Home Health & Hospice Week

HHA owners to appeal federal court's unfavorable ruling in Stark case.

Right this minute, you could have a potential whistleblower in your employee ranks--and if your relationships with physicians have any problems, the government could shut you down in the blink of an eye.

That's what happened to Monroe, LA-based Aging Care Home Health Inc. The U.S. District Court for the Western District of Louisiana ruled against the home health agency in a decision handed down Feb. 16. The whistleblower who initiated the case is eligible for a big chunk of the related recoveries.

Background: Former Aging Care nurse and marketing rep Becky Roberts and an employee of one of Aging Care's referring physicians filed a whistleblower complaint in October 2002, accusing the HHA of a laundry list of bad deeds. When the government partially intervened in the case in June 2004, it picked up on the physician kickback issue Roberts alleged.

In a November 2004 complaint, the government spelled out its charges against the agency, CEO and owner Janice Davis and CFO Otis Davis from 1999 to 2002 (see Eli's HCW, Vol. XIV, No. 6). Aging Care violated the Anti-Kickback Statute and Stark law by entering into "sham" compensation arrangements with 11 referring physicians, the complaint accused.

The allegations: The HHA paid docs up to $800 a month for being on its Advisory Board and entering into physician service agreements that included tasks such as conducting in-services, evaluating staff and evaluating records. But the physicians weren't actually required to perform those duties and instead were paid varying amounts based on their referral volume, the government alleged.

Aging Care also paid some of the physicians up to $1,000 a month to be a medical director or compliance officer, although they also weren't required to perform any duties, the government charges. The agency would drop docs from the Board or these positions if they didn't refer enough patients, the complaint said.

The defense: In part, Aging Care claimed it didn't have to comply with Stark II provisions limiting physician compensation because the regulations implementing them weren't final until after the period the lawsuit covers. The government countered that the agency should have complied with the law, regardless of whether final regulations were promulgated.

HHA victory: In October 2006, a magistrate judge sided with Aging Care (see Eli's HCW, Vol. XV, No. 40). "The extent of government overreaching in this case is astounding and frightening," Magi-strate Judge James D. Kirk said in his recommendation to the district court. "The evidence ... shows that [Aging Care and the Davises] may well have complied with the only substantive regulations then in place and thus with the Stark Act."

"The magistrate judge really understood what happened in this case," praises attorney Liz Pearson, who represents Aging Care in the matter.

HHA defeat: But U.S. District Judge Robert James disagreed with the magistrate judge's recommendation in the latest ruling, saying the Stark II law was in effect when it was passed, even though the regulations weren't promulgated until later. "Nothing in the statute or case law indicates that Stark II was not self-executing," James said in the decision.

James also shot down other Aging Care arguments, such as that the contracts with physicians fit into other exceptions not expressly spelled out in the Stark II law. And he said the fact that the government hasn't prosecuted the referring physicians isn't relevant.

"We are disappointed that the district court judge overturned the magistrate judge's recommendation," says Pearson, with Covington, KY-based law firm Pearson & Bernard. "But we are not surprised."

Physician Testimony Sinks Case

A district court judge reversing a magistrate judge's recommendation isn't unheard of, notes attorney Ross Lanzafame with Harter Secrest & Emery in Rochester, NY. "Courts are free to do as they choose, especially in de novo [from scratch] review situations" such as this one, Lanzafame says.

Case law was working against Aging Care. "The government has always taken the position that, even in the absence of implementing regulations, providers are required to comply with the law," points out attorney Marie Berliner with Austin, TX-based Lambeth & Berliner.

"Statutes always trump regulations," agrees Robert Markette Jr. with Gilliland Markette & Milligan in Indianapolis. "Even though the regulations said financial relationships up to $25,000 were OK, when Stark II was enacted, to the extent it conflicted with the regulation, the regulation loses."

Except for a limit on annual compensation and a one-year term, the agency's contracts with the five physicians on its advisory board generally fell within the personal services exception to the Stark law.

Downfall: Actual physician testimony may have been most damaging to Aging Care's case. "All five physicians testified that they did not perform the duties set forth in the compensation agreements," the opinion says.

"The doctors' testimony made clear that what was in writing was not the course of conduct between the parties," Lanzafame observes. "The agreement did not reflect the services actually provided."

Whistleblower Arrested

The district court ordered Aging Care and the Davises to repay more than $427,000 in Medicare claims for patients referred by these physicians, plus interest.

The agency has already ceased operations and declared bankruptcy, Pearson tells Eli. "The government forced them out of business," she says. And one of the owners is in very poor health from suffering multiple strokes after the lawsuit's onset.

But the Davises plan to appeal the decision to the 5th Circuit Court of Appeals, Pearson reports. At least a year will probably pass before any significant developments in the appeal occur, she predicts.

Credibility questioned: The defendants' frustration at being the target of a whistleblower grew when Roberts was arrested this month for insurance fraud and forgery, Pearson notes.

The Louisiana State Police Insurance Fraud Unit arrested Roberts Feb. 23 on one count of forgery and two counts of insurance fraud, reports The (Monroe) News Star. A State Police rep told the newspaper the charges stem from an August 2004 car crash filed with State Farm Insurance.

Roberts reportedly fabricated witnesses to support that her vehicle was not at fault. And she submitted fraudulent documentation supporting an October 2005 insurance claim, the Star says.

Roberts' supporters charge that the arrest may be backlash for her whistleblowing.

Lesson learned: Whether your whistleblower is credible or not doesn't matter once the feds get a hold of the qui tam complaint and decide to intervene, ex-perts warn. Making sure your physician agreements are compliant with every Stark II detail is the only way to survive the scrutiny.