Presentation
on Ethical Issues in Medicaid Fraud and Overpayment
Cases
Steve Krantz and I are speaking today on some of the
ethical issues that arise when representing health
care clients or working on behalf of the government
in this field. I am currently reading the book Freakonomics
by Steven D. Levitt and Steven J. Dubner. Mr. Levitt
is an economist who uses the tools of economics to
ask interesting questions. One of the chapters asks
what do schoolteachers and sumo wrestlers have in
common. The answer: they will both cheat if given
the incentive to do so. Another chapter asks why drug
dealers still live with their moms. It turns out a
drug gang is operated much like a McDonald’s.
The owners of the franchise make a lot of money and
can afford lavish houses and expensive cars. The foot
soldiers, on the other hand, earn just $3.30 an hour
and have no choice but to live with their mothers.
Much like struggling actors and American Idol hopefuls,
they take the job in the hopes of striking it big.
One of the principles of the book is that experts
such as real estate agents and funeral directors use
their informational advantage to serve their own agenda.
Levitt gives the example of the real estate agent
who advises a client to accept an offering price that
is $10,000 lower than the asking price of $300,000.
The agent takes home only $150 of the additional $10,000
and has little incentive to keep looking for a buyer
who is willing to pay more. Levitt wondered what the
agent did when selling her own home. Would she do
the extra work to sell the house at the higher price?
Using data from the sale of 100,000 homes in Chicago,
he found that a real estate agent keeps her own home
on the market an average of 10 days longer and sells
it for an extra 3+ percent.
The
New York Code of Professional Responsibility is the
legal profession’s way of limiting attorneys
from using their informational advantage to serve
their own agenda. Many of the rules are intended to
require attorneys to see things from their client’s
point of view and put their interests before their
own.
A recent article by Joel Cohen in the New York Law
Journal illustrates this point. The article raised
the issue of when the attorney’s hidden agenda
impacted her duty to zealously represent the client.
Mr. Cohen, a former federal and state prosecutor who
practices white collar criminal law was a panelist
at a CLE program on ethics in the criminal defense
practice. The panel was asked whether it would be
ethical for a defense counsel to tape a prosecutor
who had overtly engaged in misconduct and was willing
to acknowledge it. Mr. Cohen argued that the Code
was ambiguous but lawyer shouldn’t do it because
he would get the reputation for playing “gotcha”
and would harm his working relationship with the prosecutor’s
office. A member of the audience challenged this view
and questioned whether the attorney had an obligation
to his client to take advantage of the prosecutor’s
willingness to admit his misconduct regardless of
the impact on his reputation. Criminal lawyers are
often confronted with situations that require them
to balance these competing duties and interests. Should
you engage in full-out combat with an overreaching
prosecutor who refuses to distinguish between the
bad guys you normally represent and the good guy who
is now caught in his net? Should you advise your client
to cooperate and testify against the person whose
attorney brought you into the case and many others
like it?
As Mr. Cohen noted in his article, there are no right
answers to the hypotheticals that he raised or the
ones that Steve and I are going to discuss in our
presentation today. I do know, however, that without
the Code we probably would not be discussing these
issues and our hidden agendas would dictate more of
the advice that we give our clients that is already
the case.
The first question we are going to discuss is whether
an attorney has an obligation to advise the client
to voluntary repay a suspected overpayment. That’s
the easy part. The trickier question is what happens
if you advise the client to disclose an overpayment
and make restitution and she refuses?
Page ____ of your materials quotes the Medicare disclosure
statute. This statute is violated when a person knows
of an event affecting his right to payment and knowingly
conceals or fails to disclose the event with the intent
fraudulently to secure payment in a greater amount
than was due.
The Office of Inspector General relies on this statute
in taking a position that a healthcare provider has
an obligation to voluntarily disclose a Medicare or
Medicaid overpayment and make restitution. This position
is not supported by or at least is yet to be supported
by the case law. In all of the reported cases under
this and similar statutes, the defendant was charged
with concealing or failing to disclose some fact such
as the death of the beneficiary or the nature of the
item dispensed that impacted her right to receive
the payment in the first instance. None of the reported
cases involve a person who is prosecuted for failure
to disclose an event affecting her right to keep a
payment.
Eventually, a court will hear such a case and will
either uphold the OIG’s interpretation or not.
In addition to the constitutional issue of whether
the statute provides fair warning, the decision could
hinge on the meaning of the words “to secure”.
One meaning of “secure” is to get possession
of, which would imply that only concealment prior
to payment is relevant. Another meaning is to guard
from risk of loss. My torts professor used to say
that every word has its own meaning and no two words
could be used to mean the same thing. Shouldn’t
the converse also be true – that one word cannot
be used to mean two different things? Not according
to a number of commentators and the entire staff of
the Office of Inspector General.
Hospitals and nursing homes in New York should have
had this statute in mind when responding to the Attorney
General’s request to disclose whether they booked
any reserves for funds owed to the Medicaid program.
Obviously, MCFU is requesting this information to
find out whether there are any healthcare providers
in New York who believe they owe money to Medicaid
but had failed to disclose it. Although the Attorney
General does not have jurisdiction to prosecute violations
of this federal statute, he can seek injunctive relief
and restitution for statutory violations when such
violations amount to persistent and repeated fraud
or illegality in the carrying on of a business.
So does a lawyer have an obligation to advise a client
to disclose an overpayment? DR 7-102(a)(7) provides
that a lawyer shall not counsel or assist a client
in conduct that the lawyer knows to be illegal and
fraudulent. If the OIG is right and the failure to
disclose an overpayment is a crime, the lawyer could
not advise the client who discovers an overpayment
not to repay it. Even if failure to disclose a past
overpayment is not clearly illegal, most attorneys
would advise the client to disclose. Disclosure will
establish the client’s good faith and in all
likelihood limit the amount of any monetary damages
to the amount of the overpayment. If the client doesn’t
disclose and is then investigated for fraud, he could
be subject to treble damages, fines and termination
from the Medicare program.
But what if the amount of overpayment is so substantial
that it will force your client into bankruptcy? Do
you have an obligation to advise the client that the
OIG’s view of the law is not supported by the
caselaw and may be wrong? Are you required to risk
violating the Code in the interest of furthering your
client’s interests? DR 7-101(B)(2) states that
a lawyer may refuse to aid or participate in conduct
that the lawyer believes to be unlawful even though
there is some support that the conduct is legal. I
interpret this to mean that if you believe that it
is a crime to fail to disclose an overpayment, then
you can advise your client to make the disclosure.
What do you do if the client refuses? Is the client
perpetrating a fraud upon the government by refusing
to disclose an overpayment? Under the federal disclosure
statute, fraudulent intent is assumed by the language
and I assume the OIG would take the position that
the attorney must call on the client to rectify the
fraud. But what if the client still refuses. The Code
only permits the attorney to disclose the fraud if
the information is not protected as a confidence or
secret. The only possible exception is the lawyer’s
ability to disclose a confidence when doing so is
necessary to prevent a future crime. The failure to
disclose has been found to be a continuing crime,
which means it will continue to be committed in the
future if the disclosure is not made.
This exception does not mandate that the attorney
reveal the fraud. A lawyer is given the professional
discretion to reveal a future crime. In exercising
this discretion, the lawyer should consider the seriousness
of the potential injury, the likelihood that the crime
will be committed, the apparent absence of any other
feasible way in which the injury can be prevented,
the circumstances under which the lawyer acquired
the information and other possible aggravating or
extenuating circumstances.
The typical case in which the future crime exception
is relied on to reveal a client confidence is when
the client confesses that he intends to perjure himself
on the stand. In that case, the lawyer is in a catch
22 as his conduct enables the client to perpetrate
the fraud. It is not clear that the equities favor
disclosure in the case of a client’s refusal
to disclose an overpayment, particularly as the attorney
will have obtained the information in the course of
representing the client and may even have been hired
to advise the client after he became aware of the
situation. Clients have a right to our protection
of their secrets, and we shouldn’t be using
them to cause them harm.
When representing an organizational client, the Code
takes a different approach. DR 5-109(B) states that
an attorney who knows that an employee is engaged
in illegal conduct that might be imputed to the entity
should ask the employee to reconsider the matter or
refer the matter to the governing body. The attorney
may not, at this point, disclose the potential crime
to the government because the lawyer represents the
organization and not the employee and must first take
action to prevent the crime.
No-Contact Rule
I want to spend a few minutes discussing whether the
employee of a corporate party should be considered
a party that cannot be contacted during a MCFU investigation
when the AG knows that the corporation is represented
by counsel. This issue will arise any time MCFU is
investigating a corporation and wants to interview
employees who have knowledge of facts that form the
basis of the alleged misconduct.
The
leading case in New York is Niesig v. Team
I. In that case, the plaintiff worked for a third-party
defendant construction company and brought suit against
the contractor and owner after being injured at a
construction site. Plaintiff moved for permission
to have his counsel conduct ex parte interviews of
all of the contractor employees who were on the site
at the time of the accident. The Appellate Division
adopted a rule that the contractor’s attorney
had an attorney-client relationship with every current
employee and that none of the current employees could
be interviewed.
The Court of Appeals rejected this blanket rule, Although
easy to follow, the Court was concerned that the blanket
rule would prevent access to relevant information.
The Court also rejected a case-by-case balancing test
and the test that defines “party” to mean
corporate employees only when they are interviewed
about matters within the scope of their employment.
The Court also rejected the control group test, which
would permit opposing counsel to informally interview
everyone but senior management, because such a rule
fails to give sufficient regard to the purpose of
the no contact rule. Counsel would be permitted to
overreach by interviewing employees involved in the
incident whose actions could bind the corporation.
So who can bind the corporation and must be protected
from opposing counsel’s artfully crafter questions.
First, employees whose acts or omissions in the matter
under inquiry are binding on the corporation. This
includes employees whose conduct is being investigated
by MCFU. Second, employees who acts or omission are
imputed to the corporation for purposes of its liability
or who are implementing the advice of counsel, which
includes senior management. Employees who are non-managerial
witness to the events are not parties. Niesig also
held that former employees are not parties. Former
employees may not be deposed regarding confidential
communications with the employer’s attorney.
In my experience, MCFU, although not in agreement
with the position that corporation counsel has a right
to be present, will permit the attorney to be present
when interviewing a current employee, particularly
one who was involved in the incident in question.
As Steve discussed, prosecutors can argue that criminal
investigations are exempt from the no-contact rule
or authorized by law. But a prosecutor in the Second
Circuit, where United States v. Hammad
is the rule, risks discipline or the preclusion of
necessary evidence if he fails to adhere to the rule.
What if the employee approaches the prosecutor first?
What is the prosecutor’s obligation if he is
currently investigating the matter and is aware that
the corporation is represented by counsel? An employee
is not authorized to waive the attorney-client privilege
between the counsel and his employer. I would argue
that the prosecutor has the same obligation in this
case as an attorney who is fed confidential information
by an employee of the corporate party. As one ethics
opinion put it, a lawyer may not seek to discover
privileged communications of a corporate adversary
through an interview of an employee.
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