CEO SUMMARY: On June 30, 2006,three former executives of UroCor,Inc.,accused by the U.S. Attorney of anti-kickback and securities violations, stood and heard the jury verdict in their case. “Not guilty on all counts,” stated the jury foreman. Thus ended the effort to convict former executives of a public lab company of violating Medicare anti-kickback laws because of how they used certain sales and marketing practices.
LAST MONTH, THREE FORMER EXECUTIVES of UroCor, Inc., accused of violating federal anti-kickback and securities laws, went toe-to-toe with the U.S. Attorney in a criminal trial in Oklahoma City and convinced the jury to vote for acquittal on all counts.
This trial is a significant event for the laboratory industry. That’s because, whenever the federal government issues criminal indictments against laboratory managers for violating Medicare laws, it is the ultimate enforcement action. Therefore, the indictment, pre-trial maneuvering, the trial itself, and the final decision by the judge or jury offer useful insights about how government healthcare prosecutors believe the laws should be interpreted, obeyed, and enforced.
The UroCor case is noteworthy for another reason. THE DARK REPORT believes this case is the first time that federal prosecutors have indicted executives from a public laboratory company for criminal violations of federal anti-kickback laws. Most high-profile criminal convictions of executives from public laboratory companies during the past 15 years have been for violating Medicare fraud and abuse statutes or securities laws. (See TDR, June 20, 2005.)
In this case, two of the three ex-UroCor defendants were accused by the federal attorney of anti-kickback violations during the years 1993-1999. As described in the indictment, these violations stemmed from discounted pricing and similar marketing practices commonly used to sell laboratory testing services.
Because of this line of reasoning, the trial and its acquittal have many compliance lessons to teach. However, for reasons to be explained elsewhere in this issue, the UroCor trial and its outcome is likely to increase confusion rather than to add clarity.
Count One: Anti-Kickback
Facing one count of “conspiracy to provide kickbacks” in violation of Title 42, United States Code, Section 1320a- 7b(b)(2)(A) was William A. Hagstrom (Chairman, President and CEO from 1989 through 1999) and Mark G. Dimitroff (employed at UroCor from 1990 to 1999 as Vice President of Sales and Marketing).
Facing a second count of “conspiracy to commit securities fraud in violation of Title 18, United States Code, Section 371” was Hagstrom and Michael N. McDonald (employ- ed from 1992 to 1999 as Chief Financial Officer). These two indictments were announced on June 16, 2004 by Robert G. McCampbell, United States Attorney for the Western District of Oklahoma. (See TDR, July 19, 2004.)
The trial, which commenced on June 12, 2006, lasted almost three weeks. The jury deliberated approximately seven hours and acquitted all three defendants on all counts.
In the anti-kickback portion of the trial, discounted pricing, also known as “client billing,” was one sales practice that was scrutinized. In the indictment, “the offer of ‘special pricing’ discounts” is described as a criminal act, saying that “Hagstrom and Dimitroff and other unindicted co-conspirators encouraged UroCor sales representatives to offer substantially discounted pricing for laboratory tests for non-Medicare patients in return for the referral of Medicare business. Discounted or ‘special pricing’ was offered to those doctors who the sales representatives determined were ‘hard-to-close’ accounts and had a significant number of Medicare patients. UroCor priced some laboratory tests substantially below the Medicare reimbursable rate and in some cases below UroCor’s own cost of performing the tests.”
Prosecutors zeroed in on the fact that, in some cases, UroCor’s price to some physicians was less than its marginal cost, even as it continued to submit claims to Medicare for full reimbursement. The indictment lists the Medicare reimbursable rate for a PSA test in 1994 as $27.33. It also documents how UroCor offered doctors a PSA rate of $12.00 in 1992 for non-Medicare patients. This rate was lowered to $7.00 in 1994 and further lowered to $5.50 in 1997. UroCor priced PSA tests to at least one urology client at $2.75 per test.
During the trial, Hagstrom and Demitroff’s attorneys rebutted these points with some arguments that will surprise many attorneys and laboratory managers who closely study laboratory compliance. These arguments are covered in more detail in the story on pages 9-16.
UroCor was accused of criminal anti-kickback violations involving two other sales programs it offered during the years 1993-1999. One program was known as IRA, which stands for insurance reimbursement assessment. Between 1992 and 1999, UroCor used this sales tactic in situations where it did not hold managed care contracts.
UroCor used the program to encourage doctors to send all their laboratory business to UroCor, including Medicare and out-of-network specimens. The federal attorney claimed that this program provided a benefit to doctors by saving staff time that would be spent packaging and sending the specimens to different laboratories as required by their patients’ managed care plans.
On this subject, the indictment continues, “In return for doctors agreeing to send UroCor all their laboratory business during the term of the IRA agreement (including their Medicare business), UroCor agreed to accept as full payment any amount (including a full denial of benefits) paid by managed care organizations to out-of-network providers, such as UroCor, for the patients’ laboratory services. In addition, UroCor agreed not to send statements to managed care patients for any balance not paid by the patient’s insurance when UroCor was an out-of-network provider. This eliminated doctors’ concerns that their patients would be penalized financially as a result of the doctor using an out-of-network lab.”
Pacts Never Terminated
In describing the impact of this tactic, the indictment makes these points: 1) the IRA agreement forms stated that they were to last 90 to 180 days. In reality, “the agreements remained in effect until the program was terminated in April 1999”; 2) IRA agreements were offered “to doctors whose volume of Medicare business assured profitability to UroCor…Neither the Medicare program nor its patients received any benefit from UroCor under an IRA agreement.”
The indictment next states that Hagstrom and Dimitroff were advised, “by legal counsel, government fraud alerts, and UroCor employees” that such IRA agreements needed to be cancelled after the 90-to 180-day expiration to avoid concerns that they were inducements to the doctor in return for referral of Medicare patients. The point about the lawyers’ advice on this and other compliance topics came up during the trial and was used by federal prosecutors. It will be commented upon in the story found on pages 9-16.
Most Federal Indictments Lead to Convictions
IT IS WORTH NOTING TWO UNUSUAL ASPECTS involving the indictment and trial of the three ex-UroCor executives. First, none of the three decided to resolve their case by a plea bargain. Second, the three defendants showed unity and presented a common defense against the criminal allegations facing them.
The conviction behind these decisions is best illustrated by the odds they faced. “Statistics show that 95% of all federal indictments are resolved by a plea bargain with the defendant,” stated Reid Robison, attorney with McAfee Taft in Oklahoma City, Oklahoma. Robison was lead counsel for defendant William Hagstrom.
“The remaining 5% of federal indictments go to trial,” continued Robison. “Seventy-five percent of those defendants are convicted.” Using Robison’s statistics, for every 100 people indicted of a federal crime, less than two will be acquitted.
Facing these odds, the decision by the three defendants to plead “not guilty” and go to trial can be taken as a sign of their earnest belief that they had violated no laws. And since federal prosecutors can create incredible pressure to get a single defendant to agree to provide evidence for the state, the fact that none of the “UroCor Three” decided to accept a plea bargain agreement and testify against the other two further reinforces that conclusion.
UroCor put IRA agreements to extensive use. At one point, IRA agreements were approved and in effect for 800 doctors.
As described in the indictment, UroCor’s IRA agreements allowed it to get a physician’s account even though it was an out-of-network provider for one or more of the key managed care plans that covered the physicians’ patients. UroCor would not charge the managed care plan for the test, nor would the physician or patient get a bill for that test.
…UroCor’s IRA agreements allowed it to get a physician’s account even though it was an out-of-network provider for one or more of the key managed care plans that covered the physicians’ patients.
This arrangement resulted in “free testing.” It seems to have close parallels to the “waiver of charges to managed care patients” tactic enabled by the OIG’s fraud alert of December 1994 and used in today’s lab market- place by a number of laboratory companies. This is another point that was raised during the jury trial.
The final program identified in the indictment as a violation of anti-kick- back laws was UroCor’s use of consulting services contracts. As described in the indictment, to retain a urologist’s business, UroCor would enter into a “consulting services agreement.” A sum of money was to be paid to the doctor. The doctor, per the agreement, was to document the consulting services provided to UroCor in monthly reports. The indictment goes on to list examples where UroCor paid specific urologists amounts totaling $36,000 to $75,000 per year and noted that there was no evidence that any of these urologists filed a monthly statement documenting the consulting services they provided UroCor in return for these payments.
In the second count, which covered violations of the securities laws, Hagstrom and McDonald were accused of such things as misleading investors when making public statements, withholding information and misleading its public accounting firm during audits, and booking revenues from tests for which it never intended to bill. (This violation is linked to how UroCor was accounting for specimens covered under the IRA agreements, for which it would not bill payer, physician, or patient.)
Securities violations claimed in this count don’t relate closely to clinical laboratory and pathology group compliance with Medicare fraud and abuse, anti-kickback, and self-referral (Stark) laws. For that reason, THE DARK REPORT will not devote much discussion to how the defense rebutted this count during the jury trial.
Willing To Indict
Many laboratory sales and marketing practices still in wide use today are described in the indictment. Even as the laboratory industry debates whether or not such practices are fully compliant with various federal regulations and laws, here’s a real-world example where one U.S. Attorney viewed them as violations and believed this position was strong enough to prevail in court. The result was criminal indictments of three lab executives and a court trial.
To provide further insight and intelligence into this case, THE DARK REPORT interviewed the three defense attorneys. Their comments and conclusions are on pages 9-16.