Worried That Hospital Is Getting Off Too Easy, Judge Refuses To OK Settlement

Article by Nina Youngstrom

A federal judge on Jan. 17 nixed a proposed settlement of criminal and civil allegations against WakeMed Health & Hospitals in Raleigh, N.C., causing a stir in the world of fraud negotiations.

U.S. District Judge Terrence Boyle set another hearing for Feb. 5 to determine the fate of a deal that the U.S. Attorney's Office for the Eastern District of North Carolina struck with WakeMed, which was accused of submitting inpatient claims for procedures that were performed in an outpatient setting (RMC 12/24/12, p. 1). WakeMed had agreed to pay $8 million and comply with a deferred prosecution agreement. If all goes well, prosecutors will drop the criminal charges after two years.

That did not sit well with the judge. "It's very difficult for society and the court to differentiate between the everyday working Joe or Jane who goes to prison and the nonprofit corporate giant who doesn't go to jail, who gets a slap on the hand and doesn't miss a beat," Boyle said, according to a report in the Raleigh News & Observer. The agreement, the judge said, seems like a "slap on the hand" for a "too big to fail" corporate giant. "Why not take a guilty plea, defer imposition of the judgment and sentence, and come back in two years and take a post hoc dismissal?" the newspaper reported the judge saying. (A transcript of the hearing was not available by press time.)

The judge's comments were unusual on procedural grounds alone, says former federal prosecutor Richard Westling, now with Waller Lansden in Nashville. The Federal Rules of Evidence (Rule 11(c)) allow judges to accept or reject a plea agreement, "but he is not supposed to dictate the terms," Westling says. "Typically, the judge doesn't participate."

But a more seismic change may be under way. "This is the kind of development that will cause lawyers representing health care companies to think long and hard about the way settlements are structured," Westling says. "If there is a substantial likelihood a judge will push back, it creates a huge challenge in the way that companies work to close their issues with the government and move on with their compliance obligations."

Another federal judge expressed misgivings after Pfizer Inc. paid $2.3 billion to resolve civil and criminal allegations of illegally promoting four drugs but no one was prosecuted. At Pfizer's sentencing in U.S. District Court in Boston, the judge complained that there was "no soul to condemn and no body to kick," according to federal prosecutor Jeremy Sternberg from the U.S. Attorney's Office (RMC 10/10/11, p. 1).

Will Future Investigations Be Influenced?

What's ironic about the WakeMed drama is it may have a chilling effect on the government's decision to include criminal allegations in cases against hospitals, Westling says. Although the judge may feel it's important to send a message that corporations shouldn't only pay fines but also face convictions, he may be perpetuating that outcome by creating uncertainty in the settlement process, Westling says. "One reason to use deferred prosecution agreements is [for the Department of Justice] to be tougher on entities by making it clear the conduct is criminal while recognizing the problems posed by a conviction. If you are going to be scared straight by the judge and told you need to whack these people more, does the government change its strategy? If so, what would that mean? Health care organizations are motivated to settle because they want closure and they want to go on with running their businesses and caring for patients with their new compliance obligations," Westling says. "Unpredictability about whether the court will accept a resolution that has been approved by the Department of Justice may make it harder to convince health care organizations that resolution is in their best interests."

The Department of Justice announced WakeMed's global resolution Dec. 19 in an unusual twist on short stays and medical necessity. The criminal information focused on WakeMed's 41-bed Health Center Observation Area, which had no licensed inpatient beds. Physicians never planned for patients to stay overnight as inpatients, but WakeMed billed Medicare for MS-DRGs anyway, the information alleged. Patient access staff allegedly disregarded or circumvented physicians' outpatient orders in the electronic database, and the hospital billed for cardiac patients as if they were inpatients even though they didn't remain in the hospital overnight.

Former federal prosecutor Robert Trusiak says the judge's actions show, again, that "the judiciary plays an active role, not a passive role, in global resolutions." Boyle's comments and his refusal to approve the settlement, at least for now, are consistent with the central theme of the Department of Justice's 2003 "Thompson memorandum," which addresses prosecutions of businesses. Written by then-Deputy Attorney General Larry Thompson, the memo requires prosecutors to treat corporate persons the same as natural persons, says Trusiak, now senior counsel and chief compliance officer for Kaleida Health in Buffalo, N.Y. "If a prosecutor is going to seek to convict a bank embezzler of embezzling $10,000, then the policy requires equal vigor for corporate persons. That's my take on what the judge did."

Trusiak also has concerns about deferred prosecution agreements. "Prosecutions must vindicate two goals: punishment and deterrence. It is difficult to determine how deferred prosecution agreements vindicate either of those goals," he says.

Westling speculates on possible scenarios for WakeMed's Feb. 5 return to court:

1. The benefits of the global resolution are presented and the judge will accept the deal. He says that WakeMed and the government may want to highlight the services that the hospital provides to the community, such as charity care, and explain the effect on the community of a criminal conviction and Medicare exclusion.
2. Hospital officials show up in court this time. At the Jan. 17 hearing, the judge criticized WakeMed for not sending anyone but its lawyer, according to the News & Observer. As a result, no board member or top administrator could answer Boyle's questions. Westling says one strategy for the February hearing may be to have a high-level corporate representative attend, prepared to accept responsibility on behalf of the hospital. This could change the way the judge looks at the case, he says.
3. Before the second hearing, WakeMed and the government could agree to make the settlement more punitive by increasing the amount of money WakeMed has to pay or extending the length of the deferred prosecution agreement from two years to perhaps five years, which is the length of the corporate integrity agreement that is also required in the global resolution. The judge may find the global resolution more palatable, Westling says.

Whatever happens, the debate rages on among enforcers and Medicare watchdogs about the best way to enforce the laws. More prosecutions of individuals versus corporations? Some U.S. attorneys believe that pursuing corporations is the way to go. But, Westling notes, "lately the Justice Department, OIG and Congress have been pointing out the number of recidivist corporations. The government believes that corporate misconduct only occurs because people do it. Clearly, enforcers are weighing whether it's time to go back to bodies and souls."

Previously published in AIS Health

For further information visit Waller

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.