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Aug. 19 - Three Part SPECIAL REPORT: Memorial charged as a Repeat Offender for Overpaying and Overbilling

Part 1 of a 3-part series on the Justice Dept's lawsuit filed August 8, 2014 against Memorial Health

By Lou Phelps, Savannah Business Journal SPECIAL REPORT

August 19, 2014 – UPDATED - This is a story that affects every taxpayer in Chatham County because the County underwrites the financial bonds that keep Memorial Health University Medical Center afloat.

And, it's a story of a legal case that may sound complicated, but isn't, and potentially affects every current or former Medicare or Medicaid patient at Memorial who may have been overcharged or prescribed unnecessary services.  

It’s a story that goes back to when Bob Colvin was President and CEO of Memorial hospital, one of Savannah’s leading and most influential business executives.  Colvin was fired by the Board of Directors of the hospital in April 2008 after the hospital’s Board negotiated a $5.08 million settlement in 2008 – though not acknowledging guilt - for allegedly doing some of the same things Memorial is now charged with doing again. 

A week ago, on August 8, 2014, the U.S. Justice Dept. interveined – in effect they took over - former President and CEO of Memorial Phillip S. Schaengold's lawsuit against Memorial Health Inc. (the legal entity which owns the hospital); Provident Health Services, Inc. which operates the hospital; and MPPG, Inc, d/b/a Memorial Health University Physicians (MHUP). 

MHUP is the holder of the physicians’ contracts for all of the doctors working at MHUP, and is the legal entity that employs them.

Provident is also the holding company for many of the ancillary service providers operating in connection with the Hospital including ambulance transport, medical office buildings and oversees the contracts of some of the physicians employed by the hospital. Ray Gaster, president of Gaster Lumber, is the chairman of the Provident board of directors.

On the same day, Schaengold’s legal team filed an amended action that also names 16 other local physicians for the same illegal practices as outlined in the Justice Dept. case.   It is also possible that the Justice Dept. may intervene in that case at a later date, according to sources close to the case.   

“At all relevant times,” states the Justice Dept., all of these entities “were controlled and directed by senior management and the Board of Directors of the Parent Company and Memorial Hospital."

Justice is charging all defendants with violating the False Claims Act of the Medicare/Medicaid/Tricare system from 2008 to 2011, and for firing Schaengold who was trying to stop the illegal practices, urging the hospital’s board of directors to stop signing contracts with various physicians that violated federal laws.

Phillip had been bringing the Board information for over a year that there were practices of the hospital which he believed were illegal, and violated the Compliance Agreement that the Board had signed back in 2008 when it paid the large fine.

He also wanted the hospital to hire independent legal counsel - to not use Mills Fleming of Hunter McLean - legal counsel for the hospital and the Board.  

Schengold is now termed a “whistleblower” by the Justice Dept. which is supporting legal action against Memorial, and seeking fines and penalties which could reach $90 million.

Schaengold first brought a wrongful dismissal case in March 2011 after he was fired in January.  Had the hospital board paid off the balance of his contract, and other demands he made at that time, this case may not have come to the Justice Dept’s attention. 

But they did not. Instead, his attorney brought Schaengold's allegations and information to the U.S. Government, which has now sued Memorial.  While no criminal charges have been brought against individual board members or senior managers, at this juncture, that possibility in the future still exists the Savannah Business Journal has been told by those close to the case.

 The Government’s Case

“The claims in this case center on the Defendants’ unlawful plan to overcompensate certain physicians well above the fair market value for their services in return for the promise of patient referrals from those physicians to the Defendants’ health care facilities and for ancillary services,” according to the Justice Dept’s filing. 

“The Defendants had ample opportunity to come into compliance with the Anti-Kickback Statute of the Start Laws, and the CCA but chose not to do so because members of the Board of Directors determined that compliance would be contrary to the Defendants’ own financial self-interests.  As a member of the Memorial Board of Directors wrote in an email dated October 3, 2010 in reference to physician contracts and management’s efforts to reduce compensation, “we all recognize we cannot continue to pay the salaries at the same level. However, we cannot afford to lose paying referrals to the hospital,” according to legal documents in the case

The Justice Department’s case also states that the hospital “knowingly presented, or caused to be presented, numerous false or fraudulent claims for payments or approval to the United States in connection with the operation of their health care facilities in Savannah, Georgia. These false claims were the tainted product of prohibited patient referrals to the Defendants from physician practices and individual physicians in violation of the Fraud and Abuse Anti-Kickback and prohited referral provisions of 42 U.S.C. 130-a-7b(b) and the Stark Laws.  In addition (Schaengold’s) employment was unlawfully terminated in retaliation for his protected activities under the FCA and his efforts to stop ongoing violations by the Defendants.” 

The Anti-Kickback Statute arose out of a Congressional concern that is those who influence healthcare decisions were allowed to have a financial stake in selection of healthcare good and services, their judgment might be tainted, “resulting in goods and services being provided that are medically unnecessary, of poor quality, or even harmful,”  the legal complaint explains.

To protect the integrity of the Medicare and Medicaid programs, the government, in 1972, enacted a prohibition against the payment of kickbacks in any form.  In the Memorial case, the Justice Dept, states that it is a criminal action to pay illegal remunerations – overpaying a physician – for example in return for referring an individual to a person for furnishing any medical service. 

Those convicted can face a fine of $25,000 or up to five years in prison, and are guilty of a felony.

And, those violating the anti-kickback laws can be excluded from accepting Medicare and Medicaid, and face civil penalties of $50,000 per violation and three times the amount of remuneration paid. 

In addition to the hospital costs billed to Medicare and Medicaid, the physicians also bill for their services.

Schaengold, who is now a resident of Florida, is seeking $5 million for the retaliation, hired on June 1, 2009 and discharged on January 5, 2011.  His annual salary was $616,000, and called 18 months severance if he was terminated. The severance was not paid, which he is also seeking.

The Justice Dept. states that after he became CEO, he commissioned a review of compensation, concerned that the hospital was violating various federal laws. “After obtaining the results of this investigation which confirmed his suspicions of excessive compensation,” he began to negotiate with the doctors being overpaid.  He went to the board to end the contract with those physicians – contracts that were set to be terminated as of January 23, 2011.  But the board fired him on January 5.

“The Memorial Board of Directors was fully informed of Mr. Schaengold’s actions,” and that the contracts represented a possible violation of the Stark Law and Anti-Kickback Statute, thereby constituting a violation of the False Claims Act.

The president of the physician’s group involved was led by Dr. Paul Bradley, and affected all of the physicians in that group.  "Dr. Paul Bradley launched a covert lobbying effort including meetings with Bill Daniel, Chairman of the Board, Curtis Lewis, Chairman-Elect and physician Board members Drs. Christopher Wixon and Mark Murphy,” in an effort to reverse the contract termination and remove Schaengold as CEO. 

Memorial overpaid $3 million in a 30-month period, according to the Justice Dept. with the specific group of physicians named in the suit, as well as $4.2 million in bonuses in 2008 to other physicians, and $3 million in bonuses to Dr. Bradley’s group.  Schaengold uncovered the erroneous bonuses in 2010 while reviewing physician’s billing and collection service records.

He “brought this to the attention of Mr. William Daniel, Chairman, Mr. Curtis Lewis, Chairman-elect, and Mary Ann Beil, Vice President for Compliance sometime in the November/December 2010 time frame,” the Justice Dept. states.   Beil “lodged a formal complaint with Mr. Schaengold relating to violation of Memorial’s Conflict of Interest policy by Dr. Robert Brown, board member, and Mills Fleming, legal counsel.  Dr. Brown was alleged to violate the policy by failing to recuse himself from all board and board committee’s discussions relating to the development of a new compensation model because of the direct financial impact on him and his physician partners.  Mr. Fleming is alleged to have also violated the Conflicts of Interest policy by failing to recuse himself from all board and board committees’ discussions relating to the development of a new compensation model because it has a direct impact on his wife’s salary and compensation.” 

And last, this is a story that involves all of the hospital’s board members .  The Justice Dept. singles out three, alleging what they knew:   “The concensus reached by Kay Ford, Harry Haslam and Michael Kaigler was an indication that these board members understood the illegality of physician compensation above FMX but were willing to conspire to continue such a practice so as not to jeopardize losing “paying patients” which is a violation of Stark Law, the Anti Kickback Statute and the False Claims Act.” 

Ms. Ford is no longer a Memorial Hospital board member, nor is Kaigler.  Harry Haslam is the current Chairman of the Board.

As Schaengold and the hospital’s senior management team worked to renegotiate physician contracts that were illegal and hurting the hospital financially, the board removed them from contract negotiations.   And, they fired Schaengold on Jan. 5, 2011.

Reached this week, Gill said she could not comment due to ongoing legal issues, but that the reported fines if won would not approach $ 90 million.

The current members of Memorial hospital’s Board of Directors include: 

Harry Haslam Jr., chairman Hancock, Askew & Co. LLP senior partner

Marilyn M. Buck, Secretary, Professor nursing emerita, Armstrong Atlantic State University

Art Dana, Treasurer, Senior tax and business valuation partner, Deemer Dana & Froehle LLP

J. Curtis Lewis III Past chair, member Attorney, businessman

Ira P. Berman, Senior Vice President/Administration and general counsel, Gulfstream Aerospace Corp.

Robert F. Brown Jr. M.D., Physician, Memorial Health University Physicians, Chatham Medical Associates

Judge LeRoy Burke III,  Chatham County Juvenile Court

Gerald E. Caplan, M.D. Board member Ex officio, Chatham County Hospital Authority

Bill Daniel, Vice President/General Counsel, Vaden Automotive Group

Helen Dean Downing, community representative

Margaret “Maggie” Gill Memorial Health president/CEO Ex officio member

Jay Goldstein, MD, Medical director of the emergency department, Memorial University Medical Center

Charles F. McMillan, President/Owner McMillan and Associates

Mark E. Murphy, M.D., Savannah Center for Digestive and Liver Health

Jacqueline H. Rabinowitz, Chairman, Memorial Health Foundation Board of Trustees

Francis P. Rossiter Jr. M.D., Pediatric allergist and immunologist, retired

W. Rex Templeton Jr., Vice President, Morris & Templeton Insurance Agency

Published by Savannah Business Journal.®All Copyrights Reserved ©2014. Coastal Empire News ®


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