Health Care & Hospital Law
Aug. 6, 2002
Probe Is No Deal Breaker, Arbitrator Says
With the government in his corner, this should have been a straightforward case that Los Angeles lawyer Richard Marmaro couldn't lose.
With the government in his corner, this should have been a straightforward case that Los Angeles lawyer Richard Marmaro couldn't lose.
Marmaro of Proskauer Rose was approached in summer 2000 by Irvine's Certus Corp., a holding company that acquires health care businesses. Certus wanted to rescind its $30 million purchase of Healthcare Financial Advisors, which reviews Medicare claims for hospitals throughout the country.
Certus management explained to Marmaro its reasons for wanting to back out of the deal.
During the 1998 closing, Healthcare Financial Advisors had given written assurances that its business practices complied with both federal and state law. Yet, five months after the acquisition, federal agents raided Healthcare Financial Advisors' Newport Beach offices. Certus learned that the U.S. attorney's office was investigating Healthcare Financial Advisors for Medicare fraud.
With a federal investigation pending, Marmaro believed his client had a strong case for rescission based on Healthcare Financial Advisors' failure to disclose material information - alleged criminal wrongdoing - at the time of the 1998 acquisition.
"It's what the government says that counts in this business," Marmaro says.
That may be true, but a Los Angeles arbitrator wasn't listening to Uncle Sam when he recently shot down Certus' allegations of Medicare fraud. The decision is the first of its kind. Certus Corp. v. Guthrie, 721810115300 (American Arbitration Association, award May 3, 2002).
"For those in the health care industry, it is a watershed decision from a respected judge," says Mark E. Beck of Los Angeles' Beck, De Corso, Daly & Kreindler, who represented Healthcare Financial Advisors.
'Burying Negatives'
No one disputes the basic facts.
In the 1990s, according to court documents, Healthcare Financial Advisors reviewed cost reports submitted years earlier to Medicare by four hospitals. These filings detailed the expenses incurred by the hospitals for the care of patients that belong to the federally funded insurance program. The hospitals hired Healthcare Financial Advisors to help them find overlooked items that entitled them to even greater reimbursement from Medicare than they originally received.
In its review of these cost reports, Healthcare Financial Advisors did find instances of underpayments by Medicare. At the same time, however, Healthcare Financial Advisors also turned up evidence that the program overpaid the hospitals for some items.
Certus accused Healthcare Financial Advisors of committing criminal fraud because, while Healthcare Financial Advisors helped its client hospitals report underpayments, it did not disclose to the government more than $3 million in overpayments.
For example, in the case of a New Mexico hospital, Healthcare Financial Advisors helped prepare a revised report listing $540,000 worth of Medicare underpayments while avoiding any mention of $497,767 in overpayments, according to Certus.
Beck says that his client had no obligation to tell the government about the overpayments. The only duty Healthcare Financial Advisors had was to tell the hospitals about them, which he says it did.
According to Marmaro, however, Healthcare Financial Advisors' failure to disclose the overpayments to the government is known as "burying negatives" and constitutes Medicare fraud.
"You cannot advise and assist clients in concealing bad facts which would minimize their recovery of federal funds and only present good facts in order to maximize their recovery of federal funds," Marmaro says in court papers. "Such conduct is and always has been fraud."
But in his May 3 written opinion, arbitrator Richard P. Byrne, a former presiding judge of the Los Angeles Superior Court, rejects that claim as "overly simplistic."
Medicare regulations and statutes are complex and confusing, Byrne writes, pointing to case law that says they are "among the most completely impenetrable texts within human experience."
Often, he states, it's unclear whether or not a particular item is reimbursable.
"[A] reasonable argument may be made in good faith for each interpretation," Byrne says.
In the first-ever decision on this issue, Byrne concludes that there is no legal duty to disclose overpayments innocently received years back and discovered only after a hospital consultant, like Healthcare Financial Advisors, finds them during a search for unrelated reimbursable items.
Byrne goes on to reject expert testimony that Healthcare Financial Advisors did not follow the common practice in the industry to disclose Medicare overpayments. Customs in the health care field have become "extremely conservative" out of fear of government prosecution, he writes.
That fear is misplaced, Byrne says.
"It appears to me that the custom and practice in the Medicare reimbursement field has developed around the desire of the providers [hospitals] and consultants to avoid being prosecuted for what the government might consider to be a crime rather than from what is clearly illegal," he writes.
'After-Hours Prowling'
Byrne goes further, strongly criticizing the testimony of Mark Razin, a former Healthcare Financial Advisors employee who testified for Certus at the arbitration.
A whistle-blower allegedly helping the government in its continued criminal investigation of Healthcare Financial Advisors, Razin was hired as a consultant in the company's Orange County headquarters in June 1995.
According to his testimony, Razin suspected almost immediately that his supervisors were hiding evidence of Medicare overpayments.
In October 1995, he began secretly gathering documents, such as file memos, cost reports and correspondence to hospitals, which he eventually delivered to the federal authorities.
In mid-1998, Razin filed a whistle-blower lawsuit against his employer under the False Claims Act, which permits a private individual to sue on behalf of the United States for fraud against the government. Healthcare Financial Advisors placed Razin on paid administrative leave in April 1999.
Byrne was uneasy with Razin's method of collecting evidence, much of which Certus used to build its case against Healthcare Financial Advisors.
"Over more than three years of after-hours prowling through the offices (and trash) of [Healthcare Financial Advisors'] Newport Beach office, with the assistance of experienced counsel, Mr. Razin amassed a cache of documents which he delivered to the government and which supposedly evidenced Medicare fraud and abuse by [Healthcare Financial Advisors]," Byrne writes.
Byrne writes that a great deal of Razin's testimony consisted of his opinions about the law and that, on cross-examination, he showed little knowledge about Medicare regulations.
Razin's ignorance undercut the impact of his testimony, according to Healthcare Financial Advisors co-counsel Anthony De Corso, also of Los Angeles' Beck, De Corso, Daly & Kreindler.
"He would have something in hand, but he didn't understand what it meant," De Corso says.
To illustrate how little Razin understood about the health care field, De Corso points to Razin's testimony that he read a manual explaining which costs are reimbursable but had difficulty making sense of the myriad regulations cited therein.
"I had trouble navigating through the manual," Razin admitted on the witness stand. "On and off I tried to look through the manual and didn't get much information."
Byrne also questions Razin's motive for turning in his employer. Under the False Claims Act, Razin could receive a portion of triple damages assessed against Healthcare Financial Advisors for uncovering the alleged fraud. Razin's lawsuit is pending.
Razin explained that he acted out of a desire to "do the right thing" and "accomplish justice."
"You should tell the client, 'Here is how you have to proceed. You have to report negatives.' And that wasn't the practice," Razin testified.
'Shakedown Settlements'
De Corso is pleased with Byrne's decision.
Not only is it an implicit rejection that Healthcare Financial Advisors committed Medicare fraud, he says, but it also will deter overzealous federal officials from pursuing "shakedown settlements" against unfairly targeted companies like his client.
"I think that the government is overreaching," De Corso says.
Assistant U.S. Attorney Wendy Weiss, who litigates civil fraud cases in Los Angeles, says the Certus opinion will have no impact on the government's investigations into Medicare fraud.
The government is not bound by a private arbitrator's decision in a dispute between private parties, she says.
Weiss further dismisses the notion that the government unfairly targets businesses in its efforts to curb Medicare fraud.
"I believe we use our discretion wisely and appropriately," Weiss says.
Meanwhile, neither Weiss nor her colleague, Assistant U.S. Attorney Eliot Krieger, will comment on why the government has not charged Healthcare Financial Advisors with fraud since federal agents raided the company's offices in February 1999, toting off thousands of documents.
It is the U.S. attorney's policy not to discuss or even acknowledge the existence of a pending investigation, Krieger says.
The government, however, did announce a $1.5 million settlement in February with a Houston hospital consulted by Healthcare Financial Advisors. The settlement, according to a government release, was secured in part through information provided by Razin.
Coming off his loss, Marmaro isn't so sure that the Certus decision won't fundamentally alter government investigations into "burying negative" cases.
"The larger message is, 'You ought to re-evaluate your case, prosecutor,'" he says.
SPOTLIGHT
Cite: Certus Corp. v. Guthrie, 721810115300 (American Arbitration Association, May 3, 2002)
Type: Medicare fraud
Result: In favor of the respondents
Attorneys: Claimants - Richard Marmaro of Los Angeles' Proskauer Rose. Respondents - Anthony A. De Corso and Mark E. Beck of Los Angeles' Beck, De Corso, Daly & Kreindler
Arbitrator: Richard P. Byrne
Eron Yehuda
For reprint rights or to order a copy of your photo:
Email
Jeremy_Ellis@dailyjournal.com
for prices.
Direct dial: 213-229-5424
Send a letter to the editor:
Email: letters@dailyjournal.com