance, and commercial litigation.
2 Rachel Laing, 2nd Mistrial Declared in Alvarado Case, April 5, 2006, available at http://www.signonsandiego.com/news/business/20060405-9999-1n5mistrial.html (”Laing Article”).
3 United States v. Weinbaum Indictment, July 17, 2003, available at http://news.corporate.findlaw.ca/hdocs/docs/tenet/ustenet71703sind.pdf (“Indictment”).
4 42 U.S.C. § 1320a-7(b).
5 Id.
6 Id.
7 See, e.g., the safe harbors set forth at 57 Fed. Reg. 52,723 (Nov. 5, 1992) and 56 Fed. Reg. 35,952 (codified at 42 C.F.R. § 1001.952).
8 See Indictment, supra note 2, at 10.
9 Relocation agreements are generally used to attract doctors to rural areas and other places without enough physicians or specialists.
10 See Indictment, supra note 2.
11 Press Release, Jury Deadlocks in San Diego Hospital Trial: Mistrial Declared, April 4, 2006, available at http://www.tenethealth.com/TenetHealth/PressCenter/PressReleases/Jury+Deadlocks+in+San+Diego+Hospital+Trial+Mistrial+Declared.htm (“Tenet Press Release”).
12 See Laing Article, supra note 1.
13 Id.
14 42 U.S.C. § 1395nn.
15 Id.