CEO SUMMARY: Once again, government health bureaucrats are overreaching in their efforts to reduce spending and collect money from any source. A California pathologist has been hit with a Medi-Cal demand for $6.4 million in repayments, simply because he served as laboratory director for two lab companies that Medi-Cal knew had closed before auditors requested records. Without a successful legal challenge to this Medi-Cal position, a dangerous precedent may be set.
FOLLOWING AN AUDIT OF MEDICAID CLAIMS submitted by two now-defunct independent lab companies, California Medi-Cal officials took the unprecedented step of making the pathologist who served as laboratory director for these two labs personally responsible to repay alleged overpayments of $6.4 million.
Medi-Cal auditors concede that the laboratories—not the pathologist—received the payments. But Medi-Cal contends that the pathologist should be responsible to repay millions simply because he served as the lab director during the audit period.
This case has several troubling ramifications for pathologists, both in California and nationally. First, if an administrative law judge’s recent ruling is allowed to stand, California’s Medi-Cal program has a legal precedent that defines a laboratory medical director as a “provider.” Under Medi-Cal rules, a “provider” incurs a host of legal liabilities beyond the customary lab director role of testing oversight. Currently, laboratory directors are not required to enroll in Medi-Cal or sign any agreement to participate as a provider.
Second, because Medi-Cal is part of the federal Medicaid program, precedents established in this matter may inspire Medicaid officials in other states to similarly pursue pathologists serving only as laboratory medical directors. This would make them personally responsible for repayment of overpayments, penalties, and similar regulatory violations.
“Clearly, this ruling will affect other physicians who serve as pathologists for laboratories and potentially other physicians who serve in director roles for other licensed facilities,” stated attorney Dawn A. Brewer, of Beverly Hills, California. Brewer represents the pathologist in this case. “Physicians will be less likely to serve in these capacities, or will serve under different arrangements, if they will be subject to personal liability for funds they do not personally receive.”
The facts are straightforward. Two laboratories based in Los Angeles—Clinical Technical Laboratory (CTL) and Goodwill Diagnostic Laboratory (GDL) operated as corporations. During 1999, both laboratories were issued Laboratory Registration Certificates by CMS (then HCFA), along with Medi-Cal provider numbers and CLIA compliance certificates. These licenses and certifications listed pathologist Kazuo Yamazaki, M.D., as laboratory director. The certificates also listed the owners of the corporations.
Lab Firms Close in 2002
Between 1999 and January 2, 2002, both laboratories made claims to, and received payment from, the Medi-Cal program under their tax identification numbers. Yamazaki never billed the Medi-Cal program and never received payment from the Medi-Cal program. In early 2002, each lab received sanctions leading to revocation of the CLIA certificates. Each lab ultimately ceased testing.
Months after both lab companies ceased operations, the state Controller’s Office (SCO) initiated an audit of each lab’s payments from Medi-Cal. Auditors initiated a review of the laboratories even though the SCO knew that both lab companies had closed and gone out of business. The SCO findings for both laboratories reflect that “the telephone number listed was no longer in service” and “no business was in operation at the service address on file.”
“In neither audit was the SCO able to obtain any records to substantiate the billings by Goodwill or Clinical for the respective audit periods,” court records show. “On March 31, 2003, and April 3, 2003, the Department issued notices of alleged overpayments to the aforementioned laboratories seeking repayment of monies. Timely appeals were filed on April 29, 2003, for each facility.”
“Ultimately, auditors concluded that they had no records to review so they had to conclude that all the monies paid to these corporations should be repaid,” wrote Brewer in a letter to the California Clinical Laboratory Association (CCLA). “The auditors issued their findings, based upon a Medi-Cal provider’s [TDR emphasis] regulatory obligation to keep and make available records to support claims.”
Brewer next wrote, “Auditors testified that, after they had concluded their work, someone in the Department’s Office of Legal Services informed them that Business & Professions Code Section 1265 would render Dr. Yamazaki jointly and severally responsible to repay Medi-Cal for the overpayments to the corporations. Despite this, auditors did not include any such authority in their demands and neither did the Department.”
Here is the nub of this case. Without any attempt to find the owners of the closed laboratories, auditors contacted Yamazaki as the laboratories’ director because his address is listed with the Medical Board of California. Although Yamazaki explained that he had long since resigned from the laboratories and had no records of the laboratories’ Medi-Cal claims or payments, Medi-Cal officials applied an unusual and aggressive interpretation of a state statute to render Yamazaki personally responsible to keep and maintain the laboratories’ Medi-Cal records, although he had no continuing relationship with the laboratories and the businesses had closed.
Lab Director As “Provider”
When challenged on why or how a lab director could possibly maintain records he did not own or control, much of which would be in the laboratories’ electronic information systems, Medi-Cal officials testified that a “laboratory director” could be considered a “provider” under Medi-Cal. Thus, under the law, Medi-Cal providers are required to keep and make such records available. Having made this attenuated leap of logic, auditors then decided that Yamazaki, as the Laboratory Director for both lab companies, was thus personally responsible for the $6,372,492 that Medi-Cal seeks to recover.
Trial Scheduled for February
Following Yamazaki’s original appeals in 2003, the case slowly worked its way through the system. In October, 2006, Administrative Law Judge Michael A. D’Onofrio of the California Department of Health Services ordered Yamazaki to pay the $6.37 million. This summer, D’Onofrio denied Yamazaki’s appeal of the October 2006 decision. Following this ruling, Yamazaki filed suit. His case is pending and is scheduled to be heard on February 27, 2009, in the Sacramento County Superior Court.
“This is an overpayment matter,” said Brewer. “Medi-Cal wants to be repaid what it determined was overpaid to the laboratories. The State concedes that Yamazaki never received any payments. But the State insists that the laws that require Yamazaki’s name to be on the labs’ licenses also require him to repay overpayments made to the laboratories. No laboratory director who agrees to serve in this medical and scientific role has an understanding that he or she may be personally responsible for overpayments to the laboratory. We cannot imagine why a pathologist would agree to serve as a laboratory director in the future if this ruling stands.”
“The State’s sweeping interpretation of a “provider” could include anyone who works for a provider,” Brewer explained. “Under the finding of the administrative law judge, anyone serving as an officer or a director of a corporation can be considered as a provider. Of course, Yamazaki was neither an officer nor a director for these corporate laboratories. The Department’s interpretation of who is a provider includes anyone who might have some responsibilities for day to day operations of the provider. This reach goes much further and could include everyone from the receptionists and billers to administrators, accountants and attorneys as ‘managing employees and agents of the provider.’ That’s very far out there.
“It’s one thing to say that Medi-Cal wants those involved in an operation to comply with Medi-Cal standards for eligibility to serve beneficiaries and Medi-Cal standards for the quality of services. It’s quite another thing to say that the individuals who work for a provider are financially responsible for the provider’s overpayment. This is especially true where the provider must enroll under a written agreement with Medi-Cal but most employees never see the agreement—much less sign such an agreement.”
Friend Of The Court Briefs
This intelligence briefing in THE DARK REPORT is the first published news about Yamazaki’s battles against California’s Medi-Cal program. Dawn Brewer, his attorney, is seeking support for Yamazaki. She has asked the California Clinical Laboratory Association, the California Association of Pathologists, and the California Medical Association to consider filing amicus curiae (friend of the court) briefs in the case.
What makes this case worth watching is not just the novel legal theory by Medi-Cal auditors that a pathologist laboratory director is also a “provider,” thereby opening the door to new legal claims that could have chilling effect on the willingness of pathologist to serve patients in the Medi-Cal program. But there is the unanswered question as to why auditors—and the State Attorney—did not more vigorously look for the owner of record for the two lab companies in question. That is the individual with unquestioned legal responsibility…and also the person who got the money!