A July 9, 2021 Department of Justice (“DOJ”) press release states:

A federal jury convicted Dallas area owners and operators of two durable medical equipment companies Thursday of one count of conspiracy to defraud the United States and to pay and receive health care kickbacks and one count of conspiracy to commit money laundering.

According to the evidence presented at trial, Leah Hagen, 49, and Michael Hagen, 54, of Arlington, Texas, were owners and operators of two durable medical equipment (DME) companies: Metro DME Supply LLC (Metro) and Ortho Pain Solutions LLC (Ortho Pain), both operated out of the same location in Arlington. The defendants paid a fixed rate per DME item in exchange for prescriptions and paperwork completed by telemedicine doctors that were used to submit false claims to Medicare. The defendants paid illegal bribes and kickbacks and wired money to their co-conspirator’s call center in the Philippines that provided signed doctor’s orders for orthotic braces. The evidence at trial showed emails exchanged between Leah and Michael Hagen and their co-conspirators showing a per-product pricing structure for orthotic braces but disguising their agreement as one for marketing and other services.

Through this scheme, the defendants billed Medicare Parts B and C approximately $59 million and were paid approximately $27 million. The defendants wired millions of proceeds into their personal bank accounts, both in the U.S. and overseas. At sentencing, the Hagens each face a maximum sentence of 25 years in prison.

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This case was investigated by HHS-OIG and the FBI and was brought as part of Operation Brace Yourself, a federal law enforcement action led by the Health Care Fraud Unit of the Criminal Division’s Fraud Section, in partnership with the U.S. Attorney’s Offices for the Districts of South Carolina, New Jersey, and the Middle District of Florida.

The Fraud Section leads the Health Care Fraud Strike Force. Since its inception in March 2007, the Health Care Fraud Strike Force, which maintains 15 strike forces operating in 24 districts, has charged more than 4,200 defendants who have collectively billed the Medicare program for nearly $19 billion.

DME suppliers can draw the following lessons from the Hagen convictions:

• Trust your Instincts – In looking at a proposed arrangement, “if your brain tells you one thing, but your stomach tells you something else, ignore your brain and trust your stomach.” What I am saying is that a person may be able to intellectually rationalize a fraudulent arrangement, but if it feels funny then walk away.
• Every Employee is a Potential Whistleblower – The press release does not indicate whether the government’s criminal case was triggered by a whistleblower. Nevertheless, it is relevant to briefly discuss whistleblowers. If a DME supplier is doing something it should not be, someone knows about it. That “someone” is usually an employee. Virtually all employees are aware of whistleblower lawsuits. If an employee witnessed fraudulent actions by his/her employer, the employee may be motivated to gather information and hire an attorney who specializes in filing whistleblower lawsuits. The lawsuit will be in the name of the employee and, also, in the name of the United States. The lawsuit will be filed in federal court and it will “go under seal.” This means that no one knows about the lawsuit except for the government. A civil Assistant U.S. Attorney (“AUSA”) will review the lawsuit and will likely appoint agents to investigate the allegations set out in the lawsuit. This investigation may take six to 12 months or longer. After the investigation is completed, or even if it is still ongoing, if the AUSA concludes that the whistleblower lawsuit has merit, the DOJ will “intervene.” This means that the DOJ will take over prosecuting the lawsuit and the employee (and his/her attorney) can pretty much “sit on the sidelines.” It is at this time that the lawsuit is unsealed and is served on the employer. The lawsuit is based on violation of the federal False Claims Act (“FCA”). Normally, whistleblower lawsuits are settled, with the relator receiving 15 percent to 20 percent of the settlement proceeds. If the civil AUSA concludes that the facts indicate that a crime was committed, the civil AUSA will hand the file over to a criminal AUSA to determine if, in addition to the civil allegations set out in the whistleblower lawsuit, the DOJ wants to bring criminal charges against the employer.
• A Kickback Results in a False Claim – Most DME suppliers understand that if they bill for a product not delivered—or deliver one type of product and deliver another type of product—a “false claim” arises. Equally important, however, is that if a DME supplier is engaged in a kickback arrangement, claims that ultimately arise out of that arrangement are also “false claims.”
• Avoid Sham Marketing Programs – As the old Charles Schwab commercial used to say: “You can put lipstick on a pig … but it is still a pig.” This phrase applies to sham marketing programs. At the end of the day, a DME supplier cannot hide fraud. The supplier may attempt to disguise the fraud, but eventually the existence of fraud will come out.
• Products and Services That Are Not Medically Necessary – Let’s talk about back braces. For decades, Medicare beneficiaries got along just fine without back braces. And then beginning about six years ago, a huge number of beneficiaries received back braces. Was this spike in demand driven by the medical needs of the beneficiaries—or was this spike driven by lead generation companies (“LGCs”), the DME suppliers that paid the LGCs, sham telehealth companies, and telehealth physicians? The answer is obvious. Let me sound a word of caution. While the back brace scheme has pretty much come to an end, there now appears to be a push in the marketplace to (i) sell continuous glucose monitors (“CGMs”) and (ii) provide Remote Patient Monitoring (“RPM). As CMS witnesses a spike in claims submissions for CGMs and RPM, then it is likely that a spotlight will shine on these two areas in … the same way that the spotlight was on the back brace arena. And so if DME suppliers aggressively go into the CGM and/or RPM spaces, it is important that their business model be legally compliant. The bottom line is that if a health care provider (DME supplier, physician, etc.) finds itself submitting a large number of claims for products and/or services that were not used very much in the past, the provider will likely be subjected to scrutiny.
• Large Claims Submissions Invite Scrutiny – CMS, through its contractors, has edits in place that spot claims submissions that are “out of the ordinary.” When these claims are noticed by CMS, an audit or investigation will likely ensue. Examples of out of the ordinary claims submissions are:
• A DME supplier has a history of submitting claims (i) at a historically-established dollar level and (ii) for particular products. But then CMS notices a spike in the dollar amount of claims submissions for a particular product.
• A DME supplier submits a noticeably greater number of claims for a particular product category than other DME suppliers.
• 1099 Independent Contractor Marketing Reps – The federal anti-kickback statute (“AKS”) prohibits a DME supplier from giving anything of value (e.g., commissions) to persons/entities in exchange for (i) referring patients covered by a federal health care program (“FHCP”), (ii) arranging for the referral of FHCP patients, or (iii) recommending the purchase of a product or service covered by an FHCP. If a supplier pays commissions to 1099 independent contractor marketing reps for generating FHCP patients, then the AKS is likely violated. The safest course of action is for marketing reps to be bona fide employees of the DME supplier. A supplier can pay to a W2 employee marketing rep (i) a base salary plus (ii) discretionary bonuses based on a number of factors, including generation of business.

HME Business Webinar

Offering Value-Added Services to Customers While Avoiding Prohibited Inducements

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato

 Thursday, July 29, 2021

1:00-2:00 p.m. CENTRAL TIME
DME suppliers can find themselves walking a legal tightrope: An important way to set themselves apart from their competitors is to offer services to existing and prospective patients — services that other suppliers cannot offer. Moreover, with the recent relaxation of the federal anti-kickback statute (AKS), the federal physician self-referral statute (Stark), and the federal beneficiary inducement statute, CMS and the OIG are encouraging the provision of value-added services to patients. However, at the same time, it is important that DME suppliers not go so far that they inadvertently violate these statutes. And that is exactly where they must strike the right balance between adding value while avoiding inducements. This webinar will discuss the federal laws governing value-added services to patients; those value-added services that are legally acceptable; and those value-added services that may trigger a government enforcement action.

During this presentation, attendees will:

• Learn about the federal laws that govern value-added services that DME suppliers can offer to existing and prospective patients.
• Hear about value-added services that are legally acceptable.
• Understand those value-added services that may trigger a government enforcement action.

Register for Offering Value-Added Services to Customers While Avoiding Prohibited Inducements on Thursday, July 29, 2021, 1:00-2:00 p.m. CT, with Jeffrey S. Baird, Esq. of  Brown & Fortunato.

AAHomecare’s Retail Work Group

The Retail Work Group is a vibrant network of DME industry stakeholders (suppliers, manufacturers, consultants) that meets bimonthly via Zoom conference during which (i) an expert will conduct a round table discussion on an aspect of selling products at retail, and (ii) a question and answer period will follow. The next Retail Work Group Zoom conference is scheduled for September 1, 2021, at 1:00 p.m. Central. There will be a roundtable discussion on e-commerce/web presence. Participation in the Retail Work Group is free to AAHomecare members. For more information, contact Ashley Plauché, Director of Member & Public Relations, AAHomecare ([email protected]).

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, a law firm with a national health care practice based in Texas.  He represents pharmacies, infusion companies, HME companies, manufacturers, and other health care providers throughout the United States.  Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].