II. Hypothetical Exercise

Sacred Secular ("Sacred") is a five-hundred-bed nonprofit hospital located in an urban area in downtown Portland, Oregon. According to their website, Sacred seamlessly weaves traditional medicine and holistic elements of new age care to treat the whole external and internal systems of the patient. Sacred's patients consist of approximately 70 percent Medicare and Medicaid beneficiaries, and commercially insured/uninsured accounts for 30 percent of their patients. Sacred has never had a formal compliance program, believing that the cost of developing and implementing a program would be better spent on patient care. Further, they have also never routinely engaged health care regulatory counsel. Recently, Sacred's management team decided they need to start focusing on compliance and hired you to serve as chief compliance officer six months ago. Unfortunately, they have given you very few resources. Especially wary of compliance is the hospital's founding CEO, Les Grossman, who believes that compliance risks are "hyped up" and ultimately cut against Sacred's bottom line. It's a dreary Monday morning when you are riding in the elevator up to your office and hear Grossman discussing Medicare billings with Sacred's CFO, Tugg Speedman. You overhear Grossman asking Speedman to conduct more oversight of the hospital's billing department. It seems that Grossman had recently received a call from the hospital's billing department. You have never heard anything about this issue before, so you lean a bit closer to make sure you catch all of their conversation. Apparently, the billing department has discovered a billing software glitch causing Sacred to receive overpayments from Medicare for services provided to Medicare beneficiaries between 2011 and 2019. It appears that Boridian, Sacred's Medicare administrative contractor, notified Sacred of a potential Medicare billing issue back in September 2018 and Grossman immediately tasked an employee, Kurt Lazarus, with ascertaining which claims had been improperly billed to Medicare. Approximately five months after the hospital was put on notice of the potential billing issue, Lazarus completed Sacred's internal inquiry. In February 2019, he sent an email and spreadsheet to several members of management (including Grossman) providing a preliminary list of nine hundred potentially erroneous Medicare claims with potential overpayments totaling more than US$1 million and noting that a billing supervisor, Alpa Chino, seemed to be the source of the billing errors. Four days later, Lazarus's employment was inexplicably terminated and the hospital has since then done nothing further with Lazarus's work. Grossman is much too busy to deal with all of this and is hoping the CFO can figure out what to do next. You get off on your floor with your mind racing with concerns about the conversation that you just heard. Later that week, when having lunch with one of the cardiologists, Dr. Portnoy, in Sacred's cafeteria, Portnoy indicates to you she is angry about her compensation under her medical 3 director arrangement for Sacred's cardiac division. She notes to you she believes there "must be a compliance problem" because she was not paid for all the cardiac catheterization referrals she has made to Sacred, which she was promised under her arrangement with Speedman. Portnoy notes that her medical director arrangement was not formalized in a contract but that its terms are laid out in various emails with Speedman, including the electronic signatures of both Speedman and Portnoy. Portnoy indicates she has been a medical director at Sacred under these same terms for two years but that for about six months, instead of the referral bonus of $500.00 per cardiac catheterization, she is only getting paid her medical director salary of $500,000. She tells you that she does not do much under her medical director arrangement and she only spends about thirty minutes a week for approximately ten weeks of the year. She notes that she is the biggest cardiac referral source at Sacred and asks you to make sure she "gets hers." She also notes to you that this arrangement was solely reviewed by Speedman personally. You consider contacting Speedman to get more information but decide not to. The last time you spoke to him he was quite angry with you for trying to persuade him to attend the new compliance training you had implemented when you first started at Sacred. When you returned to your office after lunch that day, you saw that Grossman had plopped a number of lease arrangements on your desk and asked you to review them from a compliance standpoint. From your review, you gather that they are lease arrangements for medical office space between Sacred and physician referral sources. In all of these lease agreements Sacred is the lessor and the physician or physician group is the lessee. You notice that the agreements appear to evidence the entire agreement in writing, are signed by the parties, and specify the premises covered. The arrangements, however, contemplate terms of one year and have all expired as of last month. The rental per month is accompanied by a fair market valuation by a reputable appraiser, which appears to have been followed. Further, these rental amounts are flat in nature and do not vary except based on the square footage leased by the subject physician. Sacred also owns an affiliated ambulance company, Sacred EMT. When heading out of the office a few days ago, you struck up a conversation with one of EMT's ambulance dispatchers, Kevin Sandusky. Sandusky indicates that he thinks Sacred EMT would "go under" if it weren't for the lucrative "arrangements" they have made with local municipalities. Under these deals, Sacred EMT offers surrounding Oregon county officials (who have the authority to select ambulance providers) free use of Sacred EMT's "Chateau D'ff" in Breckenridge, Colorado, for annual ski trips. Sandusky also indicates to you that Sacred EMT managers are the biggest donors to these local officials' political campaigns. The funding for both Chateau D'ff and the political contributions originate from what Sandusky describes as a Sacred EMT "slush fund" funded by Sacred Secular. Today, Grossman called you into his office for a meeting. He is especially excited about a potential investment between Sacred and a local laboratory, Liquid Gold Ventures LLC. Liquid Gold is looking to be the next big thing in point-of-care laboratory test delivery and service as a full-service reference lab for confirmatory testing. Point of Care Testing Liquid Gold has developed a "new and improved" point-of-care urine drug test cup that it is beginning to market to the hospital and physician community at large. It believes it can beat out many of the other players such as Quest Diagnostics in this space with this test. The cup is embedded with a dipstick that provides immediate results to the administrator of the test and can detect any drugs that may be in a patient's system with astonishing accuracy, 99.99 percent, which is better than 4 most complex drug screening tests conducted in a laboratory. Such cups would usually cost a provider upward of $150.00 each. However, Liquid Gold indicates they will provide the cups free of charge to any provider who agrees to send any drug test, regardless of initial result, to Liquid Gold for confirmatory testingjust to be safe. Liquid Gold's biggest payors are Medicare and Medicaid. Grossman is thinking of having Sacred invest in Liquid Gold because Liquid Gold is offering to sell a stake in its laboratory to the hospital for below FMV on terms that no other investors in Liquid Gold have been offered. Grossman has asked you to review Gold Ventures initial offer and current operations to see if their offer of providing the cups to Sacred and the potential investment poses any compliance risk. The current (and founding) members of Sacred are looking to leave Portland in the next few years, believing the city has become "too mainstream" to effectively carry out the hospital's current mission. They have decided to engage an outside compliance consultant to prepare them for a potential sale. Grossman has asked you to collaborate with the outside consultant about any current concerns (Grossman thinks there will likely be none) and be prepared to make a presentation to the board of directors. You are beginning to feel anxious about how you are going to make time to work with the compliance consultant. You already have too much on your plate. And you have certainly never met with or interacted with the board before. Usually you report to the hospital's general counsel. ************************************************************************** A. Please identify and analyze any concerns that you have under the fraud and abuse statutes and regulations studied in this course. B. Please summarize any compliance concerns and make recommendations using the DHHS Office of Inspector General "seven effective elements" framework to organize your response. C. Considering both the legal and compliance concerns, please summarize what actions you believe Sacred should take and explain why.