Michigan Derm Convicted On 31 Fraud Charges

At trial, federal prosecutor opts not to pursue 35 counts relating to fraudulent billing of lab tests

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CEO SUMMARY: Last year, dermatologist Robert W. Stokes, D.O., of Grand Rapids, Michigan, was indicted by the federal government for 72 counts relating to various offenses, including upcoding, and improper coding. Of this total, 35 counts against Stokes involved his billing payers for laboratory tests he did not perform and laboratory services that he did not render, in violation of Title 18, United States Code, Section 1347.

FEDERAL PROSECUTORS HAVE INDICTED, TRIED, AND CONVICTED a dermatologist in Michigan. The dermatologist faced 72 counts of billing fraud, including 35 counts of improper billing for laboratory testing services. Today, the dermatologist awaits sentencing after being convicted on 31 counts of billing fraud in April.

In an indictment filed last year in the U.S. District Court for the Western District of Michigan, Southern Division, federal prosecutors said the defendant Robert W. Stokes, D.O., a dermatologist in Grand Rapids, Michigan, had fraudulently billed for services he did not perform. The government originally sought a judgment of $1.04 million, representing the amount Stokes obtained fraudulently, according to the indictment.

Since the indictment was handed up, THE DARK REPORT has tracked this story because of the 35 criminal counts relating to improper billing of lab tests by Stokes. However, principles in the case have refused to discuss the details, making it difficult to develop a legal analysis of the federal prosecutor’s case and Stokes’ defense. Even following the conviction, few details of the case have been made public.

The federal indictments and the successful conviction of Stokes by the U.S. Attorney in the Western District of Michigan are important developments for both the laboratory industry and physicians involved in discounted billing (client billing) arrangements for laboratory tests. It shows both laboratories and the physicians they serve that billing arrangements that fall outside the law can subject the participants to criminal action.

Stokes Convicted in April

Stokes was indicted on June 27, 2006. His trial took place in April, when it was announced by U.S. Attorney Charles R. Gross that, after one day of deliberation, a jury had convicted Stokes, age 55, on 31 counts of health care fraud. Although the specific counts under which Stokes was convicted have not been made public, THE DARK REPORT has learned that during the trial, the federal prosecutor chose not to pursue the laboratory billing fraud charges.

Nevertheless, because of his conviction on the 31 other fraud charges, Stokes faces a maximum penalty of 10 years in prison and a $250,000 fine for each count. Sentencing is scheduled for October 24, 2007. Currently Stokes is free on bond. He has also agreed to cease the practice of medicine.

Feds Are Willing To Indict

The case is significant to pathologists and lab directors. First, it demonstrates that federal prosecutors are willing to indict a physician for violations of federal law in how laboratory tests are marked up and billed to payers. Second, laboratory test reports played an important role in identifying for federal investigators how Stokes violated the law and how he improperly coded and billed for his professional services.

According to the 72-count indictment, Stokes is a board-certified dermatologist who submitted claims to Medicare, Blue Cross Blue Shield of Michigan (BCBSM), Tricare, and Aetna between August 2001 and December 2004. The indictment says Stokes billed for services he did not perform, including laboratory services that he did not render.

“Defendant Stokes also executed his scheme and artifice by billing BCBSM, Aetna, and Tricare for laboratory services that he did not render,” the indictment says. “In order to receive reimbursement for a service, a participating provider, such as Stokes, must certify that he personally performed the service and that the service was performed at this office. Stokes routinely billed BCBSM, Aetna, and Tricare for laboratory services that were rendered by independent outside laboratory facilities and then billed to Stokes. Moreover, Stokes not only billed for the services that he did not perform, but he inflated the cost of the services by adding a ‘mark up’ to his costs.”

At the same time that Stokes was marking up and filing claims for laboratory tests, he was also routinely upcoding office surgical procedures. The indictment notes that this meant Stokes submitted claims for a more complex level of treatment than he performed, thus earning a higher level of reimbursement.

There were instances when Stokes billed for what the indictment calls an “adjacent tissue transfer” when, in fact, he performed a less complex procedure. Billing for this service caused him to receive a higher level of reimbursement than what he should have received. An adjacent tissue transfer involves creating a flap of skin to cover a defect created by removing a lesion.

Stokes also upcoded claims for doing lesion removals. CPT codes for lesion removals are based on size, thickness, and the nature of the lesion removed. The indictment says Stokes received more reimbursement than he should have been entitled to by billing for the removal of large lesions when in fact he had removed smaller lesions.

Stokes billed BCBSM, Medicare, and other insurers for office visits that were not separately reimbursable, the indict- ment says. “When providers bill insurance companies for office surgical procedures, the reimbursement they receive for the procedure includes the office visit,” the indictment says. “A provider was entitled to separate reimbursement for the office visit if, and only if, the provider indicated on the claim that the office visit was for a significant, separately identifiable evaluation performed on the same day as the procedure.”

Private Payers, Not Medicare

THE DARK REPORT observes that the Stokes case is noteworthy because a U.S. attorney was willing to investigate and indict this physician for an ongoing pattern of billing violations, including filing improper claims for laboratory services. Moreover, the 35 counts of laboratory billing fraud do not involve the Medicare program. Stokes was indicted for filing fraudulent lab testing claims against Blue Cross Blue Shield of Michigan, Aetna, and TriCare. These indictments against Stokes may be relevant as an indication of the current thinking among federal investigators.

Despite the unwillingness of the prosecution and the defense to publicly discuss the specific details of this federal case and the resulting conviction of Stokes, that does not alter a key fact. A significant part of this criminal case was built upon fraudulent billing by an office-based physician for laboratory tests he did not perform, under some type of client billing arrangement with his lab provider. This aspect of the case is analyzed in the intelligence briefing that follows.

Pathology Reports Help FBI Agents Build Case Against Stokes for Fraudulent Claims

ONE DEPOSITION FILED In the federal criminal case against dermatologist Robert W. Stokes, D.O., of Grand Rapids, Michigan, reveals how pathology reports were used by the FBI as evidence of the fraudulent claims filed by Stokes.

In his deposition, FBI Special Agent Mark Squeteri said that the investigation into Stokes began after the FBI received complaints from Medicare patients. Squeteri and his colleagues set about to review the billing and pathology records of patients treated by Stokes.

Squeteri reported that Stokes had been investigated earlier. In 1998, Stokes was the subject of a Medicare administrative hearing on whether he had properly billed for removal of lesions based on the actual size of the lesion. The hearing officer in this earlier case found that, in every instance where size could be determined, Stokes had billed for a lesion larger than the lesion that was removed. The hearing officer ruled that Stokes was responsible for repaying overpayments from Medicare.

Fraudulent Claims

Squeteri also reported that he had received complaints from BCBSM’s anti-fraud hotline, alleging that Stokes had billed for services not rendered and for removing malignant lesions, which according to pathology reports, were benign. Squeteri described an instance where one complainant reported that Stokes had removed a spot from her hand and told her she had skin cancer. When the complainant sought a second opinion, she learned the spots on her hand were age spots. The second physician obtained a copy of the pathologist’s report and found the lesion Stokes had removed was benign, even though Stokes had billed for the removal of a malignant lesion.

Squeteri reviewed Stokes’ Medicare billing records between 1999 and 2001. He found that Stokes routinely billed for removing malignant lesions and for removing the largest sized tumors, thus generating the largest payments.

During his investigation, Squeteri found that Stokes was referring the biopsies he removed to Hilbrich Dermatopathology Laboratory, Inc., in Garden City, Michigan, for independent examination. FBI Agent Squeteri pulled 51 claims randomly from Stokes’ office. He compared the insurance claims submitted by Stokes against the pathology reports issued by Hilbrich Dermatopathology Laboratory.

“In each of the 51 cases, Stokes billed for the removal of a lesion larger in size than the lesson that was removed,” wrote Squeteri. “Also, in about one-third of the instances in which Stokes billed for removing a malignant lesion, the pathology report identified the specimens as benign. These misrepresentations caused Medicare and BCBSM to pay Stokes more than he was entitled to receive.”

It is an interesting aspect to this federal criminal case that the FBI used the original pathology reports as evidence to demonstrate that Stokes was filing fraudulent claims. It is a reminder that laboratory test data is a primary source of objective information about the patient’s condition and can be used as a way to confirm that the physician made the proper diagnosis and followed appropriate guidelines to treat the patient.

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