In the heavily regulated health care industry, it is critical to consider potential compliance issues with every arrangement, especially when federal money is involved. In this two-part episode, Michael and Brad are joined by partner and series regular Jay Reyero. Tune in as we share the story of a client whose subpoena led them to uncover issues with their physician arrangements.
Listen to the full episode using the player below, or by visiting one of the links below. Below is the episode’s transcript which has been edited for readability. If you have any questions or would like to learn more, email us at email@example.com.
Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real world experiences. Creating simplicity in 3, 2, 1.
Brad: Welcome back to another episode of Legal 123s with ByrdAdatto. I am your host Brad Adatto with my co-host Michael Byrd.
Michael: Hey, Brad! As a business and healthcare law firm, we are sometimes triggered by certain buzzwords our clients will say in conversation. We know there is potential disaster when we hear these words and we’re immediately on high alert. This season’s theme is red flags.
Brad: Michael, as we discussed in other shows, we are discussing the trigger words we hear when there’s a red flag, and one of us will say…
Brad: Very good. You’re ready to get going. But before we start today’s show, do you know the significance of today?
Michael: No, Brad, I don’t. I’m a little confused. Tell me [00:01:00] more.
Brad: I know you like context so I’ll give you some. As you know, we release an episode every Wednesday and today’s show is released on March 2nd, 2022.
Michael: Yeah, got it. Today would be Ash Wednesday for Christians, also known as the first day of Lent and the start of the time of reflection leading up to Easter. The different Christian denominations have different traditions for Lent. Where are you going with this?
Brad: That’s a correct answer. And that would mean that your partner, me, would have just gotten back from another Mardi Gras run. And for those that don’t know, Mardi Gras is French for “Fat Tuesday”, reflecting on the practice of the last night of eating rich fatty foods, maybe some drinking involved, with the celebration of something called carnival. And where I’m from the state of New Orleans, we’ve kind of mastered that.
Michael: So most of our fans know you’re from New Orleans and have heard [00:02:00] you talk about this before, but from the local’s perspective, tell us about Mardi Gras.
Brad: So there’s really two versions of Mardi Gras. You have the uptown version and then the French quarter version. The uptown version is like the longest block party in the world. You have kids in strollers, tons of coolers, Popeye’s chicken. It just this great, awesome long block party. Very kid-friendly. Next is the French quarter version and starting about Friday afternoon, let’s call it at noon exactly, the Mardi Gras weekend really kicks off and it becomes very un-family friendly. It’s the girls going wild slash rated X sometimes double X, not kid friendly, but very adult craziness.
Michael: Hmm. Okay. Is there anything connecting this to today’s show other than the fact that it’s being released on Ash Wednesday?
Brad: Well, when I was getting ready for today’s show, I started thinking about all the red flag moments I have witnessed during Mardi Gras.
Michael: Mardi Gras in of itself is a [00:03:00] red flag.
Brad: Maybe. But yeah, the drinking, like if you’ve ever been to Pat O’Brien’s they have this drink called the hurricane, they have a straw with it. I’ve seen people slam those and it does not end well for them. Or you walk in to someone doing a shot can contest and it’s 10:00 AM the Friday before Mardi Gras starts, and other activities I can’t describe without getting an E rating. And there are lots of major red flags for that person, or if you’re in the group with that person and have to take care of that person, it’s red flags. And so as a veteran of many Mardi Gras, you don’t just kind of show up to Mardi Gras. It’s something that’s kind of like Jay, with his marathons. You have to train year round for it. You can’t just show up and run a marathon. You can’t just show up and expect to party like Mardi Gras or “Party Gras” without training for it.
Michael: Well, I don’t know whether to ding you for training year round or to give you a high five. But I personally have burned in my memory a video of Mardi Gras of a participant who [00:04:00] decided after what clearly was several drinks, decided to punch a police horse.
Brad: Oh ding! That’s a big ding.
Michael: There is a major red flag and it turned quickly because apparently punching a police horse is treated the same way as punching an officer. And that guy was on the ground in a heartbeat and there was a lot of batons meeting and greeting his body as he was laying on the ground. So I’ve never made the Mardi Gras run and that’s part of what I picture when I see it, thus the major red flag that I said ding. Our series regular and partner, Jay Reyero has made the trip before, before he had kids. Jay, talk to us about what your experience was like.
Jay: It was my one and only trip to New Orleans. Brad invited everyone to his party at his parents’ house and I had [00:05:00] been working for four or five months. And I was like, okay, let’s go. So my wife and I went down there, we made the mistake of driving down there and getting there on a Friday night. We were staying in the middle of the French quarter. I don’t know where we parked our car, but we had to park and walk to get to our actual hotel because the city was shut down. So rookie mistake number one. And then the thing I remember most was the food at Brad’s parent’s house. I mean, I could have sat there in a corner with the bowl, just eating all day. It was so amazing. So amazing. So we had a great time.
Michael: Well, we did have a little bit of advanced show prep, and I know that there’s a boatload of red flags that we’re about to experience with the story today. I still don’t know if that can beat Mardi Gras experience. But I think we should find out. And as we’ve seen when our clients and their deals, when a physician is [00:06:00] supposed to be part of an arrangement and it does end up becoming a red flag, it’s usually, or often because they’re an absentee physician.
Brad: For our audience just to know, we have seen this deal so many different ways in so many different times so we decided to break it into two shows or two episodes because we’ve seen it one too many ways. So, Michael, I think that’s a good time for us to get started in today’s episode.
Michael: All right. Well, we have Jay, as y’all know with us today. Jay, I know you have the story with many promised dings ahead of us. So why don’t you get us started?
Jay: All right. Well, like every episode we have to name our clients, so today we’re going to call our client Mr. Middleman.
Brad: Ding! I’m not even sure, but the name. Like that sounds like it deserves a red flag or a ding.
Jay: And like Michael said, this is just the beginning. So let’s get your popcorn and dings ready. So Mr. Middleman, he was in the [00:07:00] business of promoting ancillary services to clinical practices. So we’re talking laboratories, pharmacies, diagnostics, and the things that are ancillary to a practice. And he was promoting those services for a bunch of different customers, go into clinics and promoting these services. And the thing here was that we have federal reimbursements, Medicare, Medicaid, Tri-Care, other federally reimbursed programs we’re involved in this case.
Michael: Ding! So I know you and Brad are obviously in our practice at ByrdAdatto heavy into the regulatory landscape. And so I am well-trained when I hear Medicare and then arrangement, the ding goes off in my head. I try not to say it out loud to the person I’m talking to but it rings very loud and clear. And so these types of arrangements have been the subject of a lot of enforcement at the federal level, especially here in the north Texas area.
Jay: Yeah, absolutely. And so we [00:08:00] already know Mr. Middleman, he’s playing in an area that’s facing this high regulatory risk if not done correctly. And so his story begins when he receives a subpoena for documents from a civil case between an insurance company and a laboratory.
Brad: I’m going to just ding it. I was trying not to. I was holding back, but the ding is not only for the clinical lab involvement, but it was also for the presence of a subpoena. For our audience who’s unfamiliar with this term, at a very high level, a subpoena in a civil trial is a mechanism available in civil litigation where one party asks the court to issue a demand to someone else so they produce documents, answer questions or attend a deposition. So Jay, what was the subpoena asking for the Mr. Middleman to do?
Jay: So it was asking him to basically produce anything and everything. Communications, documents, agreements, you name it. It was a laundry list of things that were connected to another laundry list of specific physicians, laboratories, hospitals. It was [00:09:00] a page and a half of people that if he had any association or anything associated with them, they wanted to know about it and see it. And so we looked at it and I mean, it was clear he was getting dragged into something because his name had popped up somewhere. And so he’s being brought in to this civil case between an insurance company and another party. And there, the insurance company was clearly interested in something and why he was involved with everyone.
Michael: Yeah. You mentioned a page and a half of stuff that they were being requested. I think it might’ve been a page and a half of dings. So what did you do first after you read the subpoena?
Jay: Well, first I had to ask if he actually knew these people. I mean, come on, we already know the answer. They don’t just send the subpoenas for nothing. And once he confirmed that, the next thing we did was, we moved to get white collar litigation counsel on board quickly.
Brad: Ding! Maybe two dings on that one.
Michael: Brad slow down there. We are just getting started and you are giving them a double ding this early into the episode?
Brad: Well the first ding was for the relationship with [00:10:00] the physicians. We already said healthcare just in general is highly regulated and you have to be mindful of the structure of the relationship between the physician and the ability to refer or order services, two primary focuses of enforcement on the federal level and sometimes at the state level too. The second ding was for the situation where the white collar litigation was not involved. That’s a big ding for us even though this was a civil case. Meaning no criminal charges being pulled into it, but whenever there’s a civil case there is potential that depending on what you produce, it could get into a criminal probe and should be very careful as to what you provide. And a lot of times in which some of our clients don’t realize is there may be a parallel investigation on the criminal side. So even if you’re not the target of the investigation, if there’s a potential mechanisms for the bringing the criminal, you have to be very careful how you navigate this and possibly [00:11:00] be careful, especially if there’s federal program payers involved.
Jay: I’m going to say this and it’s just for this room. Brad’s right.
Michael: Oh wait, wait, wait. Ding! And usually Brad’s not paying attention, but he was this time.
Brad: I don’t think I heard you. Could you say it again?
Jay: Alright, sorry. My mic cut out. So in this case with our client, Mr. Middleman ended up being very valuable here because as we started to kind of explore what the nature of the relationships he had with these physicians. Some things we were uncovering just started creating a little bit of issues and some concerns for us. And it really made us have to focus on the strategy of responding to this subpoena and made it even more important how we were going to respond.
Michael: Okay. Like what?
Jay: So first he confirmed he had a consulting agreement with a few of the physicians listed in the subpoena.
Brad: Ding, ding! When I [00:12:00] hear consulting agreement with physicians my antenna and I’m sure everyone’s in the room just popped up there. It’s usually viewed with a little bit of skepticism because of the abuse that we’ve seen over time. The federal government particularly looks hard at these. They often view these as they could be sham consulting agreements which ended up being disguised as paying for physician kickbacks. So just having the name consulting agreement can make it just suspect in general. Hence the ding. Jay, what was Mr. Middleman engaging them for?
Jay: So he was engaging them to consult with him on an hourly basis in order to help him learn more and really better serve his customer. So this was participating on teleconference calls, answering specific questions whenever he had them, helping him develop some educational and other kind of informational tools that he could use whenever he was marketing to those clinics. Basically he was hiring these docs to become a resource that could really [00:13:00] help him make his company more valuable to the clinics and also, the ancillaries and also more successful.
Michael: That’s like the least dingable thing I’ve heard all day. I mean, it sounds actually legitimate.
Jay: Sure. There were some problems. First he didn’t have any executed agreements.
Brad: Ding! Just one ding on that one. From a regulatory perspective, not having a written agreement is extremely problematic, especially when we start looking at the federal rules. We’re talking about maybe Stark, which is again for those who aren’t familiar, the prohibition of physician self-referrals or the Anti-Kickback agreement, again, looking at written or more important in this case written executed agreements are critical to compliance.
Jay: And so if we just push that to the side a second, it was questionable whether the physicians were actually doing anything.
Michael: Oh, ding! Did, did Mr. Middleman tell you this?
Jay: Of course not. Mr. Middleman from the beginning said he wanted to do things above board and [00:14:00] he wanted to be a hundred percent compliant.
Brad: Ding, ding! Did I say ding yet?
Michael: Triple ding?
Brad: I don’t think we have enough dings for this one. The number of times we have been told that they want to be a hundred percent compliant. And after we say, okay, to be a hundred percent compliant, this is what they have to do. And then there’s always that pause and they say, well, what if… and that’s always a ding moment.
Michael: By the way audience, it’s kind of like the no offense men. I want to be a hundred percent compliant.
Jay: With all due respect.
Brad: And they’re starting to find a way to avoid what we just told them to do to be compliant.
Jay: And so again no different here, but in this case Mr. Middleman, the concern here really came from the documentation or the lack thereof that were related to the physician’s work. And this, you know, we’re going to have to answer a subpoena, so how are we going to deal with this? And for any hourly arrangement, the documentation justifying the work actually performed is going to be the time sheets filled out describing [00:15:00] exactly what they did, and how long they spent, and how long it took them. And that that was missing in this case.
Michael: Let me guess, Mr. Middleman didn’t have time sheets?
Jay: Shocking. No, they didn’t exist for some periods when payments were made.
Jay: For one physician, they didn’t exist at all.
Jay: But that’s not all. Some time sheets did exist, but where the physician was supposed to describe what he did for that time, the summary did not match what Mr. Middleman described in the agreement.
Jay: He described the work in such a generic way that it just read like it was fake.
Jay: And sometimes they’re just completely missing.
Brad: Ding again!
Michael: Brad you’re hogging all the dings. It’s not fair.
Brad: Well, it’s nice to be on the right side of being dinged. It’s better than being dinged by you guys.
Jay: So basically at the end of the day, at the end there, it became a real concern that we were going to have a real hard time explaining all these issues, rebutting this presumption that when you looked at it something just [00:16:00] fishy was going on, something illegal is going on. So we were really facing an uphill battle to prove that all the arrangements he had with these docs were legitimate and that he wasn’t in the middle of a kickback scheme. And I’ll say ding for the dad joke there.
Michael: And I mean, if we take it all the way back, we started talking about absentee physicians and that’s really the central issue here that we’re learning about today is you have this arrangement where the docs, you know, it clearly doesn’t look like they were doing what they were claiming to be doing. And thus, we may have had our record this season for the number of dings in a story. Well, let’s go into commercial and on the other side, we’ll address this absentee physician issue.
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Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host Brad Adatto with my cohost Michael Byrd. And we’re still here with series regular, Jay Reyero. Before the commercial break, Jay you told us a story of dings, I mean, Mr. Middleman. And after receiving the subpoena it was uncovered that these arrangements may not have been so compliant.
Michael: Yeah. Brad, before we dive in to the discussion, you know, I love context. And so I think first we needed to give some. So taking a step back, I hear you and Jay say anytime there’s an arrangement with a physician, you have to consider the potential compliance issues, especially when federal money is involved. And Brad you mentioned the [00:18:00] two most prominent considerations earlier. Stark, the federal rule prohibiting physician’s self-referrals, and Anti-Kickback.
Brad: Yeah. So again, so our audience doesn’t sprain their necks, rolling their eyes back I’ll try to keep this a super high level. But as you said, Stark prohibits the physician from self-referring certain types of services, meaning referring it to an entity that they, being the doctor, or their immediate family members have some type of financial relationship unless there’s some type of Stark exception they meet. So that’s Stark. They have this bright line rule that you are violating Stark or you meet the exception. Then there’s the Anti-Kickback prohibition which it prohibits people from paying and receiving anything of value in exchange for referrals or recommending services or items. It’s basically one from the enforcement perspective, the kitchen sink, allowing the federal government to enforce certain laws and is extremely broad the way they enforce it. In compliance [00:19:00] there are shades of gray we always speak about, and there’s the black side, which is think orange jumpsuit bad. Then there’s a white side, which is think safe apple pie, America, baseball. And then there’s where most things fall, which is the gray area between the two. And there are these specific rules for each that must be followed to ensure compliance
Jay: And following what Brad’s talking about, the government absolutely recognizes that there are legitimate arrangements out there that involve referring physicians. And these otherwise are not going to trigger any kind of concerns of fraud and abuse. So what they’ve done is they’ve provided ways to structure these arrangements to accomplish this. And a consulting agreement with a physician is one that there are compliant ways to structure it.
Michael: Jay, so our episode today is part one of absentee physicians and it’s in a consulting agreement context. So let’s talk a little about the problems this circumstance presents, particularly [00:20:00] when federal program reimbursement money’s involved.
Jay: So, if you think about it at a very basic level, an absentee physician fails to meet the compliance requirement at its core. And what do I mean by this? So envision two parties conducting business in a commercial reasonable way. They’re working together in a way that any other two parties with no other external benefit are going to work together. An arm’s length transaction if you will, right. And so when we refer to an absentee physician in this case, we’re talking about a physician who’s not performing as expected. They’re absent. And so what we see though, is that the other party is continuing to fulfil their obligations. They’re making payments, they’re paying money, and these actions then call into the question the whole relationship because why would someone continue to pay someone who’s not performing their services?
Brad: I think hopefully our audience clearly can answer that question. They wouldn’t. They would not continue to pay someone. That’s the problem here because they don’t, they don’t act like this. The presumption is [00:21:00] there’s some other underlying reason to pay for someone who’s not really doing anything. To a federal investigator the reason is they assume that payments are actually for referrals or kickbacks that are disguised as consulting payments. You now are left to rebut this presumption.
Michael: And when you say referrals, you’re talking about referrals of patients. I’m surprised that you guys didn’t talk about form and substance first.
Jay: Well, I think in Mr. Middleman’s case, he didn’t even have the form, but in the cases where the parties actually have an agreement in place, you’re absolutely right. Form is going to have to equal substance. And clearly when you have a physician who’s not performing their consulting activities as the agreement says they will, but they’re continuing to get paid, the forms are not matching the substance in that case. And as we always say, whenever you have an imbalance of form and substance, that’s when you create the real compliance issues.
Michael: So Brad, what kind of compliance concerns are we talking about?
Brad: So let’s keep it at a high level. [00:22:00] By violating a rule there you can trigger other issues, but if it’s Stark we’re just concentrating on Stark. If you violate that, there are typically civil penalties that get involved. Then you look at Anti-Kickback and Anti-Kickback is unique because you have both criminal and civil penalties, and multiple parties can be liable or breach Anti-Kickback while Stark is just focused on the physician themselves. And of course you still have certain states own versions of Stark and Anti-Kickback laws. And so with these states, you have to know sometimes they are payer indifferent as we talked about in other shows. And last, but certainly not least, you have these licensing boards. You have the medical board, nursing boards that have their own particular rules and regulations that you have to follow. So as you can see, these rules can be very cumbersome. The issues are either civil, criminal, or loss of license.
Michael: Okay. So Jay let’s revisit Mr. Middleman’s story. He didn’t have agreements, but there was documentation that seemed to suggest that [00:23:00] maybe these physicians weren’t absent, but they just didn’t keep good records.
Jay: But I think that’s the point. It wasn’t clear from the record. So to a governor investigator who’s reviewing the files, you can see how easily it would be to question the legitimacy of an arrangement when you claim that, hey, you are going to be performing services and the other party is going to pay you. And one of the situations is that you’re not performing services because it’s not clear in the documents. Form and substance are not lining up again so the investigator has nothing to do but question what’s really going on. And so the form of consulting agreements requires a physician to provide services and Mr. Middleman was required to pay fair market value for those services.
Michael: That is an important point you just said at the end. The term we always touch on when we’re talking about consulting arrangements and that’s this term fair market value.
Jay: Yes. And this is so critical because again, we’re talking about arrangements that are commercially reasonable, or the same as they would be done in an arm’s length transaction. [00:24:00] So part of that paying fair market value for the services actually rendered, if the services aren’t rendered the fair market value is zero. So anything different creates a question or an issue.
Brad: Right. And I know we’re talking about the absentee physician, but I think we have to bring in Mr. Middleman here because his story also brings up some other issues we sometimes see with the consulting group, where the physician may not be completely absent. Let’s just pretend for argument’s sake, even if the physicians were providing some services to the middleman, the lack of any good strong documentation creates a whole question about what you said earlier, the fair market value of the actual services. Because the money can be easily traceable but undocumented services at times are not. So you end up being left with a lot of money being paid to somebody, substantially less amount of services being performed, or seem to be performed or documented before. And again, form doesn’t match the substance and fair market value comes into question here.
Jay: Let’s build on that on another example. Let’s say we have services rendered, documentation kept, and payment made.
Michael: So basically form [00:25:00] does equal substance.
Jay: Right. But this brings up the next question that the government tends to then look at. And what I always ask clients is, what is the intent of the parties? So going back to commercial reasonable concept, are the services being provided by the physician actually necessary? Do they have value? Is that value actually being utilized? If the answer to any of these is no, you have a problem with intent because why would anyone pay someone to do something that’s not needed? Why would anyone pay someone for something that has no value? Why would anyone pay someone for something that they don’t intend on using?
Brad: I think this is where a lot of people fall in this trap. They think well, I will just paper it up and correctly. And especially when it comes to Anti-Kickback compliance, I just met the safe harbor I can do whatever I want. And the government has been very clear that this is not the case. The intent of the party still matters. Those of us here in north Texas, we saw a big case, the Forest Park case where a bunch of people were indicted. Many of them physicians, a [00:26:00] lot pled guilty, but ultimately the vast majority of the parties who were indicted were found guilty.
Michael: Okay. So Jay, what happened with Mr. Middleman?
Jay: So we ended up responding very carefully to the subpoenas, produced over a thousand pages of documents even though we knew what issues they were presented. So we knew what our plan was, we were hopeful that anything wouldn’t happen or Mr. Middleman wouldn’t be dragged in any further. Ultimately the insurance company did want to explore things further and ended up taking his deposition. But I think actually in the end, this ended up being a good thing because I mean at the end of the day, Mr. Middleman was a real genuine person and he did want to be compliant. And he was able to kind of communicate that through his deposition and demonstrate that he didn’t have any bad intent. And so that ended up being the end of it and he didn’t have anything further to do with the case.
Michael: Wow. That’s great. And not what I expected when you told the story.
Brad: Michael, it’s not a dumpster fire season.
Michael: True, true. [00:27:00] Let’s wrap it up and Jay, you go first. What are your final thoughts?
Jay: So I think one of the underlying causes I see with an absentee physicians is the lack of an actual need. So a lot of times people come to me asking the wrong question. They ask “how can I pay a physician” rather than the opposite and the right question is rather “I need to pay a physician because I need these services. How do I paper it up?” And so sometimes people can get that mixed up and if you’re coming in with the wrong intent, no matter what I do or what we do, compliance is always going to be an issue. All right Brad, what about your thoughts?
Brad: Well first off, I totally agree with you, and I will say that because Jay is the smartest person on this podcast. Now, if you’re hiring a physician and you’re doing it through a consulting service, we’ve said it already. The form must match the substance. And the test here is, is it a good business model? Would you hire this person and pay them? And if [00:28:00] you wouldn’t hire this person, why would you give them good money and expect nothing in return for those services? And so we’ve said this before in other episodes, if it’s too good to be true, it is. And therefore, most likely non-compliant. Michael?
Michael: Yeah. I mean, Mr. Middleman flew about as close to the sun as you can without getting burned. I’m still kind of shocked that nothing happened with that. And I guess if you go back to the beginning, it would probably be like going to Mardi Gras without doing your year round training. I mean you’re flying really close to the sun if you just show up to Mardi Gras and do Mardi Gras without your year of training. Do your training.
Brad: That’s right. Be compliant for Marti Gras. Join us next Wednesday for part two of the absentee physician when we discuss the red flags of medical director agreements.
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