WakeMed's Medicare settlement with feds would allow confidential reports

Judge’s objections are rare in corporate plea agreements

ablythe@newsobserver.comFebruary 2, 2013 

  • The case’s key moments 2007: Federal auditors note that WakeMed is billing inpatient rates for patients who did not stay overnight. 2011: WakeMed and federal prosecutors begin negotiating settlement of civil and criminal charges. December 2012: Prosecutors and WakeMed announce $8 million settlement. CEO Bill Atkinson downplays violations as technicalities. January 2013: WakeMed retracts some of Atkinson’s remarks. Judge Terrence Boyle declines to approve deal. Feb. 5: Second hearing scheduled in Boyle’s court.

— U.S. District Judge Terrence Boyle did not mince words last month when offering his opinion of a proposed settlement of false Medicare billing hashed out between WakeMed and federal prosecutors.

The proposal effectively would put the Raleigh hospital on probation for two years, but it was a curious sort of probation: There would be no reports back to the judge, as is typical for criminal cases, and no input from the public. An auditor would monitor WakeMed’s behavior, but the reports would be confidential.

“Why are you coming to court if you tell me you don’t need me?” Boyle said at a hearing in Raleigh. “I’m just window dressing.”

Boyle’s objections have pulled back a curtain on the growing practice of using deferred-prosecution deals that federal prosecutors cut with misbehaving corporations.

The arrangements, which allow the government to collect fines and appoint outside monitors to impose internal reforms without putting a company through the stigma of a trial, mushroomed in the wake of the Enron scandal. But such accords, experts contend, often keep many details private while forgoing the oversight of a judge sworn to look after the public’s interest.

“I want the regulators and hospitals and prosecutors to report to the judge on how the case is going,” said Brandon Garrett, a University of Virginia law professor writing a book on such corporate plea deals. “If prosecutors are standing up for the public interest, they should want the public to know what they have done.”

On Tuesday, prosecutors and WakeMed advocates will try again to persuade Boyle to sign off on the $8 million settlement. In a memo filed in court Thursday, prosecutors defended the pact as “in the public interest” and taking “reasonable middle ground between two extremes.”

“WakeMed agreed to publicly admit its wrongdoing in a legally admissible fashion, be charged by felony Criminal Information, pay back the taxpayers the ill-gotten gains plus a substantial additional sum as a penalty, and agree to be bound by strict and ongoing conditions governing its ability to bill Medicare in the future,” prosecutors stated in a memorandum in support of the settlement.

Heart of the matter

The investigation into WakeMed’s billing practices began after a 2007 federal audit hunting for Medicare fraud. The audit showed that WakeMed had the highest rate in North Carolina and the seventh-highest rate in the country of “zero-day stay” billings, or bills to Medicare for inpatient hospital stays that lasted less than a day.

All the billing cases flagged by investigators were from WakeMed’s heart center, which has long served as the hospital’s big money maker.

Investigators contend that nurses ignored doctors’ orders on how to classify patients at the cardiac center. The nurses, investigators say, often billed for pricier inpatient care when doctors hadn’t ordered it, or when doctors had actually ordered outpatient care.

Prosecutors blamed problems on the director of patient access, a mid-level manager.

CEO’s changing statements

Members of the WakeMed board of directors, who ultimately are responsible for the hospital’s operations, declined to discuss the case. They referred questions to Bill Atkinson, the CEO who reports to them.

Atkinson, who was paid $1.6 million in 2011, initially was outspoken about the case, then quieted by his own words.

On the day the agreement was announced, Atkinson met with reporters at The News & Observer and insisted the case was one of technical errors – a misinterpretation of Medicare guidelines.

“The federal government’s position is that it is not correct,” Atkinson said. “We understand what they say.”

Atkinson said the findings involved only “a small number” of cases, and suggested the government was overstating the magnitude of the case for publicity’s sake. “They don’t want to minimize the media effect,” he said.

Atkinson defended Heidi McAfee, the director of patient access named in the court filings as the most senior person responsible.

“She’s done a great job,” he said. “She’s someone who tried to get it right.”

That runs counter to court filings, where prosecutors talked about “the serious nature of the wrong-doing by the mid-level manager.”

Three weeks after Atkinson’s interview, WakeMed issued a statement “clarifying” Atkinson’s remarks. WakeMed retracted the statement that the case only involved a small number of patients.

The hospital acknowledged that it was aware of Medicare rules and that its billing practices violated those rules.

Since then, Atkinson has not spoken publicly. He did not attend the hearing on Jan. 17. The WakeMed board agreed to the proposed settlement and opted to let attorneys Stephen W. Petersen and Maureen D. Murray represent the hospital in court.

WakeMed plans to have representatives at the hearing Tuesday to respond to any questions from the judge.

Boyle: Be prepared

Boyle, a federal judge for 28 years, was appointed to the bench by President Ronald Reagan. He has a reputation as a demanding, independent judge who runs an efficient courtroom.

Unprepared or sloppy lawyers rue the day they appear before Boyle, said Michelle Nowlin, a Duke law professor who has appeared before Boyle in environmental cases.

“Some judges work in a reactive posture, waiting for the parties to work things out,” Nowlin said. “Not Judge Boyle. He wants to know what’s going on.”

Boyle’s initial rejection of the settlement agreement is another mark of his style.

Judges rarely reject settlements in such cases, according to Don White, spokesman for the Inspector General of the U.S. Department of Health and Human Services. The Inspector General, which polices Medicare and other federal programs, is a partner with the U.S. Attorney in the settlement.

The use of deferred prosecution agreements has increased greatly since the energy company Enron imploded. Federal prosecutors won a guilty verdict against Arthur Andersen, Enron’s accounting firm. The guilty verdict, though later overturned, spelled the end of Arthur Andersen.

Since then, prosecutors have favored deferred prosecution or nonprosecution agreements that result in large fines and internal changes in how corporations do business. The settlements avoid punishing thousands of innocent employees who would lose their jobs if the corporation was put out of business.

In 2012, the federal government recovered $9 billion in 35 cases. That’s up from six cases that netted $300 million in 2003.

White described the $8 million settlement as large for a hospital case.

No ‘death sentence’

Thomas Walker, U.S. Attorney for the Eastern District of North Carolina, which spans from Raleigh to the coast, has said health care fraud would be a focus of his. He declined to discuss the history or specifics of the WakeMed settlement proposal, but court documents offer a glimpse of discussions over the past two years.

In 2011, WakeMed expressed a desire to reach a “global settlement” with the government.

“The government rejected WakeMed’s numerous requests to resolve this matter by way of a civil settlement and non-prosecution agreement,” the prosecutors stated in the memorandum filed Thursday.

Not only did the government insist on a criminal element to the case, prosecutors also pushed for a settlement that “compensates taxpayers three times over the ill-gotten gains at issue in the criminal investigation,” the memorandum states.

As WakeMed faced the possibility of criminal charges that could leave the hospital ineligible for Medicare and Medicaid funding, its public actions, which included an audacious attempt in 2011 to buy rival Rex Hospital from UNC, offered no glimpse of the troubles brewing.

WakeMed has more than 8,300 employees, making it one of the county’s largest private employers. The 870-bed hospital system is the largest in Wake County. In 2012, WakeMed treated nearly a million patients.

Boyle pointed out in the January hearing that a criminal conviction could result in the loss of federal funds that could ultimately mean a potential “death sentence for WakeMed.” Prosecutors considered the sweeping impact in their settlement proposal.

“Unlike individuals, corporations cannot be sent to prison,” prosecutors stated in their memorandum. “While an individual convicted of an economic crime may face prison time as a sentence, a corporation convicted of the same offense may literally cease to exist as the result of a court order or as a practical impact of the conviction upon its business operations. Corporations also may be made up of thousands of individual employees, many of which had no part in any wrongdoing.”

With that in mind, prosecutors and WakeMed propose to settle the criminal case without any official charges filed. At the Tuesday hearing, prosecutors stated in their memorandum, WakeMed plans to waive its right to be indicted, which means there wouldn’t be a conviction on the hospital’s record and access to federal Medicaid and Medicare funding would not be curbed.

Instead, under the settlement proposal, prosecutors have agreed to defer prosecution against WakeMed for two years. Though no individuals have been charged in the case, hospital officials acknowledged that the settlement proposal does not preclude the government from seeking such charges.

The judge’s options

It’s unclear whether Boyle will go along.

In the hearing on Jan. 17, Boyle suggested that if WakeMed were to plead guilty to a criminal charge, he could suspend judgment and defer sentencing. If WakeMed demonstrated good behavior over time, Boyle said he could then dismiss the case.

Prosecutors responded that under such a scenario, federal guidelines required that WakeMed be barred from Medicare and Medicaid, which make up 42 percent of the hospital’s patients. Such a penalty would guarantee the downfall of WakeMed, the prosecutors wrote.

The government entered into the deferred-prosecution agreement before the court, prosecutors stated, “as a reasonable middle ground between extremes.”

Blythe: 919-836-4948

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