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David Chandler was appointed to serve as chairman of Tri-Lakes Medical Center (TLMC), a community hospital in Panola County, Mississippi. As chairman, Chandler set board meeting agendas, regularly dealt with the administrator and communicated with department heads to obtain various reports. Chandler also arranged for the hospital’s administrator to meet with a nurse staffing company. Shortly after this meeting, Chandler requested the staffing company pay him $5.00 for each hour it billed to TLMC for nurse services. The fee, according to Chandler, was in return for ensuring that TLMC used the staffing company.

After the hospital entered into a signed agreement with the nurse staffing company, Chandler authorized a $50,000 raise for the administrator, whom he lobbied to use the staffing company on a monthly basis. To that end, the company received 40 percent of the hospital’s nurse staffing business and typically was the first vendor TLMC paid each month. In total, approximately $2.3 million was paid by TLMC for nursing services from the staffing company, which earned Chandler $268,000.

Knowing it could not pay kickbacks, the staffing company instructed Chandler to create invoices for payment that did not directly correlate to billed hours but rather looked as if they were for consulting or tax services. The memo “accounting fees” or “accounting services” appeared on the checks from the staffing company.

Just prior to the sale of the hospital, the administrator was invited to a meeting by Chandler with the staffing company’s president. The administrator and the president chatted privately after Chandler was excused from the meeting by the staffing company’s president. The administrator later alleged he was promised $25,000 by the staffing company to maintain the flow of nurse staffing hours following the sale of TLMC.

This amount was later disputed by the staffing company. To keep the peace, Chandler agreed to pay the administrator $2,000 per month out of his payments from the staffing company. When the FBI began its investigation, Chandler and the administrator agreed to treat these payments as a loan, despite the administrator’s initial denial to the FBI that he was receiving money from Chandler. After Chandler began cooperating with the FBI, the administrator and staffing company president were indicted and convicted by a jury of federal program bribery and paying and receiving kickbacks under the Medicare anti-kickback statute (AKS).

The district court, however, set aside their convictions because Chandler did not have direct authority over the ultimate decision to order temporary nurses. The <a href="http://f.datasrvr.com/fr1/514/26308/12-60791-2014-03-25.pdf" target="_blank" rel="noopener">Fifth Circuit Court of Appeals</a> later reinstated the convictions under the federal bribery statute and the Medicare AKS.

This case highlights two important issues:
<ol>
	<li>The need to train hospital board members on fraud and abuse compliance; and</li>
	<li>That kickbacks can result in violations of more than just the Medicare AKS, both at the federal and state levels, and that permissible conduct under the statutes is not always the same.</li>
</ol>
The AKS criminalizes knowingly and willfully offering, soliciting or paying or receiving any remuneration (including any kickback, bribe or rebate) to any person to induce a person to refer a person or to purchase, lease, order or arrange for or recommend purchasing, leasing or ordering any good, facility, service or item for which payment may be made in whole or in part under a federal healthcare program.

In this case, the defendants attempted to argue that their anti-kickback convictions were improper because, as “Chandler had no decision-making authority in regard to the actual procurement of nursing staff,” he could not be a “relevant decisionmaker.” They were initially successful when the district court held that “liability cannot attach unless the ‘person’ who receives remuneration is a ‘relevant decisionmaker’ with formal authority to effect the desired referral or recommendation.”

The Fifth Circuit, however, held that the staffing company’s intent that Chandler “exploit his personal access to TLMC executives, including [the administrator], and to ensure that TLMC favored [the staffing company was] … an archetypal example of undue influence prohibited by the anti-kickback statute.” The AKS covers attempts to induce persons “who leverage fluid, informal power and influence.” Thus, directors and trustees must be aware of the broad reach of the AKS and the potential compliance risks when dealing with third parties.

Often fraud and abuse kickback analysis ends with a review of the AKS. However, there are other state and federal statutes that can criminalize similar conduct, and they should be considered when evaluating a transaction.

In this case, for example, the court addressed the Federal Bribery Statute, 18 U.S.C. § 666. This statute, applicable to any organization that receives, in any one year period, benefits in excess of $10,000 under a federal program involving a grant, contract, subsidy, loan, guarantee, insurance or other form of federal assistance, prohibits an agent of such an organization from soliciting or demanding, or accepting or agreeing to accept, anything of value from any person, to influence any business, transaction or series of transactions of such organization, involving anything of value of $5,000 or more.

Under the bribery statute, a third party generally is prohibited from giving, offering or agreeing to give anything of value to any person, with intent to influence or reward an agent of an organization in connection with any business, transaction or series of transactions involving anything of value of $5,000 or more. A person is an “agent” if the person is authorized to act on behalf the organization and includes servants, employees, partners, directors, officers, managers and other representatives.

In this case, the defendants argued that TLMC’s chairman (Chandler) did not have authority to control the purchase of nursing services and therefore could not be TLMC’s agent. The Fifth Circuit held that Chandler was an agent of TLMC as he had general authority to act for TLMC and to control its funds. He did not have to have authority to act with respect to the particular expenditure. Indeed, the Fifth Circuit stated that because “lines of authority are often blurred, to criminalize only bribes paid to individuals with direct, formal authority to effect a desired outcome would render § 666 virtually meaningless.” Further, the statute “does not require that federal funds be directly linked either to the bribe or to the agent … [and] the funds in question need not be purely federal, nor must the conduct in question have a direct effect on federal funds.”

This highlights the need for directors and trustees to have a broad understanding of the fraud and abuse laws that address their actions with a healthcare provider.

For more information, please contact Robert M. Wolin, <a href="mailto:rwolin@bakerlaw.com">rwolin@bakerlaw.com</a> or 713.646.1327.

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