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In my blog posts the past few weeks, I discussed those instances when an unscrupulous provider takes cash in return for a referral for a service. But what about those instances when it is a large group practice, and the arrangement is with a hospital? We hear more about the individual provider taking cash, but the prevalence of large groups and facilities exists on a much grander financial level.
Several years ago, there was a large cardiology group that practiced in New Jersey. This group was essentially the sole referring group to a local hospital for catheter lab and stent related procedures. As such, this group wielded great power with the hospital. The group had its pick of Cath lab hours and availability and controlled much of the wok that came to the hospital for cardiac care. The hospital relied a great deal on the cardiology group and the referrals that came to the hospital.
The cardiology group built a large, two-story building; the first floor for the cardiology group, and the second floor was to be used for an in-house Cath lab. The potential for an out of hospital Cath lab was something that the State of New Jersey was contemplating. The group, knowing that this was a potential opportunity, designated an entire floor for the lab that ultimately never was. The State of New Jersey did not move forward giving the cardiology group a license, and the second story of the building was vacant. Facing a large mortgage for a brand-new building, the cardiology group needed a large tenant to use the space, as it was much easier to rent an entire floor rather than break the space up and seek multiple, smaller tenants. Enter the hospital as the prime tenant.
The hospital operated a very small sleep study clinic; only a few beds. The hospital was interested in expanding its sleep study footprint, and what better than to occupy space from your number one source of cardiology referrals. The hospital entered into a rental agreement for the entire second floor of the building owned by the cardiology group. The problem was that the hospital did not use the entire second floor for the sleep center. The hospital only used a portion of the second floor, while allowing the remaining portion to be empty. By empty, I mean that there were no offices, no treatment rooms, nothing. It was just empty space that the hospital paid rent for to its number one referring cardiology group.
When hearing this story, you may be asking yourself what the problem might be with the arrangement. If the rent was paid at fair market value, and the space was used by the hospital for legitimate purposes, why would that be considered a kickback under the federal statutes? The problem was not the value of the rent; it was fair market value. The problem was that the agreement was for the entire second floor, with the hospital knowing full well that it was not going to use the entirety of the space. What people may not know is that when a hospital claims costs on its Medicare cost reports, costs for things such as rent are part of those cost reports. In effect, the Medicare program may have been reimbursing the hospital for space that it was not actually using.
This was a bit of a tricky case. The hospital served a valuable need for the community, and the cardiology group an indispensable service to the community. Although the hospital claimed to have had a lot of different plans on how to use the otherwise unused space, it never actually did anything with the space; no sub-lessors, no other clinical uses. The hospital settled the matter as a civil False Claims Act case, and everyone moved on. Kickbacks can take on various shapes and forms and are not always a cash for patients scheme. Often times, providers and the payment of kickbacks can take various forms, such as sham rental agreements, bogus services agreements, false speaking arrangements and the like.
Advize Health LLC is a healthcare advisory and consulting company that provides a breadth of healthcare industry services in the payer, provider, and legal communities. Contact Eric Rubenstein for more information on our Fraud Spotlight series.