Manhattan U.S. Attorney Settles Civil Fraud Claims Against Westchester Medical Center Arising From Its Violations Of The Anti-Kickback Statute And The Stark Law

Preet Bharara, the United States Attorney for the Southern District of New York, Scott J. Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s (“HHS-OIG”) New York Region, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today that the United States has settled civil fraud claims under the False Claims Act against WESTCHESTER COUNTY HEALTH CARE CORPORATION d/b/a WESTCHESTER MEDICAL CENTER (“WMC”) related to WMC’s alleged violations of the Anti-Kickback Statute and the Stark Law and submission of costs reports to Medicare seeking reimbursement for charges WMC did not incur. In connection with the settlement, which was approved by U.S. District Judge Lewis A. Kaplan on May 14, 2015, the defendant agreed to pay a total of $18,800,000 to resolve its liabilities, and made admissions as to its conduct.

Manhattan U.S. Attorney Preet Bharara said: “The conduct of Westchester Medical Center is the reason the Anti-Kickback Statute and the Stark Law are so important – they are laws that help to rid the healthcare industry of conflicts that can improperly influence medical judgment, potentially jeopardizing patient care and causing federal healthcare programs to pay for excessive or unnecessary treatments. Hospitals and medical practices have an obligation to patients, and taxpayers, to ensure their arrangements conform to the requirements of these laws.”

HHS-OIG Special Agent in Charge Scott J. Lampert said: “Westchester Medical Center’s aggressive, intricate kickbacks and other fraud schemes in this case threatened the impartiality of medical referrals, the financial integrity of Medicare, and the public’s trust in the health care system. Our agency will continue to investigate those who seek to cheat federal health care programs.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “Westchester Medical Center participated in a coordinated shakedown of Medicare and, by extension, taxpayers. Today, they agreed to pay more than $18 million to resolve their liabilities and enable this government program to serve the seniors it was designed to help.”

According to the complaint-in-intervention filed in Manhattan federal court:

WMC operates a tertiary and quaternary care hospital in Valhalla, New York, and serves as the primary clinical affiliate of New York Medical College. From approximately 2000 through 2007, WMC maintained a financial relationship with Cardiology Consultants of Westchester, P.C. (“CCW”), a cardiology practice formerly operating on WMC’s Valhalla campus, which violated the Anti-Kickback Statute and the Stark Law. In particular, the complaint-in-intervention alleges that WMC advanced monies to CCW to open a practice for the express purpose of generating referrals to the hospital. When CCW began making payments to WMC purportedly repaying the advances, WMC entered into retroactive, no-work consulting agreements under which it paid CCW tens of thousands of dollars. Further, the complaint-in-intervention alleges that around this same time, WMC also began permitting CCW to use WMC’s fellows in CCW’s private office free of charge, contrary to WMC’s historic practice. As a result, WMC’s submission of claims to the Medicare Program for services rendered to patients referred to WMC by CCW’s shareholder physicians violated the False Claims Act. Additionally, during the same time period, through cost reports filed with the Centers for Medicare and Medicaid Services (“CMS”), WMC wrongly sought and obtained reimbursement for certain costs that WMC did not incur and that were not reimbursable under the relevant cost-reporting rules.

Under the Medicare Program, CMS makes payments to hospitals for inpatient and outpatient services after the services are rendered. Hospitals, like all healthcare providers, are required to comply with the Anti-Kickback Statute and the Stark Law, and in both cases, are prohibited from submitting claims tainted by such violations to the Medicare Program.

The Anti-Kickback Statute makes it illegal for a hospital to knowingly and willfully offer or pay remuneration to any person to induce that person to purchase, order, or recommend purchasing or ordering any good or item for which payment may be made under a federal health care program. The Anti-Kickback Statute arose out of congressional concern that remuneration given to those who can influence health care decisions would result in goods and services being provided that are medically unnecessary, of poor quality, or harmful to a vulnerable patient population.

The Stark Law provides that the government will not pay for certain designated health services prescribed by physicians who have improper financial relationships with entities to whom they refer patients because such financial relationships can compromise the physicians’ professional judgment as to whether a service is medically necessary, safe, effective, and of good quality.

As part of today’s settlement, WMC admitted the following conduct:

• Kingston Practice Arrangement. In July 2001, WMC, through its practice management affiliate, Matrix Resources, L.L.C. (“Matrix”), entered into a management agreement with CCW through which WMC agreed to assist CCW in establishing and developing a medical office located in Kingston, New York, with the objective of expanding WMC’s referral base and service area to the upper reaches of the Hudson Valley.
• Pursuant to the terms of the management agreement, which had an initial term of three years, Matrix agreed to provide certain management services for CCW’s Kingston office and to advance working capital to establish and operate the office. Between 2001 and 2002, WMC, through Matrix, advanced to CCW approximately $450,000 to pay for certain costs of the practice, including payment of the monthly management fee due under the management agreement.
• The management agreement provided that CCW would repay the advances at a rate of 8.5 percent interest by the end of the three-year term, with the proviso that the management agreement could be extended for one year if full repayment had not been made.
• In July 2002, CCW and WMC began discussions regarding the termination of the management agreement. At the outset of these discussions, WMC received a memorandum from CCW requesting that WMC, among other things, postpone or eliminate certain interest payments, reduce the applicable interest rate to the then-market rate of 6.5 percent, and extend the repayment period in recognition of CCW’s efforts in developing clinical volume at the Kingston practice and the resulting referral benefit to WMC.
• As of April 25, 2003, CCW and WMC executed a promissory note and associated letter agreement providing for immediate termination of the management agreement and repayment of the then-outstanding advances over five years at an initial interest rate of 4.75 percent (subject to periodic adjustment based upon changes in the prime rate), beginning with an initial repayment of $116,936.15 on April 28, 2003.
• In addition, on April 25, 2003, three days prior to CCW’s initial repayment of the advance, WMC and CCW entered into a two-year consulting agreement, retroactive to July 2, 2002. Pursuant to this agreement, CCW was to provide various consulting services to WMC for an annual amount of $50,000. In April 2004, the contract was amended and extended.
• Between April 2003 and July 2005, WMC paid CCW approximately $190,000 under the original and amended consulting services agreement.
• WMC was not able to locate evidence that CCW performed the contracted services under this agreement.
• During the period of approximately April 2003 through July 2005, CCW referred patients for hundreds of medical procedures at WMC.
• Fellows. For certain years during the relevant period, WMC charged various physician practices for a portion of the salaries and expenses relating to residents and fellows who trained at WMC. During the relevant period, fellows in WMC’s cardiology fellowship program performed certain services within CCW’s private offices as part of their regular clinical rotation.
• Prior to 2003, CCW paid hundreds of thousands of dollars to WMC for the salaries and expenses relating to cardiology fellows.
• Beginning in 2003, CCW ceased paying the fellowship charges for which it was invoiced by WMC; after continuing to bill CCW, but failing to compel payment, WMC wrote off these amounts as uncollectible in April 2007.
• Cost Report Reimbursement. From 2000 through 2007 (“relevant cost report timeframe”), WMC submitted annual Medicare cost reports to the Health Care Financing Administration (“HCFA”), and later CMS, reflecting certain costs, referred to as Direct Graduate Medical Education (“DGME”) and Indirect Medical Education (“IME”), associated with its residency and fellowship programs.
• Pursuant to certain HCFA/CMS regulations applicable to the DGME and IME lines of Medicare cost reports in effect during the relevant cost report timeframe, hospitals were permitted to claim reimbursement for time spent by the residents or fellows at other hospitals and non-hospital settings only if the hospital incurred all or substantially all of the salary and fringe benefit expense of the residents and fellows being rotated through other hospitals or non-hospital settings and complied with other applicable regulatory requirements.
• For the relevant cost report timeframe, WMC included certain costs in its filed cost reports that corresponded to time spent by certain residents and fellows at other hospitals or at non-hospital settings, but did not incur all or substantially all of the costs associated with these fellows and residents, or otherwise did not meet applicable HCFA/CMS regulatory requirements.

WMC also agreed to pay $18,800,000 to resolve its liabilities for this conduct.

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Mr. Bharara praised the investigative work of the agents at HHS-OIG and expressed appreciation for their dedication to the case. Mr. Bharara also praised the investigative work of the FBI.

The case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorneys Rebecca C. Martin and Christine Schessler Poscablo are in charge of the case.

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