Path Group Responds to FBI Visits in Stokes Case

Dermatopathology lab chooses to cease deeply discounted client billing after FBI visits

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CEO SUMMARY: As the FBI launched its investigation of fraudulent billing by Michigan dermatologist Robert W. Stokes, D.O., two years ago, staff at several pathology labs found themselves “up close and personal” with federal healthcare fraud prosecutors. One pathology lab, based on what it learned, decided to revamp its compliance program. It ceased deep discounts on client bill accounts and moved its prices closer to Medicare fees.

DURING THE FBI’S INVESTIGATION of fraudulent billing by Michigan dermatologist Robert W. Stokes, D.O., pathology laboratories doing business with Stokes were visited. In one case, interaction with federal fraud investigators led pathologists to cease offering deeply discounted client bill pricing to dermatologists and other physician clients.

FBI Special Agent Mark Squeteri visited pathology laboratories that maintained accounts with Stokes, seeking evidence against the dermatologist. In his deposition described in the sidebar on page 9, agent Squeteri described how he had reviewed the lab testing records of Hilbrich Dermatopathology Laboratory, Inc., in Garden City, Michigan. Squeteri used those records when building the federal case against Stokes. The investigation led directly to his conviction.

In THE DARK REPORT’S own research about the Stokes case and what it means for federal enforcement of various statutes that govern laboratory billing, it uncovered another Midwest pathology laboratory that provided lab testing services to Stokes during the time he submitted fraudulent lab test claims identified in the indictment.

Staff at this laboratory told THE DARK REPORT, off the record, that it had cooperated fully with the FBI investigation and that at least one of its employees was deposed and subpoenaed to testify at Stokes’ criminal trial last April.

FBI Investigates Stokes

These FBI inquiries took place starting about two years ago. “We were implicated by [our business] association [with Stokes], but there were no criminal charges,” stated one pathologist at this laboratory. “The FBI was here, met with one of our staffers, and asked a lot of questions about lab billing. Of course, this staff member was represented by attorneys from our lab’s law firm.

“Since that time, we have closely followed the subject of lab discounts to client bill physicians and physician mark-ups on ancillary services,” he continued. “Since our laboratory provides testing services across state lines, we are now well-informed about how compliance laws and enforcement practices can vary from state to state. At the same time, it seems every laboratory company we compete with has a different legal interpretation about compliance, client billing policies, and price discounting.

Basing Fees On Medicare

“Even though prices offered by competing laboratories vary greatly, and compliance requirements are different from state to state, our laboratory decided it would be best for us to cease offering deep discounts from the Medicare fee schedule,” continued the pathologist. “We raised our rates to be closer to Medicare fee schedules.

“At the time, informed about many details about the Stokes case and how the FBI and federal attorney were proceeding, we considered this to be a prudent decision,” he added. “However, this was a decision that came with a lot of financial pain. As we announced our new pricing policy to clients, we lost about a third of our volume, which, of course, represented a lot of revenue.”

This pathology laboratory has survived its new pricing policy. “Financially, we are doing okay today,” noted the pathologist. “Because our fee schedule is in the same range as the Medicare fee schedule, we have a high confidence factor in our compliance program. There is peace of mind in that. Having watched the Stokes case unfold, from investigation to indictment to jury trial and conviction, we probably know more about how federal prosecutors put together a laboratory billing fraud case than any other pathology laboratory in this country.

Lab Competitors

“On the other hand, over the past two years, since the investigation started in the Stokes case, we have not seen any competing laboratories cease deep discounting for client bill accounts and move their prices up to a level close to Medicare fees,” observed the pathologist.

“In following the issue of labs offering discounted prices to physician-clients, we thought the federal Office of the Inspector General (OIG) was going to look at whether labs were discounting their rates,” he said. “We’ve been disappointed that the OIG has not done more on this issue.”

That situation may soon change. On July 2, the Centers for Medicare and Medicaid Services (CMS) published its proposed rules as part of the 2008 Medicare Physician Fee Schedule. A number of proposed rules specifically address physician mark ups on ancillary services. (See pages 15-18 for more on the proposed rules.)

In the meantime, the investigation, indictment, jury trial, and criminal convic- tion of dermatologist Robert W. Stokes, D.O., is a reminder that federal healthcare investigators remain willing to pursue prov- able cases of fraudulent billing, including claims for lab testing. There is still risk for laboratories and physicians to push the boundaries of compliance in these matters.

Threat Of Indictment

Federal authorities, of course, continue to hold the ultimate hammer: the threat of indictment. In the case of Stokes, the big news for the laboratory industry was the indictment itself. Of the 72 counts of fraud issued against Stokes, 35 involved fraudulent claims for lab tests. As the indictment states, Stokes “routinely billed …for laboratory services that were rendered by outside laboratory facilities and then billed to Stokes. Moreover, Stokes not only billed for services he did not perform, but he inflated the cost of the service by adding a ‘mark-up’ to his costs.”

Pathologists and laboratory directors should reflect on the decision by the Midwest pathology laboratory, following its interaction with the FBI and a U.S. attorney’s office, to cease deeply discounted billing and raise client bill pricing closer to the level of Medicare fees. Based on its intimate interaction with these federal officials, it was willing to endure a 30% decline in business to revamp and tighten its compliance policies to be consistent with what it had learned from federal prosecutors during the Stokes investigation.

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