CORPORATE TAKEOVER OF MEDICINE
The use of a shill doctor to allow corporations to operate medical practices is a hot button issue which can put long standing medical practices at risk.
Muddy Waters
Muddy Waters is a short selling research firm that identifies stocks that are high fliers and in their view deserve to crash. They recently investigated The Ensign Group, Inc. (NASDAQ: ENSG), a major U.S. post-acute healthcare company that operates skilled nursing facilities, assisted living communities, and rehabilitative care services. You may or may not agree with the conclusions of Muddy Waters but their investigation is a very detailed roadmap for how criminal investigators view medical fraud cases. It is also an excellent roadmap for lawyers (such as Daniel Horowitz) who defend existing medical groups who are being pushed out of hospitals by corporate led groups.
The Muddy Waters report focuses on Skilled Nursing facilities but it underscores a major trend in medicine where figurehead doctors help corporations takeover the ER or hospital medicine at hospitals, where local clinics pop up providing cosmetic services with the actual doctor in charge miles away. While the cosmetic centers usually do no harm and the absence of a physician is usually harmless, the corporate takeover of an ER or hospital medicine can destroy the practices of local physicians.
The basic scenario is this: An absent administrator - often a doctor - lends his/her name to a facility which is then run not under the MD's real supervision but on a corporate created template. While this does not necessarily mean that patient care is compromised it does violate the core principle that doctors and not corporations practice medicine.
The actual (Complete) Muddy Waters report on Ensign Group can be found Here ENSIGN GROUP. A portion of the executive summary is this:
"We conclude that Ensign engages in a systematic scheme at an estimated ~20% of Skilled Nursing Facilities (SNFs) to rent the licenses of Administrators who are not generally present at, nor actually managing, the facilities.
Ensign enters into consulting agreements with these nominal Administrators that appear to cause Ensign to state the facilities have licensed Administrators when in fact these administrators are seldom on premise and do not substantively manage facilities. We believe this scheme, which could amount to fraud against states,
Medicare, and Medicaid, is the pillar upon which Ensign’s acquisition strategy and margins is built. Federal law requires each SNF have a licensed Administrator (the state sets the licensing requirement) who manages the facility to meet a Condition of Participation to be eligible to bill Medicare and Medicaid, which account for 69% of Ensign’s revenue. The Administrator is legally responsible for facility operations, staffing, regulatory compliance, resident safety, and quality of care."
There is also a class action law firm that is pursuing the same issue. See Class Action Firm News
Local Cosmetic Groups
This practice is not limited to large corporate takeovers. The same pattern is seen in the recent burst of skin care, anti aging and cosmetic health centers. If you google words like "botox" or "fillers" clinics will pop up and when you check staff for these centers rarely will you see a physician listed. In terms of risk of medical board, nursing board investigations you are less likely to see that type of action in clinics that are private pay. When insurance or federal government programs fund the service such as with a skilled nursing facility the chance of board action as an adjunct to a criminal or billing fraud investigation is greater. Billing fraud can arise when services require a physician sign off or at least supervision and none really exists. In terms of skilled nursing facilities there are specific federal laws that require each SNF have a licensed Administrator (the state sets the licensing requirement) who manages the facility to meet a Condition of Participation to be eligible to bill Medicare and Medicaid,
In our practice we see companies that set up skin care, weight loss and anti-aging centers where the investors are non-MD's, the management is handled by the main player - a corporation - and the doctor is paid monthly and often has never or rarely been to the facility. We have seen the same doctor with many facilities under his control. When the center is investigated the investor who believed they were the owner and the doctor is/are left holding the bag. The corporation claims that it provides management services only. The agreement with the investor is written by the management corporation and puts all responsibility on the investor and doctor. Likewise the doctor is often subject to medical board scrutiny. To the extent that the facilities are run by PA's or NP's their also face board scrutiny.
Penalties for Corporate Practice of Medicine
In terms of penalties, the Muddy Waters report focuses on this:
"We believe this violates a material condition of Medicare and Medicaid participation under 42 CFR § 483.70(d)(2) and reimbursements to these facilities could constitute “False Claims” under the False Claims Act under 31 U.S.C. § 3729"
Another danger to both investors and doctors are qui tam actions where individuals sue the business on behalf of the government (Medicare/Medicaid).
In a more fundamental context doctors in Oregon are challenging the ability of ApolloMD to replace a private physicians group in a pattern where large technically physician owned corporations take over an ER or hospital medicine but internally there are serious questions as to who within that corporate group is really making the decisions. In the Oregon case the issue was the takeover of a hospital ER. The American Academy of Emergency Medicine (AAEM) supported the physician group over ApolloMD. These types of takeovers can lead to the existing physicians being forced out of the hospital, losing their privileges and having to close their practices. The cost of fighting against this type of corporate takeover is very high and the corporations are prepared to fight these battles and are well funded and prepared to do just that.
The corporate face is very physician friendly. For example, Envision's website speaks about helping physicians reach their goals and balance their personal and professional life. Hospitals look for cost reduction and volume increases while being heavily pressured by Congressional treatment mandates and reimbursement limits.
In conclusion the Skilled Nursing challenge of the Muddy Waters group has exposed in great detail a larger issue in the medical community. We are not certain that Muddy Waters is correct in predicting the demise of Ensign. This corporate management issue is an emerging one and it seems unlikely that the United States government will weigh in heavily on one side of this issue or the other.
How We Defend Physician Groups
When our office is consulted by physician groups facing disgorgement by large corporate interests we look to negotiate and seek a middle ground. The battle itself is always brutal with the hospital accusing the existing (in place) doctors of poor performance and seeking to blame them for "forcing" the hospital to bring in outside groups. The doctors end up focused on law and litigation which is exactly the opposite of what physicians should be doing with their work time and free time. If the case has to be filed, the Muddy Waters report is an accurate roadmap of our litigation strategy. We go deeper in some ways as our focus is more on patient care concerns but we also focus on how corporate shortcuts and billing practices lead to higher reimbursements with a lower level of patient care.
The class action approach to a defense involves targeting not just the single takeover involving the physician group that has contacted us. The entire corporate structure and its presence at multiple locations can be the target of a lawsuit that incorporates the Muddy Water claims. This approach puts the corporate giant at risk on a larger scale.
If you are physician in California whose practice is being threatened by a corporate takeover, call Daniel Horowitz for help at 925-283-1863.
