Facts:

Lackawanna General, a full-service nonprofit hospital in Greenville, North Carolina, employed five oncologists. The five were part of the Specialty Oncologists of Greenville that operated four ambulatory clinics throughout the greater Greenville area. The group was made up of five oncologists, three nurses, a nurse practitioner, a physician's assistant and four administrators. The physicians would see the patients in the ambulatory clinics and then refer them to Lackawanna for treatments, including infusion, radiation and inpatient services.

Each of the physicians were paid a base salary of $925,000. The ambulatory clinics were owned by Lackawanna and leased to the group at rents that were set each year at approximately 50% of the market. The lease arrangements were not reduced to writing but were evidenced by monthly payments made by the Group to Lackawanna. Additionally, the physicians were each given the use of automobiles that were leased by Lackawanna from a local luxury sports car dealership. Each of the physicians were provided tax and legal services paid for by Lackawanna, as well as an annual bonus arrangement. The bonus arrangement paid each physician quarterly payments determined by a formula that calculated the contribution margin of reimbursement received by Lackawanna for discharges of patients sent to the hospital by each of the physicians. The contribution margin was calculated as the total reimbursements for inpatient discharges, plus reimbursement for specialty pharmacy infusion services and radiation oncology services, less the average costs of an inpatient stay at the hospital and the average costs of the infusion drugs, and a per click amount for radiation services. On average, the annual bonus payments to each physician were in excess of $425,000. Additionally, Dr. Chandler Jeffreys, the head of the group was paid a Medical Director's fee for running the clinics. The annual payments for the Medical Directorship equaled $125,000. The payments were not made pursuant to a written agreement nor were there any mechanisms in place to determine if Dr. Jeffreys performed any of the duties of a Medical Director.

Mary Lou Johnson was a recently hired revenue cycle employee at Lackawanna. She had fifteen years of experience as a coder and biller at other hospitals in the greater North Carolina area. She noticed the billings for services to the patients referred to Lackawanna by the Specialty Oncologists were always at the highest levels for ICD-9 (diagnosis) and CPT, or Common Procedural Terminology, codes. Every patient bill was coded with primary CPT codes either 77295 or 77301 but then had add-on codes 77290 for complex simulation and/or CPT add-on code 77293 for respiratory motion management. Over the course of the last six years, the billings for the patients referred to Lackawanna by the Specialty Oncology Group charged to the Federal Government through the Medicare and Medicaid programs was in excess of $400 million.

Mary Lou reported her findings to James Jameson, the director of finance for the hospital. He in turn contacted the Chief Compliance Officer.

Questions:

1. What issues do you see in this fact pattern?

1. What are Mary Lou and James' options after discovering these issues?

1. What laws are implicated by this fact pattern?

1. Explain what you think occurred after the Chief Compliance Officer was apprised of the situation.

1. Who else in the management of the Hospital would be involved?

1. Explain the relationship between Mary Lou and James and the Federal and State governments.

1. Be creative and answer these questions:
   1. If you were the President of Lackawanna, what would you do when confronted with the facts of this case?

1. List all the potential actions that could/should arise from these facts.

1. This is the story of a true case. How do you think the story ended?