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Doctors allege for-profit owner of two local hospitals committed Medicare fraud and offered kickbacks

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[Left] DR. STEVEN FOLSTAD, CEO of Mid-Atlantic Emergency Medical Associates and former medical director of emergency department at Davis Regional Medical Center in Statesville. [Right] DR. THOMAS MASON. former medical director of emergency department at Lake Norman Regional Medical Center in Mooresville. One of about 60 doctors in Mid-Atlantic Emergency Medical Associates.

Echoing other complaints across the country, two Charlotte-area emergency room doctors allege the for-profit company that owns hospitals in Mooresville and Statesville offered them illegal kickbacks to order unnecessary tests and admit more patients to increase corporate revenues.

Drs. Thomas Mason and Steven Folstad, of Mid-Atlantic Emergency Medical Associates, filed the lawsuit in 2010 in U.S. District Court in Charlotte against Lake Norman Regional Medical Center in Mooresville, Davis Regional Medical Center in Statesville, and their owner, Health Management Associates, the fourth-largest for-profit hospital chain with 71 hospitals in 15 states.

The so-called whistle-blower lawsuit was sealed while federal investigators looked into the doctors’ complaints. But the suit was unsealed in December after the U.S. Department of Justice decided to join the suit in connection with some of the doctors’ claims against HMA. The Justice Department has also joined seven other lawsuits against HMA in other states.

It is standard practice for hospitals to contract with private physician groups to staff their emergency departments. Mason and Folstad claim their group’s long-standing contracts to provide emergency care at Lake Norman Regional and Davis Regional were terminated in 2010 because they refused to accept “illegal cash inducements” and resisted pressure to meet “corporate benchmarks” to maximize profits.

“These practices interfered with the (ER) physicians’ independent medical judgment regarding the best treatment for the patient,” the lawsuit says.

Citing the federal False Claims Act and similar laws in North Carolina and five other states, the lawsuit seeks to recover “millions of dollars” collected by HMA from Medicare and Medicaid, government health programs for the elderly, low-income and disabled.

“This is a massive, nationwide fraud on the American taxpayers that subjected patients to unnecessary tests and hospital admissions,” said the plaintiffs’ lead counsel, Marc Raspanti of Philadelphia.

In addition to HMA, the doctors sued Emergency Medical Services Corp., a for-profit corporation that provides physician practice management services in emergency departments, including many HMA hospitals. For one year, EmCare replaced the Charlotte emergency group, which had contracts as the exclusive provider of emergency services at Lake Norman from 1996 to 2010 and at Davis Regional from 2000 to 2010.

Allegations denied

In a prepared statement, officials of HMA denied the allegations but said they have cooperated with the Justice Department. “The existence of the government’s investigation… has been disclosed for some time in HMA’s public SEC filings.…HMA intends to contest the allegations.”

In an interview, Kirk Ogrosky, a Washington-based lawyer for HMA, said if the plaintiffs’ claims are true, admissions at the Mooresville and Statesville hospitals should have increased after Pro-Med was implemented in 2008. Citing federal data, he said Lake Norman Regional’s admissions from the ER were “consistent” from 2008 to 2011. The data show a 12.5 percent admission rate in 2011, down from 13.2 percent in 2008 and only moderately higher than the 2009 and 2010 levels of 11.4 percent.

“There will always be doctors who believe that any effort to manage them is designed to interfere with their medical decision-making,” Ogrosky said. “The question is whether a single doctor knows better than everyone else.”

The Naples, Fla.-based hospital chain also dismissed criticism in 2012 from a “60 Minutes” investigation that quoted doctors and other former HMA employees who alleged the company aggressively pressured doctors to admit a certain percentage of patients from the emergency room, regardless of whether it was medically necessary.

2009 email cited in suit

The Charlotte-based lawsuit claims HMA systematically tried to increase its revenues in three ways:

•  By using computer software, called Pro-Med, to automatically order expensive batteries of tests for ER patients, based on their initial complaints and usually before they were seen by physicians. The company monitored each hospital’s performance against “corporate benchmarks” and “harassed” the doctors who failed to measure up, Raspanti said.

•  By requiring emergency departments to admit at least 50 percent of Medicare patients, without regard to medical necessity. As independent contractors, Mason, Folstad and other doctors in their group did not have privileges to admit patients to hospitals. They said HMA mandated that they call the private doctor for every Medicare patient who came to the ER to try to persuade those doctors to admit their patients, the lawsuit said.

“HMA would challenge (ER) physicians … to justify why they did not admit all patients age 65 and older,” the lawsuit said. “… HMA’s mandates for minimum admission rates result in hundreds of millions of dollars in illegal charges each year. This is in addition to illegal charges related to unnecessary tests.”

The lawsuit quoted an August 2009 email from an HMA executive to emergency department nurse managers and directors: “Big declines in (over) 65 admissions – You know what to do!”

•  By providing cash incentives to emergency room doctors who “pushed their fraudulent benchmarks for unnecessary tests and unnecessary admissions,” the lawsuit said. At Lake Norman’s emergency room, the suit said HMA offered each doctor $2,000 per quarter for each of six corporate benchmarks met. Given the number of doctors in the group, “these kickbacks … could total $250,000 per year.”

According to the lawsuit, Mason and Folstad complained about these practices repeatedly to officials at all levels of the corporation.

Mason was medical director of Lake Norman’s emergency department from 1997 to 2010. Folstad was medical director at Davis Regional’s emergency department from 2000 to 2008, when he became CEO of the Mid-Atlantic group, which continues to provide emergency services for three other Charlotte-area hospitals owned by Novant Health.

The group’s contracts with Lake Norman Regional and Davis Regional were valued at a total of $6 million per year. He said the group had 52 doctors in 2010 and now has 41.

Raspanti says he does not yet have an up-to-date estimate of the amount of damages sought. Under the False Claims Act, the government has the right to recover losses, which can be tripled, and to get penalties of up to $11,000 per claim. The doctors want to recover losses resulting from the termination of their contracts, and the law allows for those damages to be multiplied.

‘Good practice’ in place

HMA’s lawyer Ogrosky, who previously investigated health care fraud for the Justice Department, defended the practice of using computer programs to standardize hospital practice.

“The software protocols at issue were designed by doctors, reviewed by doctors, and implemented by doctors. It reduces risk and attempts to protect patients by assuring that physicians don’t miss standard and appropriate medical tests and treatment. … Alerting physicians to standard tests and admissions criteria is not pressure, it is good management.”

He added: “It’s good practice for ER doctors to call a patient’s primary care doctor if the ER doctor is considering admitting the patient to the hospital. To allege that it is fraud to encourage ER doctors to call primary care doctors is absurd.”

HMA is in the process of being acquired by Community Health Systems, a Franklin, Tenn.-based for-profit hospital chain. If the merger is approved, Community Health Systems will become the largest for-profit hospital company in terms of number of hospitals, with a total 206 hospitals across 29 states.

Garloch: 704-358-5078
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