Financial journalist Maureen Tkacik, who did a terrific in-depth story on the Boeing 737 Max debacle when that was a hot story, has an important find in her latest piece: Wall Street Is Pressing ER Docs To Fleece Patients. She’s found a smoking gun that private equity firms are misusing doctors’ license numbers to at a minimum bill without their oversight and review and potentially useing them to submit bogus charges (for services not rendered or by billing work done by a non-MD as performed by the physician). Even merely submitting bills on behalf of the MD without his oversight and participation is the corporate practice of medicine, which is also illegal in many states.
Oh, and anyone who can document that this is happening (as in provide documentary evidence of Medicare billing abuses) would be able to file a False Claims Act suit, also known as qui tam. That is a private action to recover funds defrauded from the government. Successful qui tam plaintiffs get a portion of the recovery, the percentage depending on how valuable and difficult to unearth their information was. Medicare fraud is much easier to prove than many other abuses, and the government loves going after it. So frustrated bean counters and supervisors in hospitals, look sharp! Dogooderism could be much more rewarding.
For those of you who are new to the nasty intersection of private equity and health industry grifting, private equity firms have been buying up specialist groups in hospitals like emergency room doctors and then managing the staffing and the billing. This development has greatly increased the frequency and severity of the abuse known as “surprise billing,” where formerly hospitals, and now more aggressive private equity firms, make sure to include out-of-network providers so as to jack up the charges.
So before we go any further, there’s already serious private equity scamming going on in emergency rooms even before we get to Tkacik’s discovery. From a 2019 post:
Private equity maven and co-director of the Center for Economic and Policy Research Eileen Appelbaum explained in an editorial in The Hill in May how private equity firms have bought specialist physicians’ practices to exploit the opportunity to hit vulnerable patients with egregious charges:
Physicians’ groups, it turns out, can opt out of a contract with insurers even if the hospital has such a contract. The doctors are then free to charge patients, who desperately need care, however much they want.
This has made physicians’ practices in specialties such as emergency care, neonatal intensive care and anesthesiology attractive takeover targets for private equity firms….
Emergency rooms, neonatal intensive care units and anesthesiologists’ practices do not operate like an ordinary marketplace. Physicians’ practices in these specialties do not need to worry that they will lose patients because their prices are too high.
Patients can go to a hospital in their network, but if they have an emergency, have a baby in the neonatal intensive care unit or have surgery scheduled with an in-network surgeon, they are stuck with the out-of-network doctors the hospital has outsourced these services to….
As an example, Appelbaum cites the work of Yale economists who examined what happened when hospitals outsourced their emergency room staffing to the two biggest players, EmCare, which has been traded among several private equity firms and is now owned by KKR and TeamHealth, held by Blackstone:
….after EmCare took over the management of emergency services at hospitals with previously low out-of-network rates, they raised out-of-network rates by over 81 percentage points. In addition, the firm raised its charges by 96 percent relative to the charges billed by the physician groups they succeeded.
Apparently that level of rent extraction wasn’t sufficient. Now to Tkacik:
…the major professional organization representing emergency physicians just admitted that private equity greed may be leaving the ER doctors vulnerable to criminal fraud charges.
The admission came in a document the board of the American College of Emergency Physicians (ACEP) circulated to its roughly 400-member council in advance of its annual conference, which began earlier this week in Boston. Robert McNamara, a Temple University medical school professor who has been working for decades to galvanize ER doctors in opposition to the “corporate practice of medicine,” had proposed a resolution that would essentially force all ER staffing companies seeking to do business with ACEP to periodically furnish their physicians with data on the services and procedures the company had billed for under their license numbers.
Buried in the middle of the otherwise mundane memo on past resolutions, the board addressed McNamara’s proposal…
“ACEP engaged outside counsel to advise on whether securing regular reporting of billing in a physician’s name could inadvertently subject that physician to potential liability under the False Claims Act [emphasis added], since provision of this information could now leave them considered to be ‘knowing,’” they wrote.
In other words: emergency room doctors are better off not knowing what their private equity overlords are billing under their license numbers, because they are less likely to go to jail for Medicare fraud if they didn’t actually know they were committing it. This admission is especially eye-opening coming from ACEP, an organization that has evolved over the past several decades into a willing mouthpiece for the private equity industry that controls most of the biggest ER staffing firms and has pushed the aggressive billing practices for which they have become notorious.
We’ll pause here. AECP’s lawyers may be putting too much comfort in the fig leaf of their doctors trying to claim they didn’t know there was gambling in Casablanca. It is hard to see how handing over your billing credentials blindly to anyone other than a trusted subordinate (ie, someone who has skin in the game because you can fire them) isn’t asking for trouble (and even trusted subordinates should have their work checked periodically). It’s even more addle-brained given the well-documented history of private equity firms on a widespread basis embezzling from their limited partners via extracting fees and costs that are not contemplated their contracts.
A quick look at a Medicare fraud guide says going after the big private equity hospital “staffing” groups owned by Blackstone and KKR could give a lot of people serious indigestion via eating prison food. First, the Center for Medicare Services regularly finds organized crime rings and other bad guys in cahoots with doctors in perpetrating billing fraud, so whoever is actually involved at the private equity companies in this misconduct (both design and execution) would be liable.
But the knowing or not knowing distinction doesn’t matter all that much in Medicare billing sanctions. “Fraud” is knowing that you are cheating. But abuse can lead to criminal charges too:
Abuse describes practices that may directly or indirectly result in unnecessary costs to the Medicare Program.
Abuse includes any practice that does not provide patients with medically necessary services or meet professionally recognized standards of care. The difference between “fraud” and “abuse” depends on specific facts, circumstances, intent, and knowledge.
Examples of Medicare abuse include:
●Billing for unnecessary medical services
●Charging excessively for services or supplies
●Misusing codes on a claim, such as upcoding or unbundling codes. Upcoding is when a provider assigns an inaccurate billing code to a medical procedure or treatment to increase reimbursement.
Medicare abuse can also expose providers to criminal and civil liability.
And this sort of thing sure looks to be happening. From the article:
“If emergency physicians saw what was being billed in their name they would be shocked,” McNamara says. “We know that these companies are regularly charging nine times the Medicare reimbursement rate, and we know we aren’t making that kind of money, but we don’t know what’s actually being charged in our names, and I imagine they would find a lot of upcoding as well.”
For your potential whistleblowers, filing a False Claims Act suit does not require proving the perps intended to cheat and also provides only for civil penalties. However, doctors also face liability under the Criminal Health Care Fraud Statute.
A second issue is that the private equity companies billing without the doctors’ participation or even post-facto review is the corporate practice of medicine. A summary from an article by Charles F. Kaiser III and Marvin Friedlander on the IRS website:
Some states–California, Texas, Ohio, Colorado, Iowa, Illinois, New York and New Jersey–preclude hospitals from employing physicians to provide out-patient services. These states legislate what is known as the corporate practice of medicine doctrine. The rationale for prohibiting employment of physicians by hospitals is derived from the concept that individual physicians should be licensed to practice medicine not corporations….In practice, states with corporate practice of medicine laws permit formation and licensure of business corporations established as professional service corporations (but not a non-profit corporation) to practice medicine but only if controlled by physicians…
Often, the laws mandate that all stock in the corporation providing the services be held by a physician licensed in the state and all members of the board of directors be physicians licensed by the state. Generally, one physician holds all the stock, but New York state law indicates all physicians employed by the professional service corporation may be shareholders.
One has to wonder how the private equity giants have finessed these requirements. KKR has in other contexts said it uses variable interest entities, but it’s hard to see how they can possibly satisfy the requirement that the corporation be fully owned only by doctors and controlled by physicians, when they tell their limited partners that they “own” interests in these companies for purpose of valuation. And private equity firms would not be satisfied with letting the doctors have operational control but letting the PE firms take most of the profits, as their goosing of surprise billing demonstrates.
A former California prosecutor who read the Tkacik story said, “We called it ‘corporate practice of medicine’ and it’s a crime.
Normally, it’s a losing proposition to expect any prosecutor to saddle up for this sort of case. They have ambitions! Or at least don’t want politically connected higher ups making their lives miserable or simply flat out telling them to drop an investigation.
But with the current New York Attorney General, Letitia James, widely expected to run for Governor, that opens the path for Zephyr Teachout to run for AG. Teachout primaried Cuomo back in the dim recesses of history when he looked impregnable. She got 34% of the vote despite Cuomo spending 40 times as much per every vote he won, according to the Washington Post.
So we can hope that Teachout wins and digs into this abuse. AGs like cases that are easy to prove and this is appallingly simple compared to typical private equity cons.