Westchester Medical Center Fined $18.8 Million over Alleged Kick-Back Scheme

Westchester Medical Center (WMC) in Valhalla and the United States Attorney’s office in New York have settled a civil fraud “kick-back” case, for which the hospital will pay a fine of $18.8 million, U.S. Attorney Preet Bharara announced.

Between 2000 and 2007, WMC paid Cardiology Consultants of Westchester, P.C. (CCW) in a complex scheme to set up a shell practice which would exclusively refer business to the hospital, according to prosecutors. “When CCW began making payments to WMC purportedly repaying the advances, WMC entered into retroactive, no-work consulting agreements under which it paid CCW tens of thousands of dollars.”

The moves violated anti-kickback statutes because as a result, WMC was receiving reimbursements from the federal Medicare and Medicaid programs for services the hospital did not provide. Anti-kickback laws make it illegal for a hospital to “knowingly and willfully offer or pay remuneration to any person to induce that person to purchase, order, or recommend purchasing or ordering any good or item for which payment may be made under a federal health care program.”

Bharara said in a statement that the hospital was cheating taxpayers and possibly jeopardizing patients’ health.“The conduct of Westchester Medical Center is the reason the Anti-Kickback Statute and the Stark Law are so important – they are laws that help to rid the healthcare industry of conflicts that can improperly influence medical judgment, potentially jeopardizing patient care and causing federal healthcare programs to pay for excessive or unnecessary treatments. Hospitals and medical practices have an obligation to patients, and taxpayers, to ensure their arrangements conform to the requirements of these laws.”

WMC acknowledged that it a bit lax in filing proper paperwork in some cases, but it remains proud of its business.

“Today’s settlement resolves a long-standing government inquiry into matters that date back to the early 2000s, when Westchester Medical Center was under prior management,” the hospital said in a statement Thursday. “Although the Medical Center believes that its financial relationships with its clinical faculty are customary for academic medical centers of its size and complexity, we acknowledge that, with respect to a very small number of legacy relationships, we could not produce documentation sufficient to meet certain technical requirements of federal law. The Medical Center is proud of the quality of its clinical, research and teaching programs, the breadth and reach of its community service initiatives, and the exemplary compliance program it has developed to support these endeavors.”

Under the terms of the settlement, WMC admitted to the following:

• Kingston Practice Arrangement. In July 2001, WMC, through its practice management affiliate, Matrix Resources, L.L.C. (“Matrix”), entered into a management agreement with CCW through which WMC agreed to assist CCW in establishing and developing a medical office located in Kingston, New York, with the objective of expanding WMC’s referral base and service area to the upper reaches of the Hudson Valley.
• Pursuant to the terms of the management agreement, which had an initial term of three years, Matrix agreed to provide certain management services for CCW’s Kingston office and to advance working capital to establish and operate the office. Between 2001 and 2002, WMC, through Matrix, advanced to CCW approximately $450,000 to pay for certain costs of the practice, including payment of the monthly management fee due under the management agreement.
• The management agreement provided that CCW would repay the advances at a rate of 8.5 percent interest by the end of the three-year term, with the proviso that the management agreement could be extended for one year if full repayment had not been made.
• In July 2002, CCW and WMC began discussions regarding the termination of the management agreement. At the outset of these discussions, WMC received a memorandum from CCW requesting that WMC, among other things, postpone or eliminate certain interest payments, reduce the applicable interest rate to the then-market rate of 6.5 percent, and extend the repayment period in recognition of CCW’s efforts in developing clinical volume at the Kingston practice and the resulting referral benefit to WMC.
• As of April 25, 2003, CCW and WMC executed a promissory note and associated letter agreement providing for immediate termination of the management agreement and repayment of the then-outstanding advances over five years at an initial interest rate of 4.75 percent (subject to periodic adjustment based upon changes in the prime rate), beginning with an initial repayment of $116,936.15 on April 28, 2003.
• In addition, on April 25, 2003, three days prior to CCW’s initial repayment of the advance, WMC and CCW entered into a two-year consulting agreement, retroactive to July 2, 2002. Pursuant to this agreement, CCW was to provide various consulting services to WMC for an annual amount of $50,000. In April 2004, the contract was amended and extended.
• Between April 2003 and July 2005, WMC paid CCW approximately $190,000 under the original and amended consulting services agreement.
• WMC was not able to locate evidence that CCW performed the contracted services under this agreement.
• During the period of approximately April 2003 through July 2005, CCW referred patients for hundreds of medical procedures at WMC.
• Fellows. For certain years during the relevant period, WMC charged various physician practices for a portion of the salaries and expenses relating to residents and fellows who trained at WMC. During the relevant period, fellows in WMC’s cardiology fellowship program performed certain services within CCW’s private offices as part of their regular clinical rotation.
• Prior to 2003, CCW paid hundreds of thousands of dollars to WMC for the salaries and expenses relating to cardiology fellows.
• Beginning in 2003, CCW ceased paying the fellowship charges for which it was invoiced by WMC; after continuing to bill CCW, but failing to compel payment, WMC wrote off these amounts as uncollectible in April 2007.
• Cost Report Reimbursement. From 2000 through 2007 (“relevant cost report timeframe”), WMC submitted annual Medicare cost reports to the Health Care Financing Administration (“HCFA”), and later CMS, reflecting certain costs, referred to as Direct Graduate Medical Education (“DGME”) and Indirect Medical Education (“IME”), associated with its residency and fellowship programs.
• Pursuant to certain HCFA/CMS regulations applicable to the DGME and IME lines of Medicare cost reports in effect during the relevant cost report timeframe, hospitals were permitted to claim reimbursement for time spent by the residents or fellows at other hospitals and non-hospital settings only if the hospital incurred all or substantially all of the salary and fringe benefit expense of the residents and fellows being rotated through other hospitals or non-hospital settings and complied with other applicable regulatory requirements.
• For the relevant cost report timeframe, WMC included certain costs in its filed cost reports that corresponded to time spent by certain residents and fellows at other hospitals or at non-hospital settings, but did not incur all or substantially all of the costs associated with these fellows and residents, or otherwise did not meet applicable HCFA/CMS regulatory requirements.

Scott J. Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General, said in a statement, “Westchester Medical Center’s aggressive, intricate kickbacks and other fraud schemes in this case threatened the impartiality of medical referrals, the financial integrity of Medicare, and the public’s trust in the health care system. Our agency will continue to investigate those who seek to cheat federal health care programs.”

Added FBI Assistant Director-in-Charge Diego Rodriguez, “Westchester Medical Center participated in a coordinated shakedown of Medicare and, by extension, taxpayers. Today, they agreed to pay more than $18 million to resolve their liabilities and enable this government program to serve the seniors it was designed to help.”

Bharara praised the investigative work of the agents at HHS-OIG and the FBI, and expressed appreciation for their dedication to the case. It is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorneys Rebecca C. Martin and Christine Schessler Poscablo are in charge of the case.