EXHIBIT 10.6
U.S. Department of Justice
United States Attorney
District of Massachusetts
Main Reception: (617) 748-3100 United States Courthouse, Suite 9200
1 Courthouse Way
Boston, Massachusetts 02210
January 13, 2000
BY HAND
Jonathan Chiel Jeffrey E. Stone
Choate, Hall & Stewart McDermott, Will & Emery
Exchange Place 227 West Monroe Street
53 State Street Chicago, IL 60606-5096
Boston, MA 02109-2891
Alan E. Reider, Esq. Harold Damelin
Breckinridge L. Willcox Powers, Pyles, Sutter & Verville
Arent, Fox, Kintner, Plotkin & Kahn Twelfth Floor
1050 Connecticut Avenue, NW 1875 Eye Street, NW
Washington, D.C. 20036 Washington, DC 20006-5409
Re: LIFECHEM, INC.
--------------
Dear Gentlemen:
This letter sets forth the Agreement between the United States Department
of Justice and the United States Attorney for the District of Massachusetts
(collectively the "United States"), and your client, LIFECHEM, INC.,
("LIFECHEM"), a Delaware corporation, (collectively referred to as "the
Parties") as follows:
1. Guilty Plea
-----------
On or before January 19, 2000, or such other date as the Court may set,
LIFECHEM shall waive indictment and plead guilty to Count Two of the Information
attached hereto as Exhibit A, which charges LIFECHEM with a conspiracy to
defraud the United States and one of its agencies, the Health Care Financing
Administration, through the submission of false, fictitious and fraudulent
claims to the Medicare Program, in violation of 18 U.S.C. Section 286.
1
2. Sentencing Guidelines
---------------------
The United States and LIFECHEM agree that the following provisions of the
United States Sentencing Guidelines ("U.S.S.G.") apply to sentencing of LIFECHEM
with respect to Count Two of the Information:
(a) pursuant to U.S.S.G. (S) 8C2.4(a), the loss to the United States
from this offense for criminal sentencing purposes is
$22,900,000;
(b) pursuant to U.S.S.G. (S) 8C2.5, the culpability score is 7,
calculated as follows:
(1) base score of 5 pursuant to (S) 8C2.5(a);
(1) add 4 points pursuant to (S) 8C2.5(b)(2)(A)(i) and
(ii);
(1) deduct 2 points pursuant to (S) 8C2.5(g)(2).
(c) pursuant to (S) 8C2.6, the applicable range for a multiplier is
1.4 to 2.8, and the appropriate multiplier to be applied as to
LIFECHEM is 1.6.
(d) the Parties agree that there is no basis for a departure under
the Sentencing Guidelines, either upward or downward.
3. Agreed Disposition
------------------
The United States and LIFECHEM agree pursuant to Fed. R. Crim. P.
11(e)(1)(C) that the following sentence is the appropriate disposition of Count
Two of the Information:
(a) a criminal fine in the amount of thirty six million six hundred
forty thousand dollars, ($36,640,000) to be paid as follows:
(1) an amount of eighteen million one hundred five thousand
dollars ($18,105,000) shall be paid within 15 days of
sentencing;
(2) an amount of nine million two hundred sixty seven thousand
dollars ($9,267,000) shall be paid on or before April 16,
2001; and
(3) an amount of nine million two hundred sixty seven thousand
dollars ($9,267,000) shall be paid on or before July 16,
2001.
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(b) a mandatory special assessment of $400 pursuant to 18 U.S.C. (S)
3013, which shall be paid to the Clerk of Court on or before the
date of sentencing.
LIFECHEM acknowledges that it is obligated, pursuant to 18 U.S.C. (S) 3612(f),
to pay interest on that portion of the fine which is not paid on or before the
fifteenth day after the Court enters judgment in this matter.
In light of the pending civil action, United States ex rel. Jay A. Buford,
------------------------------------
et al. v. LIFECHEM, Inc., et al., Civil Action No. 95-10742-NG (D. Mass.), and
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the settlement agreement between LIFECHEM, INC. and others and the United States
relating to the civil action which is being signed contemporaneous with this
Plea Agreement (the "civil Settlement Agreement"), the parties agree the
complication and prolongation of the sentencing process that would result from
an attempt to fashion a proper restitution order outweighs the need to provide
restitution to the victims in this case, where, as here, the loss suffered by
each of the federal health care programs will be recompensed from amounts paid
as part of the civil Settlement Agreement. See, 18 U.S.C. (S)
---
3663(a)(1)(B)(ii). Therefore, the United States agrees that it will not seek a
separate restitution order as to LIFECHEM as part of the resolution of Count Two
of the Information.
4. No Further Prosecution of Defendant
-----------------------------------
The United States agrees that, other than the charge in Count Two of the
attached Information, it shall not further prosecute LIFECHEM for conduct which
(a) falls within the scope of the conspiracy which is charged in Count Two of
the Information; (b) was within the scope of the grand jury investigation
conducted by the U.S. Attorney; or (c) was known to the U.S. Attorney prior to
the date of execution of this letter.
The U.S. Attorney expressly reserves the right to prosecute any individual,
including but not limited to present and former officers, directors, employees
and agents of LIFECHEM, in connection with the conduct encompassed by this Plea
Agreement or within the scope of the grand jury investigation.
5. Probation Department Not Bound By Agreement
-------------------------------------------
The Parties acknowledge that the disposition agreed upon by the Parties and
their calculations under the Sentencing Guidelines are not binding upon the
United States Probation Office.
6. Fed. R. Crim. P. 11(e)(1)(C) Agreement
--------------------------------------
LIFECHEM's plea shall be tendered pursuant to Fed. R. Crim. P. 11(e)(1)(C).
LIFECHEM cannot withdraw its plea of guilty unless the sentencing judge rejects
this Plea Agreement. If the sentencing judge rejects the guilty plea, this Plea
Agreement shall be null and void at the option of either the United States or
LIFECHEM, except as set forth in Paragraph 8
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below. If LIFECHEM's guilty plea is withdrawn on LIFECHEM's motion for any
reason, this Plea Agreement shall be null and void at the option of the U.S.
Attorney, except as set forth in Paragraph 8 below.
7. Civil and Administrative Liability
----------------------------------
By entering into this Plea Agreement, the United States does not compromise
any civil or administrative liability, including but not limited to any False
Claims Act or tax liability, which LIFECHEM may have incurred or may incur as a
result of its conduct and its plea of guilty to Count Two of the Information.
8. Waiver of Defenses
------------------
In the event that LIFECHEM's guilty plea is not accepted by the Court for
whatever reason, or is later withdrawn for whatever reason, LIFECHEM hereby
waives, and agrees not to interpose, any defense to any charges brought against
it which it might otherwise have under any statute of limitations or the Speedy
Trial Act, except any such defense that LIFECHEM may already have for conduct
occurring before March 1, 1994, if charges are filed within 90 days of the date
on which such guilty plea is rejected or withdrawn.
9. Breach of Agreement
-------------------
If the United States Attorney determines that LIFECHEM has failed to comply
with any provision of this Plea Agreement, or has committed any crime between
the date of this letter and the date of sentencing in this matter, the United
States may, at its sole option, be released from its commitments under this Plea
Agreement in their entirety by notifying LIFECHEM, through counsel or otherwise,
in writing. The United States may also pursue all remedies available under the
law, irrespective of whether it elects to be released from its commitments under
this Plea Agreement. LIFECHEM recognizes that no such breach by LIFECHEM of any
obligation under this Plea Agreement shall give rise to grounds for withdrawal
of its guilty plea. LIFECHEM understands that, should it breach any provision
of this Plea Agreement, the United States will have the right to use against
LIFECHEM before any grand jury, at any trial or hearing, or for sentencing
purposes, any statements which may be made by LIFECHEM, and any information,
materials, documents or objects which may be provided by it to the government
subsequent to this Plea Agreement, without any limitation.
10. Corporate Authorization
-----------------------
LIFECHEM shall provide to the United States and the Court a certified copy
of a resolution of the Board of Directors of LIFECHEM, affirming that the Board
of Directors has authority to enter into the Plea Agreement and has (1) reviewed
the Information in this case and the proposed Plea Agreement; (2) consulted
with legal counsel of LIFECHEM's choice in connection with the matter; (3) voted
to enter into the proposed Plea Agreement; (4) voted to authorize LIFECHEM to
plead guilty to Count Two of the attached Information; and (5) voted to
authorize the corporate officer identified below to execute the Plea Agreement
and all other documents necessary to carry out the provisions of the Plea
Agreement. LIFECHEM agrees that
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counsel identified below will appear on behalf of LIFECHEM and enter the guilty
plea and will also appear for the imposition of sentence.
11. Who Is Bound By Agreement
-------------------------
This Plea Agreement binds LIFECHEM and the United States Department of
Justice, including each of its United States Attorney's Offices, and can not and
does not bind the Tax Division of the U.S. Department of Justice, the Internal
Revenue Service of the U.S. Department of Treasury, or any other federal, state
or local prosecutive authority.
12. Complete Agreement
------------------
With regard to the disposition of Count Two of the attached Information,
this Plea Agreement is the complete and only agreement between the Parties. No
promises, representations, agreements or conditions have been entered into other
than those set forth in this letter in connection with Count Two. This Plea
Agreement supersedes prior understandings, if any, of the parties, whether
written or oral in connection with the disposition of Count Two. This Plea
Agreement can be modified or supplemented only in a written memorandum signed by
the Parties or on the record in court.
If this letter accurately reflects the Agreement entered into between the
United States and your client LIFECHEM, INC., please sign the Acknowledgment of
Plea Agreement below, provide evidence of the requisite authorization to enter
into this Plea Agreement, and return the original of this letter to Assistant
U.S. Attorneys Susan G. Winkler and Susan Hanson-Philbrick.
Very truly yours,
By: /s/ Mark W. Pearlstein
-------------------------------------
MARK W. PEARLSTEIN
Acting United States Attorney
District of Massachusetts
By: /s/ John Keeney (mwp)
------------------------------
JOHN C. KEENEY
Deputy Assistant Attorney General
Criminal Division
Department of Justice
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CORPORATE ACKNOWLEDGMENT OF PLEA AGREEMENT
------------------------------------------
The Directors of LIFECHEM, INC. have read this Plea Agreement and the
attached criminal Information, in their entirety, and have discussed this matter
with legal counsel of the corporation's choosing, including undersigned counsel.
As set forth in the attached resolution, the Board of Directors has authorized
me, as an officer of the corporation, to enter into this Plea Agreement on
behalf of the corporation. I hereby acknowledge, on behalf of LIFECHEM, INC.,
that this letter fully sets forth LIFECHEM's agreement with the U.S. Attorney
relating to the disposition of Count Two of the attached Information, and that
no additional promises or representations have been made to the corporation by
any official of the United States in connection with the disposition of that
charge. LIFECHEM, Inc. is entering into this Agreement freely, voluntarily and
knowingly because it is guilty of the offense set forth in Count Two of the
Information and it believes this Plea Agreement is in its best interest.
Dated: 1/18/00 /s/ Ben J. Lipps
----------------------------
Ben J. Lipps
President, LIFECHEM, INC.
Dated: January 18, 2000 /s/ Jonathan Chiel
----------------------------
Jonathan Chiel
Choate, Hall & Stewart
Dated: 1/18/000 /s/ Alan E. Reider
-----------------------------
Alan E. Reider
Arent, Fox, Kintner, Plotkin & Kahn
Dated: 1/18/000 /s/ Breckinridge L. Willcox
-----------------------------
Breckinridge L. Willcox
Arent, Fox, Kintner, Plotkin & Kahn
Dated: January 18, 2000 /s/ Jeffrey E. Stone
-----------------------------
Jeffrey E. Stone
McDermott, Will & Emery
Dated: 1/18/2000 /s/ Harold Damelin
-----------------------------
Harold Damelin
Powers, Pyles, Sutter & Verville
Attorneys for LIFECHEM, INC.
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EXHIBIT A
---------
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
UNITED STATES OF AMERICA )
) No.
v. )
) 18 U.S.C. (S)371 (Conspiracy)
NMC HOMECARE, INC.; ) 18 U.S.C. (S)286 (Conspiracy)
LIFECHEM, INC.; and )
NMC MEDICAL PRODUCTS, INC. )
)
Defendants. )
INFORMATION
-----------
The United States Attorney alleges that:
General Allegations
-------------------
At all times material to this Information, unless otherwise alleged:
1. National Medical Care, Inc. (NMC) was a Delaware corporation engaged
in the kidnedialysis business throughout the United States. From prior to 1990
to October 1, 1996 NMC was headquartered in Waltham, MA, and a wholly-owned
subsidiary of W.R. Grace & Co. On or about October 1, 1996 NMC, W.R. Grace & Co.
and Fresenius AG, a German corporation, underwent a reorganization in which NMC
became a wholly-owned subsidiary of Fresenius Medical Care Holdings, Inc., an
indirect subsidiary of Fresenius AG. Thereafter, the business of NMC was
conducted under the name Fresenius Medical Care, North America, from offices
headquartered in Lexington, MA.
1. During most of the period charged in this
Information, NMC conducted its business through three principal divisions.
Dialysis Services Division ("DSD") operated over 300 kidney dialysis centers
located throughout the United States and provided dialysis services to over
30,000 patients. Medical Products Division manufactured and distributed kidney
dialysis products, including dialyzers, bloodlines and dialysis solutions, to
NMC owned dialysis facilities and independent dialysis facilities. Medical
Products Division also operated a clinical blood testing laboratory, known as
LIFECHEM, which specialized in blood testing for kidney dialysis patients. The
Homecare Division sold infusion therapies, respiratory therapies and durable
medical equipment, primarily to patients in the home setting.
1. NMC owned and operated dialysis facilities which were often named
"Bio-Medical Applications of (the name of the community where the facility was
located)," and were frequently referred to as "BMAs." Within NMC, independent
dialysis facilities, not owned or operated by NMC, were frequently referred to
as "non-BMAs."
1. NMC Homecare, Inc., ("NMC Homecare"), a defendant herein, was a
Delaware corporation and a wholly owned subsidiary of NMC, with a principal
place of business of Waltham, MA.
1. NMC Medical Products, Inc. ("MPD"), a defendant herein, was a Delaware
corporation and a wholly owned subsidiary of NMC, with a principal place of
business of Rockleigh, New Jersey. MPD was formerly known as National Medical
Care Medical Products
Division, Inc., and before that, as Erika, Inc.
6. LIFECHEM, INC. ("LIFECHEM"), a defendant herein, was a Delaware
corporation, headquartered in Northvale, N.J. and a subsidiary of NMC, which
operated clinical blood testing laboratories in Northvale, N.J. and Woodland
Hills, CA.
The Medicare Program
--------------------
7. The Medicare program ("Medicare") was a United States government
benefit program, created by Title XVIII of the Social Security Act of 1965, that
paid for certain medical services for persons 65 years of age and older and
certain other persons.
8. The Health Care Financing Administration ("HCFA") was an agency of the
United States Department of Health and Human Services ("HHS"), which was
responsible for the administration of the Medicare program.
9. Medicare was divided into two parts, A and B. In general, Part A paid
for covered medical services provided to eligible beneficiaries in hospitals.
Part B, in general, paid for covered physician services, and other covered goods
and services, provided to eligible beneficiaries outside of the hospital
setting.
10. HCFA designated certain health insurance companies, known as Fiscal
Intermediaries ("FIs"), to process claims for Medicare Part A benefits. HCFA
designated certain other health insurance companies, known as carriers, to
process claims for Medicare Part B benefits.
11. It was a basic tenet of Medicare coverage that Medicare would
reimburse only for covered goods or services, provided to
3
an eligible beneficiary, which were medically necessary for the diagnosis or
treatment of illness or injury.
The Medicare ESRD Program
-------------------------
12. End Stage Renal Disease (ESRD) was an irreversible and permanent
impairment of kidney function requiring dialysis or kidney transplantation to
sustain life. The most common form of dialysis, hemodialysis, typically involved
treatments three times per week, in which the patient's blood was removed from
the body, passed through a dialysis machine to remove impurities and toxins, and
then returned to the patient's body.
13. In or about July 1, 1973 Medicare coverage was extended to certain
persons suffering from ESRD, without regard to their age. In general, Medicare
paid eighty percent (80%) of the Medicare allowable amount for covered services
needed by ESRD patients.
14. Medicare established a composite rate to cover the costs of equipment,
supplies, certain blood laboratory tests and other services associated with
dialysis treatments at independent dialysis facilities. Medicare paid 80 percent
of the composite rate directly to the facility for each dialysis treatment
provided to an eligible ESRD patient.
15. Medicare also established a monthly capitation rate to cover the cost
of physician outpatient services relating to the care of an eligible patient for
ESRD. Medicare paid 80 percent of the capitation rate for the physician's
services relating to eligible dialysis patients.
CHAMPUS
-------
4
16. The Civilian Health and Medical Program of the Uniform Service
("CHAMPUS") was a health insurance program, administered by the United States
Department of Defense, to provide health insurance to retired military personnel
and the civilian dependents of active duty, retired and deceased military
personnel.
5
COUNT ONE (18 U.S.C. (S)371 Conspiracy to Defraud the United States relating
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to IDPN)
17. The allegations contained in paragraphs 1 to 4 and 7 to 15 are
incorporated herein and realleged as if set forth in full.
18. One of the products which NMC Homecare sold was intradialytic
parenteral nutrition ("IDPN"), a nutrition therapy which was provided
intravenously to dialysis patients during their dialysis treatments. IDPN was
one of the most profitable products which NMC Homecare sold and in some of the
years IDPN accounted for virtually all of the profits of NMC Homecare. Medicare
was NMC Homecare's principal source of reimbursement for IDPN.
19. Medicare reimbursed for IDPN under the prosthetic device benefit
provision of the Social Security Act. Pursuant to a 1984 National Coverage
Determination, parenteral and enteral nutrition (PEN) therapies, including IDPN,
were a covered Medicare service only if the patient suffered from a severe
pathology of the alimentary tract which did not allow absorption of sufficient
nutrients to maintain weight and strength commensurate with the patient's
general condition. For IDPN to be a covered service, Medicare also required that
(1) the patient's impairment be permanent, meaning it was expected to last for
at least 90 consecutive days; (2) the therapy be ordered, by a physician, in
writing; and (3) the claim be supported by sufficient medical documentation to
permit an independent conclusion that the requirements of Medicare's prosthetic
device benefit were satisfied.
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19. Medicare did not cover IDPN if it was supplemental nutrition, even if
it was prescribed by a physician to treat malnutrition.
19. NMC Homecare provided IDPN to patients in both BMAs and non-BMAs. NMC
Homecare was the exclusive supplier of IDPN to patients in BMAs, but had to
compete with other IDPN suppliers to provide IDPN to patients at non-BMAs.
19. NMC Homecare employed IDPN Coordinators to market IDPN. IDPN
Coordinators were usually Registered Nurses ("RNs") or Renal Dieticians who were
assigned a designated geographic territory. IDPN Coordinators called on dialysis
facilities within their territory, both BMAs and non-BMAs; promoted the use of
IDPN; assessed whether patients were candidates for IDPN; prepared paperwork
relating to the billing for IDPN; and negotiated IDPN contracts with non-BMAs.
IDPN Coordinators were paid a base salary, plus a commission for each patient
they put on service for IDPN.
19. NMC Homecare maintained a Clinical Reimbursement Department which was
responsible for training IDPN Coordinators, reviewing documentation relating to
IDPN billing, monitoring Medicare policies and practices relating to IDPN
reimbursement, and appealing denied IDPN claims.
19. NMC Homecare usually paid an administration fee, bag fee or hang fee
("hang fee") to the dialysis facility in
7
connection with the administration of IDPN. This hang fee purported to
compensate the dialysis facility for the services and resources it devoted to
managing and administering IDPN. NMC Homecare's standard hang fee rate was $30
for each bag of IDPN administered. NMC Homecare paid its standard hang fee to
the BMAs, and a majority of the non-BMAs, throughout the conspiratorial period
alleged in this count. NMC Homecare paid hang fees in excess of $30 per bag to
80 non-BMAs, more or less, for various portions of the conspiratorial period
alleged in this count.
19. Beginning in or about February, 1992 and continuing until at least in
or about November, 1995 NMC Homecare purported to use an IDPN Administration Fee
Calculation Tool ("calculation tool") to justify hang fees in excess of $30 per
bag. The calculation tool purported to calculate the amount of time, on average,
which various members of the dialysis facility staff spent on managing or
administering IDPN, and then multiplied the time, by average wage rates, to
calculate an average cost per IDPN treatment.
19. Throughout the period charged in this Information, calculation tools
were not, in fact, used to determine the amount of the hang fee which NMC
Homecare would pay to a non-BMA. Those amounts were determined primarily by the
level of competition which existed for the IDPN business of the non-BMA, the
potential volume of IDPN business at issue, and the amount NMC Homecare believed
was necessary to obtain or maintain the non-BMA's IDPN
8
business. In many instances, when NMC Homecare paid a hang fee to a non-BMA in
excess of $30 per bag, NMC Homecare simply ignored its purported calculation
tool requirement, or it obtained a sham calculation tool which did not reflect
the non-BMA's true costs. NMC Homecare did not establish procedures to review
calculation tools to insure they reflected a non-BMA's true costs.
19. NMC Homecare usually submitted a claim for reimbursement to Medicare
monthly for each Medicare beneficiary on IDPN. Claims were submitted on form
HCFA 1500, or its electronic equivalent, and separate reimbursement was provided
for (1) the IDPN solution; (2) lipids, if administered; (3) rental of a pole;
(4) rental of an infusion pump; and (5) an administration kit, which covered the
disposable supplies used to administer IDPN.
19. Blue Cross Blue Shield of South Carolina ("BC/BS of SC") was the
carrier that processed virtually all of NMC Homecare's IDPN claims during the
period May, 1988 to December, 1993. Beginning in or about January, 1994 Medicare
transferred responsibility for processing IDPN claims to four Durable Medical
Equipment Regional Carriers ("DMERCs"), known as DMERCs A, B, C and D.
19. Medicare required that each IDPN claim be supported by a Certificate
of Medical Necessity ("CMN"), signed by physician, indicating that in the
physician's opinion the supplies and
9
equipment were medically necessary and the physician would be supervising the
patient's treatment. Medicare required an initial certification, for a three
month period, followed by subsequent recertifications for varying periods of
time. Medicare also required a recertification whenever there was a change in
the patient's IDPN prescription.
19. Medicare also required that each IDPN claim be supported by sufficient
medical documentation to demonstrate that the prosthetic device benefit was
satisfied. In or about the Fall of 1988 NMC Homecare developed the IDPN
Information Sheet ("IIS form") to document the medical condition of Medicare
beneficiaries. The format of the IIS form was approved by BC/BS of SC. In 1994,
when Medicare transferred IDPN claims processing to the DMERCs, NMC Homecare
renamed the IIS form the Clinical Nutrition Summary ("CNS"). IIS and CNS forms
were used to meet Medicare's medical documentation requirement relating to IDPN.
19. Throughout the period charged in this Information, NMC Homecare's IDPN
Coordinators typically drafted an IIS or CNS form for each new Medicare IDPN
patient and submitted it to the Clinical Reimbursement Department for review and
comment. Thereafter, the IIS or CNS form was typed in final form and a CMN was
prepared, using the IIS or CNS form. Both the IIS/CNS form and the CMN were
submitted to the patient's physician for signature. Most physicians signed
IIS/CNS and CMN forms without making any changes in them. Thereafter, the
IIS/CNS and CMN forms were returned to NMC Homecare and used as the basis for
10
billing IDPN to Medicare. On some occasions the IIS/CNS form was submitted to
Medicare to substantiate a patient's medical condition. On other occasions, the
IIS/CNS form served as the source document for an electronic claim summary which
was transmitted to Medicare in support of the IDPN claim.
19. If a Medicare IDPN claim was denied, there were three levels of review
available to NMC Homecare. The first level, known as Informal Review, was
conducted by carrier personnel, who essentially gave the claim a second look.
The next level, known as a carrier Fair Hearing ("FH"), was conducted either in
person or by phone, and resulted in a formal written decision. The third level
of review involved the submission of the disputed claim to an independent
Administrative Law Judge ("ALJ").
The Conspiracy
--------------
33. Beginning in or about May 1988, and continuing until at least
June 1996, the exact dates being unknown to the United States Attorney, in the
District of Massachusetts and elsewhere, the defendant herein,
NMC HOMECARE, INC.,
did knowingly, willfully and unlawfully combine, conspire, confederate and agree
with others, known and unknown, to defraud the United States, by impeding,
impairing, obstructing and defeating the lawful governmental function of various
departments and agencies of the United States, including particularly HHS and
HCFA, in the implementation, execution and administration of the Medicare
program, including particularly Medicare's PEN benefit.
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34. The conspiracy consisted essentially of an unlawful agreement and
understanding among the defendant and the co-conspirators:
(a) to submit claims to Medicare for reimbursement for
IDPN, based on false, fraudulent and misleading statements and material
omissions, relating to the beneficiary's medical condition and eligibility for
coverage;
(b) to submit claims to Medicare for reimbursement for
IDPN administration kits, based on false statements relating to the number of
kits actually used; and
(c) to offer and pay hang fees, educational grants and
other remuneration to dialysis facilities and others, for the purpose of
inducing IDPN referrals which were paid for, in part, by Medicare.
35. Pursuant to this unlawful conspiracy, the United States paid NMC
Homecare in excess of $110 million for improper Medicare IDPN claims.
Manner and Means
----------------
The manner and means by which NMC Homecare and the co-conspirators formed
and carried out the conspiracy included, among other things, the following:
False and Misleading Statements and Material Omissions
------------------------------------------------------
35. In or about 1989, NMC Homecare organized an IDPN Task Force to prepare
paperwork required to bill old, previously unbilled or denied, IDPN claims. Many
of the patients to whom
12
these claims related were placed on IDPN without the clinical indications
mandated by Medicare. When it was discovered that documentation relating to the
medical condition of many of these patients was missing, NMC Homecare instructed
the Task Force to use "clinical creativity" in preparing IIS and CMN forms for
these patients. Pursuant to these instructions, IIS and CMN forms were prepared
and filed with Medicare, which contained false, fictitious and misleading
information, material omissions and statements which were not supported in the
patient's medical records.
35. It was the policy and practice of NMC Homecare to prepare IIS, CNS and
CMN forms which contained false, misleading, unsupported and inaccurate
information relating to the patient's medical condition. IDPN Coordinators were
instructed to list GI diagnoses which were historical, as opposed to currently
active conditions, without indicating that the condition was historical. IDPN
Coordinators were told to list weight loss and low serum albumin scores as
evidence of GI malabsorption problems, and omit other causes of weight loss and
low albumin, such as alcoholism, AIDS, depression, anorexia, lack of appetite
and recent hospitalizations. IDPN Coordinators were instructed to list GI
symptoms, such as nausea, vomiting or diarrhea, as indications of malabsorption,
while omitting and concealing other causes for these symptoms, such as uremia
due to inadequate dialysis or the side effects of medications.
35. It was the policy and practice of NMC Homecare to instruct its IDPN
Coordinators that when no GI diagnosis existed
13
in a patient's medical records, the IDPN Coordinator could infer, from symptoms,
the diagnoses of Malabsorption Syndrome, Uremic Malabsorption, Protein Calorie
Malabsorption, or Gastroparesis, without disclosing to Medicare that these
diagnoses had been inferred by NMC Homecare.
35. IDPN Coordinators listed false and fictitious information on IIS, CNS,
and CMN forms submitted to Medicare, including diagnoses and GI symptoms the
patient did not have, medications the patient was not taking, weight losses the
patient had not suffered and blood lab values which were not accurate.
35. It was the policy and practice of NMC Homecare to always assert on
IIS/CNS forms that the patient's GI impairment was expected to be of permanent
duration (at least 90 days), that all medications taken to treat GI symptoms had
been unsuccessful, and that IDPN would be life sustaining, even when these
statements were false.
35. It was the policy and practice of NMC Homecare to exaggerate,
embellish and misrepresent patients' GI symptoms, such as nausea, vomiting and
diarrhea. IDPN Coordinators were encouraged by the Clinical Reimbursement
Department to use adjectives, such as chronic, persistent, or intractable, when
these terms did not accurately reflect the patient's condition and to list
frequencies and durations for symptoms which were false.
35. It was the policy and practice of NMC Homecare to misrepresent the
medications which patients had received to control GI symptoms, including
listing medications which had not
14
been prescribed; listing medications which were prescribed as PRN (as needed)
but had not in fact been used; and misrepresenting the time period medications
had been tried and the medication's effect on the symptom.
35. It was the policy and practice of NMC Homecare to misrepresent the
patient's blood laboratory values relating to nutrition, including serum albumin
and total protein. IDPN Coordinators were instructed that the IIS/CNS forms
should show declining lab values, with scores below the normal range. The
Clinical Reimbursement Department told IDPN Coordinators they should omit lab
values which showed an improving nutritional state. IDPN Coordinators listed
false and fictitious lab values on IIS, CNS and CMN forms, transposed lab values
to make them appear to be in a declining pattern, and omitted lab values to
conceal a patient's improved nutritional status.
35. It was the policy and practice of NMC Homecare to misrepresent the
patient's weight and weight history on IIS, CNS and CMN forms. IDPN Coordinators
sometimes listed false weight losses and false usual body weights ("UBWs"). IDPN
Coordinators were encouraged to show declining weights over time and to ignore
and conceal weight gain. IDPN Coordinators asserted on IIS/CNS forms that weight
loss was due to nausea, vomiting or diarrhea, or the inability to ingest, retain
or absorb nutrients, and concealed and failed to disclose that the weight loss
was due to amputations, hospitalizations, depression, infections, other
catabolic stresses, failure to eat or lack of someone to prepare
15
food.
35. It was NMC Homecare's policy and practice to make false, fictitious,
misleading and unsupported statements on IIS, CNS and CMN forms regarding
patient's dietary intake and fluid restrictions. IDPN Coordinators listed
dietary intake and fluid restrictions which were false, fictitious, unsupported
in the patient's medical records or not representative of the patient's usual
condition. IDPN Coordinators also falsely asserted patients were unable to
maintain dietary intake due to nausea or vomiting, when, in fact, their medical
records showed they were not eating due to depression, lack of appetite or the
dislike of hospital food.
35. It was NMC Homecare's policy and practice to list false, fictitious
and misleading information on IIS, CNS and CMN forms relating to enteral trials.
IDPN Coordinators falsely listed specific enteral supplements as having been
tried, when they had not been used; and listed supplements as having been tried
and been unsuccessful, when the supplement was not prescribed until at or about
the time the IDPN was ordered. IDPN Coordinators were told never to list on
IIS/CNS forms that the reason why enteral supplements were unsuccessful was
because the patient disliked the taste, or could not afford to purchase the
supplement, even if these reasons were the true cause.
35. NMC Homecare often put false, fictitious and misleading information on
CMN forms including information about the patient's weight, whether the patient
was on other therapies or
16
treatments that may affect the patient's nutritional needs, diagnoses, GI
symptoms, weight loss and GI impairment. NMC Homecare often prepared CMN forms
for re-certification periods using outdated and inaccurate information, but
nonetheless representing to Medicare that this information applied to the re-
certification period.
35. In connection with appeals of denied IDPN claims, NMC Homecare made
false, fictitious and fraudulent statements and material omissions to carrier
personnel, in connection with Informal Reviews and Fair Hearings, and to
Administrative Law Judges, in connection with ALJ appeals. In appealing denied
IDPN claims, NMC Homecare would typically continue to rely on IIS, CNS and CMN
forms which contained false, fictitious and fraudulent statements, and material
omissions. It would also attempt to supplement the record with selective
portions of the patient's medical records which purported to support findings of
GI impairment and malabsorption, while ignoring, and not submitting, other
portions of the medical record which contradicted or undercut such findings. On
some occasions NMC Homecare would withdraw claims from appeal at the FH or ALJ
level, because it had concluded the patient did not meet Medicare coverage
criteria. When it did so, NMC Homecare would fail to repay to Medicare funds it
had received relating to that patient, on other IDPN claims for other dates of
service.
False Billing of IDPN Administration Kits
-----------------------------------------
35. In or about February 1991 BC/BS of SC issued a
17
Medicare Advisory to NMC Homecare and other IDPN suppliers indicating that when
billing for IDPN administration kits, procedure code B 4224, suppliers must bill
for the total number of actual days used, instead of a one month supply kit. NMC
Homecare had been billing for a one month supply kit, even though IDPN was
administered only 12 or 13 times per month to patients who received IDPN
throughout the month. Upon receiving the Medicare Advisory, NMC Homecare's
billing center personnel initiated steps to comply with this Medicare Advisory.
35. NMC Homecare's senior officers realized that this Medicare Advisory
would reduce NMC Homecare's revenue on IDPN administration kits by $360 per
patient per month. NMC Homecare's senior officers instructed the billing center
not to implement the February 1991 Medicare Advisory relating to administration
kits.
35. Thereafter, on monthly HCFA 1500 claim forms for IDPN patients, for
dates of service between March 1, 1991 and April 30, 1992, NMC Homecare falsely
and fraudulently listed on the claim form either that it had supplied a one
month administration kit or that it had provided 30 or 31 administration kits.
In the case of patients who received IDPN for only part of the month, NMC
Homecare falsely and fraudulently listed the number of days between the
patient's first and last IDPN treatment during the month. These false and
fraudulent claims were paid by BC/BS of SC.
18
35. In or about May 1992 BC/BS of SC issued a second Medicare Advisory to
NMC Homecare and other IDPN suppliers regarding procedure code B 4224,
administration kits. This Advisory expressly stated that IDPN suppliers should
not bill for 31 administration kits, if the patient only received IDPN 12-13
times per month. Upon receipt of this Advisory NMC Homecare's billing center
personnel again initiated steps to comply with this Advisory.
35. NMC Homecare's senior officers at Waltham, MA realized that
implementing this Advisory would reduce NMC Homecare's IDPN revenues and profits
by nine (9) percent, or approximately $400,000 per month. NMC Homecare's senior
officers instructed the billing center personnel not to implement the May 1992
Medicare Advisory relating to IDPN administration kits and to continue billing
as they had been doing.
35. Thereafter, on monthly HCFA 1500 claim forms for IDPN patients, for
dates of service between May 1, 1992 and June 30, 1992, NMC Homecare falsely and
fraudulently listed on the claim forms that it had provided 30 or 31
administration kits, when, in fact, it had only provided 12 or 13 administration
kits. In the case of patients who received IDPN for only part of the month, NMC
Homecare falsely and fraudulently listed the number of days between the
patient's first and last IDPN treatment during the month. These false and
fraudulent claims were paid by BC/BS of SC.
19
Hang Fees, Education Grants and Other Inducements
-------------------------------------------------
35. It was the policy and practice of NMC Homecare to offer and pay hang
fees in excess of $30 per bag, educational grants, and other remuneration to
non-BMAs in order to induce IDPN referrals and to maintain existing IDPN
customers. Such inducements were provided to non-BMAs when NMC Homecare was
faced with competing IDPN suppliers and NMC Homecare believed that higher hang
fees and other inducements were necessary to obtain or maintain the non-BMA's
IDPN business.
35. IDPN Coordinators, General Manager, Regional Directors and other NMC
Homecare staff were instructed to consider the IDPN referral potential of the
non-BMA and the degree of competition from other IDPN providers, in deciding how
high the hang fees and other inducements should be. In competitive situations,
NMC Homecare regularly determined what it was willing to offer and pay a non-BMA
for its IDPN business without regard to what the non-BMA's actual cost was in
administering IDPN.
35. In or about February 1992 NMC Homecare introduced the calculation tool
as a marketing device designed to respond to competitors who were offering
inflated hang fees. Although the written policy of NMC Homecare, beginning in
February 1992, was to require a calculation tool from a non-BMA before NMC
Homecare would pay a hang fee in excess of $30 per bag, that policy was often
ignored and the practice of NMC Homecare was to pay hang
20
fees in excess of $30 per bag, without obtaining a calculation tool, when such
payments were needed to obtain or maintain IDPN business.
35. In or about the summer of 1993 NMC Homecare became aware that the
Inspector General of the U.S. Department of Health and Human Services had issued
a report stating that hang fees in the $25 to $60 per bag range were legally
questionable and apparent violations of the Medicare Anti-kickback Act. NMC
Homecare's senior management directed that a sample calculation tool be prepared
which purported to justify NMC Homecare's standard $30 hang fee. NMC Homecare
knew that the true incremental cost to a dialysis facility of administering IDPN
was less than $30 a bag and that it was illegal to pay a non-BMA more than its
actual cost of administering IDPN.
35. In or about October 1993 NMC Homecare directed its IDPN Coordinators
to take its new sample calculation tool to their existing customers who were
receiving hang fees of $40 or more, but for whom NMC Homecare did not have a
calculation tool. IDPN Coordinators were instructed to complete the tool with
the facility to ensure that the cost reported on the calculation tool matched or
was close to the hang fee amount NMC Homecare was already paying that non-BMA.
35. NMC Homecare regularly "backed into" the numbers on calculation tools.
It was the practice of NMC Homecare personnel to complete the tool by starting
with the final number desired,
21
and fill in the time estimates needed to reach that final number. 61. NMC
Homecare's IDPN Coordinators prepared sample calculation tools at specified
levels, such as $40, $45 and $50 per bag, exchanged these calculation tools
among themselves, provided these sample calculation tools to customers so they
could fill out their own tool and sometimes submitted calculation tools to NMC
Homecare headquarters without any input from the customer.
62. It was the policy and practice of NMC Homecare that no efforts were
made to ensure that the costs reported on calculation tools were the true,
actual costs of the non-BMAs in administering IDPN. Non-BMAs were not required
to submit back-up documentation to substantiate purported costs greatly in
excess of NMC Homecare's standard $30 hang fee, most calculation tools were not
signed by the non-BMA, and most calculation tools received no review for
accuracy or reasonableness.
62. It was the policy and practice of NMC Homecare to provide purported
educational grants to non-BMAs as inducements to obtain IDPN referrals.
Following the HHS Inspector General's 1993 report on hang fees, some non-BMAs
preferred education grants, rather than higher hang fees, in return for their
IDPN business. In awarding educational grants to non-BMAs, NMC Homecare
instructed its General Managers to weigh the anticipated benefit of the grant
(i.e. IDPN referrals) against its cost in deciding whether to pay an educational
grant.
OVERT ACTS
----------
22
In furtherance of the conspiracy, and to effect the objects thereof, NMC
Homecare and the co-conspirators, performed the following overt acts, among
others, in the District of Massachusetts and elsewhere:
64. In or about November 1988, NMC Homecare began using the IIS form in
connection with the preparation of IDPN claims to Medicare. This form allowed
NMC Homecare to pick and choose the information it would present to Medicare in
support its IDPN claims. 65. On or about December 1, 1988, NMC Homecare issued
check No. 113 in the amount of ten thousand dollars ($10,000) payable to Florida
Kidney Center for a purported education grant.
65. In or about March 1989, NMC Homecare's Clinical Reimbursement
Department submitted 102 claims to Medicare for IDPN for dates of service in the
period 10/1/87 to 4/30/88, in which it purposely deleted medical documentation
which would tend to show the patient did not meet Medicare's coverage criteria.
65. In or about August 1989, NMC Homecare created an IDPN Task Force to
clean-up previously unbilled IDPN claims from 1987 and 1988. These claims were
unbilled because there was insufficient documentation that the patient met
Medicare's coverage criteria for IDPN.
65. In or about November 1989, members of the IDPN Task Force visited
dialysis units in Mississippi, Florida, Maryland,
23
Puerto Rico and Massachusetts to prepare IIS forms relating to the IDPN clean-up
project.
65. In or about November 1989, NMC Homecare's Cincinnati/Columbus, Ohio
branch wrote 14 IIS forms in one day, as part of the IDPN clean-up project, with
assistance from an IDPN Coordinator assigned to the IDPN Task Force.
65. On or about November 30, 1989, NMC Homecare's Midwest Regional
Director notified the President of NMC Homecare that a non-BMA in his territory
had been approached by a competitor who offered a $50 hang fee and NMC Homecare
decided that it would match that fee in order to be certain it would keep the
account.
65. On or about March 2, 1990, the President of NMC Homecare signed a
purported Research Agreement between NMC Homecare and Florida Kidney Center
which required NMC Homecare to pay Florida Kidney Center one hundred thousand
($100,000) dollars.
65. On or about April 2, 1990, NMC Homecare signed an IDPN contract with
Florida Kidney Center which provided that NMC Homecare would pay Florida Kidney
Center a $35 per bag hang fee, a $35 per month per patient nutritional
assessment fee, and provide Florida Kidney Center with five (5) cases of enteral
supplements, per month.
65. In or about June 1990, NMC Homecare agreed to increase the hang fee
paid to Houston Kidney Center from $30 to $50 per
24
bag, in response to competitive pressures from another IDPN supplier.
65. In or about November 1990, NMC Homecare executives met in Ontario,
California to discuss IDPN scale-up efforts in the Pacific Region.
65. In or about December 1990, the Manager of the Clinical Reimbursement
Department traveled to Waltham, Massachusetts to meet with various NMC Homecare
executives in preparation for the first meeting of the IDPN Special Interest
Group.
65. On or about December 18, 1990, NMC Homecare increased its hang fee
payments to L.E. Cox Medical Center in Springfield, Missouri in response to
competition from another IDPN provider.
65. On or about January 10, 1991, the IDPN Special Interest Group met in
Waltham, Massachusetts to discuss expanding NMC Homecare's IDPN business.
65. In or about February 1991, NMC Homecare's V.P. of Finance caused a
copy of the Medicare Advisory relating to billing for IDPN administration kits
to be faxed to NMC Homecare's headquarters in Waltham, Massachusetts.
65. In or about February and March 1991, senior executives at NMC
Homecare's headquarters held a series of meetings relating to billing Medicare
of IDPN administration kits and decided not
25
to bill for the number of kits actually used, in direct contravention of
Medicare's requirements.
65. In or about early March 1991, at the request of the V.P. of
Operations, the Clinical Reimbursement Department analyzed the Medicare payment
history on patients from Florida Kidney Centers, in preparation for a hang fee
offer NMC Homecare was contemplating in response to competitive pressures.
65. On or about March 15, 1991, NMC Homecare's V.P. of Operations made a
financial offer to Florida Kidney Centers for the purpose of securing its IDPN
business. The offer included the following incentives: (1) a $65 hang fee; (2) a
weekly $50 payment per patient for dietary consultations; (3) a $30,000 annual
educational grant; (4) a $20,000 annual indigent patient drug fund; and (5)
$15,000 worth of computer equipment.
65. On or about June 14, 1991, NMC Homecare issued an IDPN Clinical Manual
which authorized IDPN Coordinators to infer the existence of certain GI
diagnoses in potential IDPN patients, when no other GI diagnosis was available.
65. In or about September 1991, NMC Homecare agreed with Houston Kidney
Center to increase its hang fee from $50 to $60 per bag, in response to
competitive pressure.
65. In or about October 1991, the Clinical Reimbursement Department
reported to NMC Homecare headquarters that the quality
26
of clinical documentation supporting IDPN claims had decreased as the volume of
IDPN patients had increased.
65. In or about February 1992, NMC Homecare held a national sales meeting
in Phoenix, Arizona in which the Clinical Reimbursement Department made a
presentation to the IDPN Coordinators regarding the preparation of IIS forms.
65. On or about February 10, 1992, NMC Homecare provided its sales staff
with a sample calculation tool to use when negotiating IDPN contracts.
65. On or about February 28, 1992, NMC Homecare issued a policy memorandum
to the field authorizing General Managers to award a non-BMA an education grant
of up to $4,000 per year.
65. In or about May 1992, NMC Homecare's Lenexa, Kansas billing center
notified NMC Homecare headquarters staff that a Medicare Advisory had been
received stating that an IDPN provider could not bill for 31 administration kits
if the patient received IDPN only 12-13 times in that month.
65. In or about June 1992, a series of meetings were held among NMC
Homecare senior executives to discuss billing for IDPN administrative kits.
65. On or about July 4, 1992, the President of NMC directed
27
the V.P. of Finance of NMC Homecare not to make any change in how NMC Homecare
billed IDPN administration kits without talking with him.
65. On or about July 27, 1992, NMC Homecare entered into an IDPN contract
with Lourdes Hospital in Paducah, Kentucky in which NMC Homecare agreed to pay a
$50 hang fee.
65. On or about August 11 to 14, 1992, a group of NMC Homecare executives
met in Lenexa, Kansas with the recently resigned head of the BC/BS of SC PEN
unit to discuss processing of IDPN claims.
65. On or about September 11, 1992, NMC Homecare entered into an IDPN
contract with Clark County Dialysis in Cincinnati, Ohio in which NMC Homecare
agreed to pay a hang fee of $50.
65. On or about December 5, 1992, in response to competition from another
IDPN provider, NMC Homecare entered into an IDPN contract with Bon Secours
Dialysis Center in Baltimore, Maryland to pay a $40 hang fee for each bag of
IDPN administered.
95. On or about December 23, 1992, NMC Homecare delivered two checks
totaling $37,040 to Woodland Dialysis for hang fee payments covering IDPN
therapies provided during the final eight months of 1992.
96. On or about January 26, 1993, NMC Homecare initiated IDPN therapy for
Patient No. 1, a patient at BMA El Paso-West. The IIS form for this patient
contains numerous false statements
28
and material omissions, including GI symptoms the patient did not have,
medications she was not taking, and false assertions she had been hospitalized
for diabetic gastroparesis.
96. In or about February 1993, the Clinical Reimbursement Department made
a presentation at NMC Homecare's National Managers Meeting. The presentation
included a slide marked "Not to be used as a handout," in which it listed
certain preferred medications to list on IIS forms, suggested that IIS forms not
show alternating symptoms of diarrhea and constipation, and that they not show
anorexia, alcohol induced or psychological conditions, senility and phrases such
as "avoids eating" or any indication that the patient did not eat.
96. On or about June 18, 1993, NMC Homecare entered into an IDPN contract
with Woodland Dialysis in which NMC Homecare agreed to a hang fee of $52 per bag
and to provide $17,000 in educational grants.
96. In or about August 1993, NMC Homecare's IDPN Product Manager delivered
a memorandum to the V.P. of Marketing, stating that the calculation tool was
"developed as a marketing tool" to overcome "competitors offering inflated hang
fees . . . when a non-BMA completes the calculation tool, they will be lucky to
get $20.00. That was the point . . . sometimes the reps are confused and think
they can't pay a certain amount unless the facility can justify it using the
hang fee tool, that was not the intent."
29
96. On or about August 30, 1993, NMC Homecare executed an IDPN contract
with the Hortense & Louis Rubin Dialysis Center in Albany, New York in which NMC
Homecare agreed to pay a hang fee of $45 per bag.
96. On or about September 1, 1993, NMC Homecare senior executives held the
first of a series of meetings at corporate headquarters in Waltham,
Massachusetts to discuss IDPN hang fees, among other things.
96. On or about September 20, 1993, NMC Homecare entered into an IDPN
contract with Good Samaritan Hospital in Portland, Oregon in which NMC Homecare
agreed to pay a hang fee of $41 per bag.
96. On or about September 22, 1993, NMC Homecare entered into an IDPN
contract with Lexington Clinic Kidney Center in Lexington, Kentucky in which it
agreed to pay a hang fee of $45.
96. On or about October 13, 1993, the IDPN Product Manager sent a memo to
the President of NMC Homecare in which she stated that only 80% of NMC
Homecare's IDPN patients have "real" justified GI dysfunction.
96. On or about October 15, 1993, NMC Homecare issued a memorandum to its
sales staff requiring that calculation tools be submitted within 30 days for all
non-BMAs receiving hang fee
30
payments of $40 or more for which no calculation tool was on file. In this
memorandum, NMC Homecare instructed its employees to work with the non-BMAs to
ensure that the cost reported on the calculation tool is consistent with (or
close to) the hang fee currently being paid to that facility.
96. On or about October 18, 1993, NMC Homecare executed an IDPN contract
with Dialysis Center of Middle Georgia in Macon, Georgia in which it agreed to
pay a $40 hang fee.
96. On or about October 28 and 29, 1993, NMC Homecare held a national
meeting of IDPN Coordinators in Waltham, Massachusetts, to discuss its hang fee
policies, among other things.
96. On or about November 8, 1993, NMC Homecare's San Diego branch General
Manager approved the payment of a $1,560 invoice submitted by San Diego Dialysis
Services for IDPN treatments provided in October 1993 at the rate of $60 per
bag.
96. On or about November 13, 1993, NMC Homecare signed an IDPN contract
with Houston Kidney Center-Southeast in which NMC Homecare agreed to pay a hang
fee of $50 per bag.
96. On or about January 4, 1994, NMC Homecare executed an addendum to its
IDPN contract with Ozarks Dialysis Services in Springfield, Missouri in which
NMC Homecare agreed to pay a hang
31
fee of $50 per bag.
96. On or about January 26, 1994, NMC Homecare sent a memo to its field
staff authorizing General Manager to give annual educational grants to non-BMAs
of up to $4,000.
96. On or about February 7, 1994, NMC Homecare participated in a telephone
Fair Hearing relating to the appeal of denied IDPN claims relating to Patient
No. 2, a patient at BMA Chicopee. NMC Homecare failed to advise the FH officer
that there were numerous false statements and material omissions on the IIS form
it submitted in support of this hearing, including false statements relating to
symptoms, medications, lab values and enteral supplements.
96. On or about February 9, 1994, NMC Homecare initiated IDPN therapy for
Patient No. 3, a patient at the BMA of McAllen, Texas. The IIS form relating to
this patient contained numerous false statements and material omissions,
including false diagnosis, symptoms, medications, weight loss and enteral
supplements, and failure to disclose the patient had been started on IDPN
because of two hospitalizations.
96. On or about February 17, 1994, the President of NMC Homecare wrote to
the President of NMC, stating that NMC Homecare's IDPN patient census had fallen
dramatically in the last several months because in the past NMC Homecare had
been
32
able to put patients on IDPN "w/o GI disorder/malabsorption," but the new DMERCs
were applying the coverage criteria more strictly.
96. On or about April 22, 1994, NMC Homecare initiated IDPN therapy for
Patient No. 4, a patient in the Cincinnati, Ohio area. The IIS form for this
patient contains false information and material omissions, including using an
albumin lab value of 2.8 to justify IDPN, when a repeat test, one week later,
before IDPN therapy started, had a value of 4.2.
96. On or about May 26, 1994, NMC Homecare participated in a telephone
Fair Hearing on denied IDPN claims relating to Patient No. 2. It continued to
rely on an IIS form containing numerous false statements and material omissions,
and also falsely reported to the FH officer that the patient had lost 30 pounds
in four months prior to the start of IDPN.
96. Beginning on or about October 10, 1994, and continuing through on or
about October 6, 1995, as detailed below, for the patient indicated, NMC
Homecare submitted a claim to Medicare for reimbursement for IDPN, which was
paid, which was a false claim, because it was based on an IIS form which
contained false statements and material omissions:
Patient No. 1 Patient No. 3 Patient No. 4
------------- ------------- -------------
10/10/94 10/11/94 01/04/95
11/11/94 11/17/94 01/10/95
12/08/94 12/12/94 02/21/95
01/09/95 03/07/95
02/08/95 04/07/95
33
03/09/95 05/08/95
03/17/95 06/13/95
04/11/95 07/07/95
05/11/95 09/07/95
06/09/95 09/12/95
07/12/95 10/06/95
08/11/95
09/08/95
96. In or about November 1994, NMC Homecare paid $1,300 to Bethany
Dialysis in Bethany, Oklahoma, representing hang fee payments at $50 per bag for
IDPN treatments administered during the month of October 1994.
96. In or about November 1994, NMC Homecare paid $1,600 to Lourdes
Dialysis in Paducah, Kentucky, representing hang fee payments at $40 per bag for
IDPN treatments administered during the month of October 1994.
96. On or about December 1, 1994, NMC Homecare issued check number 19157
in the amount of $2,385 to Hortense & Louis Rubin Dialysis Center representing
hang fee payments at $45 per bag for IDPN treatments administered during the
month of September 1994.
96. In or about January 1995, NMC Homecare paid $946 to Angelina Dialysis
in Houston, Texas, representing hang fee payments at $43 per bag for IDPN
treatments administered during the month of December 1994.
96. On or about January 19, 1995, NMC Homecare issued check
34
number 025273 in the amount of $6,360 to Houston Kidney Center representing hang
fee payments at $60 per bag for IDPN treatments administered during the month of
December 1994.
96. On or about January 28, 1995, NMC Homecare issued check number 035821
in the amount of $5,160 and check number 035820 in the amount of $1,548 to
Woodland Dialysis representing hang fee payments at $52 per bag for IDPN
treatments at Woodland during the month of December 1994.
96. On or about March 14, 1995, NMC Homecare executed an amendment to an
IDPN contract with AKC Broward, in Pompano Beach, Florida, in which NMC Homecare
agreed to pay a hang fee of $40 per bag.
96. On or about June 9, 1995, NMC Homecare decided to withdraw IDPN claims
relating to Patient No. 2 from an ALJ Hearing scheduled for June 27, 1995. NMC
Homecare knew there was no GI diagnosis. NMC Homecare failed to disclose to the
ALJ, however, the numerous false statements and material omissions it had used
to get prior claims paid relating to this patient and failed to refund the money
to Medicare it had received on those claims.
96. In or about July 1995, NMC Homecare paid $2,650 to Midway Dialysis
Center, representing hang fee payments at $50 per bag for IDPN treatments
administered during the month of June 1995.
96. On or about July 5, 1995, NMC Homecare executed an
35
IDPN contract with Beverly Hospital in Beverly, Massachusetts in which NMC
Homecare agreed to pay a hang fee of $40 per bag.
96. On or about August 28, 1995, NMC Homecare executed an IDPN contract
with Jewish Hospital Dialysis Unit in St. Louis, Missouri in which NMC Homecare
agreed to pay a hang fee of $40 per bag.
96. In or about September 1995, NMC Homecare paid $5,880 to Charlotte
Hungerford Hospital in Torrington, Connecticut, representing hang fee payments
at $40 per bag for IDPN treatments administered during the month of August 1995.
96. In or about October 1995, NMC Homecare paid $1,560 to Missouri Delta
Community Hospital in Sikeston, Missouri, representing hang fee payments at $40
per bag for IDPN treatments administered during the month of September 1995.
96. In or about November 1995, NMC Homecare paid $1,800 to Nephroplex
Service Center in Mount Vernon, Illinois, representing hang fee payments at $40
per bag for IDPN treatments administered during the month of October 1995.
96. In or about November 1995, NMC Homecare paid $2,720 to Quachita
Regional Dialysis Center in Kansas, representing hang fee payments at $40 per
bag for IDPN treatments administered
36
during the month of October 1995. (All in violation of Title 18, United States
Code, Section 371.)
37
COUNT TWO (18 U.S.C. (S) 286 -- Conspiracy to Defraud the
- ---------
United States by Obtaining Payment of False or Fraudulent
Claims) 133. The allegations set forth in paragraphs 1-3 and
5-16 are incorporated herein and realleged as if fully set
forth herein.
134. LIFECHEM was a clinical blood testing laboratory which specialized in
performing blood tests for ESRD patients. LIFECHEM operated two clinical
laboratories, one located in Northvale, New Jersey, and the other in Woodland
Hills, California. BMAs were generally required to use LIFECHEM for laboratory
blood tests. LIFECHEM had to compete with other blood testing laboratories for
the business of non-BMAs.
135. LIFECHEM was an approved supplier of Medicare services under Title
XVIII of the Social Security Act of 1965. As an approved supplier, LIFECHEM was
authorized to submit directly to the carriers under contract with HCFA lawful
claims for reimbursement for clinical laboratory blood tests. At all pertinent
times, LIFECHEM submitted its claims for Medicare reimbursement to Pennsylvania
Blue Shield of Camp Hill, Pennsylvania, later known as Xact Medicare Services, a
carrier under contract with HCFA. LIFECHEM was also authorized to submit
directly to CHAMPUS claims for laboratory services provided to individuals
covered by CHAMPUS.
136. MPD employed a sales force of Dialysis Services Specialists, who were
assigned a designated geographic territory and sold both the dialysis products
of MPD and the blood testing services of LIFECHEM. These salespersons called on
both BMAs and
38
non-BMAs within their territory and their compensation included salary and
commissions.
137. For ESRD patients who received dialysis treatments at a Medicare
approved dialysis facility, Medicare established a composite rate payment that
was paid directly to the dialysis facility and included payment for certain
laboratory blood tests at designated frequencies that were needed in the care
and treatment of ESRD patients. These laboratory blood tests covered by the
composite rate were known as "Routine Tests," and were not separately billable
by LIFECHEM to Medicare. Medicare paid the dialysis facility for the Routine
Tests, and it was the responsibility of the dialysis facility to pay the blood
testing laboratory, such as LIFECHEM, for its provision of Routine Tests.
138. Frequently ESRD patients suffered from additional medical problems and
complications which required medical treatment beyond the process of dialysis.
For such persons, additional monitoring of the blood was sometimes medically
necessary, and these additional laboratory blood tests were referred to as
"Non-Routine Tests."
139. The Medicare Program separately paid for Non-Routine Tests by directly
reimbursing the clinical laboratory, such as LIFECHEM, on a fee-for-service
basis. The Non-Routine Tests were lawfully reimbursable by the Medicare Program
only if they were reasonable and medically necessary for the diagnosis or
treatment of signs or symptoms of illness or injury in ESRD patients other than
ESRD, except for certain Non-Routine Tests enumerated by HCFA that were allowed
at specified frequencies for ESRD patients
39
("Medicare Allowable Tests"). To obtain reimbursement for Non-Routine Tests
provided to ESRD patients, LIFECHEM was required to certify to HCFA, through its
Medicare carrier, that the tests were medically necessary.
140. An automated laboratory machine, sometimes known as a sequential
multiple analysis computer, was capable of performing a "panel" or "battery" of
more than 20 chemistry tests on a single specimen of blood. At LIFECHEM, at all
pertinent times, this automated battery of chemistry tests was known as a "Chem
20." For most ESRD patients, once a month, Medicare paid for LIFECHEM's Chem 20
as part of the Composite Rate Payment made directly to the dialysis facilities.
The defendant LIFECHEM knew that individual chemistry tests, performed as part
of LIFECHEM's monthly Chem 20, were not lawfully separately billable to Medicare
on a fee-for-service basis, and that to submit separate bills for such services
constituted duplicate bills for services for which Medicare had already paid.
141. From in or about the mid-1980's, LIFECHEM offered for sale to dialysis
physicians, and received reimbursement from Medicare and from CHAMPUS for, a
group of tests that LIFECHEM called a Hepatitis panel. The Hepatitis panel
consisted of, among other tests, a Hepatitis B surface antigen test ("antigen"),
a Hepatitis B surface antibody test ("antibody"), and a Hepatitis B IgM Core
test ("IgM Core")(collectively, the "Hepatitis B related tests"). At relevant
times, the Hepatitis B related tests were also offered individually.
142. For all ESRD patients, Medicare and CHAMPUS paid for
40
one annual antibody test or one annual IgM Core test, but not both, as a
Medicare Allowable Test. Medicare and CHAMPUS paid for additional antibody and
IgM Core tests so long as the tests were medically necessary for the treatment
or diagnosis of the patient's medical condition other than ESRD.
143. Prior to August, 1991, LIFECHEM knew that IgM Core tests were not
routinely medically necessary for any ESRD patient, but were only necessary for
ESRD patients in certain limited circumstances such as upon admission or
readmission to a dialysis facility or for the rare patient who had active
Hepatitis B disease. LIFECHEM further knew, prior to August, 1991, that while
the IgM Core test was separately available to physicians, physicians rarely, if
ever, individually ordered the IgM Core test for their ESRD patients.
144. Medicare also paid for a clinical laboratory test for the Hepatitis C
antibody ("Hepatitis C") so long as the test was ordered by a physician who
considered the test to be medically necessary for the treatment or diagnosis of
the patient's medical condition other than ESRD.
145. As of August, 1991, LIFECHEM knew that repeat Hepatitis C testing on
ESRD patients who were confirmed positive for the Hepatitis C antibody was not
medically necessary. LIFECHEM further knew, as of August, 1991, that while
LIFECHEM made the Hepatitis C test available to physicians, physicians
infrequently ordered the Hepatitis C test for their ESRD patients.
The Conspiracy
--------------
41
146. From in or about January, 1991 through in or about June, 1997, the
exact dates being unknown to the United States Attorney, in Waltham and
elsewhere in the District of Massachusetts, in Northvale and Rockleigh, New
Jersey, and elsewhere in the United States, the defendant
LIFECHEM, INC., together with others known and unknown to the United States
Attorney, did knowingly, intentionally and willfully agree, combine, and
conspire to defraud the United States, and its agency the Health Care Financing
Administration, in its administration of the Medicare Program, by obtaining and
aiding to obtain the payment and allowance of hundreds of thousands of false,
fictitious and fraudulent claims for: (1) Hepatitis B IgM Core tests included as
part of a Hepatitis panel that LIFECHEM knew were not medically necessary for
the diagnosis or treatment of Medicare beneficiaries because the tests were
performed on patients who were existing patients in a dialysis facility and who
did not suffer from active Hepatitis B disease; (2) Hepatitis C Antibody tests
included as part of a Hepatitis panel that LIFECHEM knew were not medically
necessary for the diagnosis or treatment of Medicare beneficiaries because they
were performed on ESRD patients who had already been confirmed positive for the
Hepatitis C antibody; (3) chemistry tests performed by the laboratory as part of
LIFECHEM's automated Chem 20 for which Medicare had already paid through the
Composite Rate Payment, and which LIFECHEM knew were not lawfully billable a
second time to
42
Medicare; and (4) additional medically unnecessary blood laboratory tests
generated by LIFECHEM's paneling and marketing activities designed to manipulate
physician ordering practices for blood laboratory tests on their ESRD patients,
all for the purpose of obtaining a substantial increase in orders for particular
laboratory tests that were highly profitable for LIFECHEM, without regard to
whether the increased testing was medically necessary for the diagnosis or
treatment of Medicare beneficiaries; so that LIFECHEM could unlawfully obtain at
least $22,900,000 in reimbursement from the Medicare Program to which it was not
entitled.
OBJECTIVE OF THE CONSPIRACY
---------------------------
147. LIFECHEM had, as the objective of this conspiracy, increasing the
laboratory blood testing conducted on thousands of ESRD patients, without regard
to the medical necessity for such blood testing in the diagnosis or treatment of
those Medicare beneficiaries, all to obtain unlawful reimbursement from the
Medicare program for that additional medically unnecessary testing. LIFECHEM
obtained this additional reimbursement by submitting false, fictitious and
fraudulent claims for payment to the Medicare Program for these blood tests,
which claims falsely certified to Medicare that the laboratory blood tests were
medically necessary when LIFECHEM knew that they were not. A further objective
of the conspiracy was to submit false, fictitious and fraudulent claims for
payment for individual chemistry tests that were being performed in the
laboratory on a sequential multi-channel analyzer as part of LIFECHEM's
automated
43
Chem 20, for which Medicare had already paid, all to enable LIFECHEM to obtain
further unlawful reimbursement from the Medicare program to which LIFECHEM was
not entitled. As a consequence of these unlawful objectives, LIFECHEM also
submitted claims for medically unnecessary blood testing to other federal health
care insurance programs, including CHAMPUS, that sought payment for the
performance of medically unnecessary laboratory tests on dialysis patients
insured by those programs.
148. As a result of this conspiracy, the defendant LIFECHEM, together with
others known and unknown to the United States Attorney, in fact defrauded the
United States and the Medicare Program through the submission of false,
fictitious and fraudulent claims in an amount of $22,900,000 dollars.
MANNER AND MEANS OF THE CONSPIRACY
----------------------------------
149. It was a part of the manner and means of the conspiracy that the
defendant LIFECHEM, together with others known and unknown to the United States
Attorney:
a. bundled a Hepatitis C antibody test with LIFECHEM's Hepatitis panel,
so that each time a doctor ordered a Hepatitis panel, a Hepatitis C antibody
test was performed for the same patient, without regard to whether the test was
medically necessary in the treatment and diagnosis of the patient's medical
condition;
b. marketed and promoted the frequent ordering of LIFECHEM's Hepatitis
panel for all ESRD patients, so that each time a doctor ordered a Hepatitis
panel, the IgM Core test was automatically performed for the same patient
without regard to
44
whether the test was medically necessary in the treatment and diagnosis of the
patient's medical condition;
c. supplied to physicians LIFECHEM's paper requisition or laboratory test
order forms which made it difficult for physicians to (1) order LIFECHEM's
Hepatitis panel without the bundled Hepatitis C test and IgM Core test; and (2)
understand what Hepatitis tests were included on LIFECHEM's Hepatitis panel; and
which discouraged physicians from ordering LIFECHEM's Hepatitis panel without
the bundled tests;
d. misled physicians by falsely suggesting to them that ordering
LIFECHEM's laboratory blood tests in a panel or profile such as the Hepatitis
panel was cheaper or more economical than selectively ordering individual blood
tests, and by failing to disclose to physicians the fact that LIFECHEM was
charging the Medicare Program separately for each of the bundled tests at the
Medicare fee schedule;
e. provided incentives in the form of commissions to MPD's sales force to
encourage and promote the sale to the BMAs of LIFECHEM's Hepatitis panels
without regard to whether the additional Hepatitis C and IgM Core tests within
the Hepatitis panel were medically necessary in the diagnosis and treatment of
the patients' conditions other than ESRD;
f. supplied to dialysis facilities a computer and computerized test
ordering software which encouraged physicians to order LIFECHEM's Hepatitis
panels rather than individual tests; which made it difficult to order LIFECHEM's
Hepatitis panel without the bundled Hepatitis C test or IgM Core test; and
45
which made it difficult for physicians to understand what tests were included on
LIFECHEM's Hepatitis panel;
g. utilized certain MPD sales personnel to install a computerized
ordering system in the BMAs, and submitted or caused to be submitted claims for
payment to Medicare for a sudden increase in orders from the BMAs of LIFECHEM's
Hepatitis panels in one sales region, without regard to whether the additional
tests were medically necessary in the diagnosis or treatment of the ESRD
patients' medical conditions other than ESRD;
h. misled physicians in some instances by incorrectly suggesting to them
that BMA medical policy required or encouraged the routine ordering of
LIFECHEM's Hepatitis panels;
i. obtained diagnosis codes, known as ICD-9 codes, for Hepatitis panels
from dialysis clinics to enable LIFECHEM to provide medical justification to the
Medicare carrier for the Non-Routine Tests, without disclosing to the Medicare
carrier that not every test on the Hepatitis panel had been ordered separately
by the physician as being medically necessary;
j. billed the Medicare Program for these bundled Hepatitis C and IgM Core
tests, all the while knowing that the tests had not been ordered knowingly by
doctors as medically necessary tests for their patients, and further falsely
certified to the Medicare Program and to CHAMPUS that the tests were medically
necessary when LIFECHEM knew that many of them were not medically necessary;
k. collected from the Medicare Program about $16.00, more or less, for
each Hepatitis B IgM Core test; $19.00, more or
46
less, for each Hepatitis C antibody test; and collected from CHAMPUS about
$34.00, more or less, for each Hepatitis B IgM Core test; and
l. billed the Medicare Program for the same test twice by billing
once to the dialysis facility for the entire panel which was reimbursed by
Medicare through the composite rate, and again directly to the Medicare Program
for certain individual tests included within the panel, knowing that the bills
were duplicate bills and were not lawfully reimbursable.
OVERT ACTS
----------
150. In furtherance of the conspiracy, the defendant LIFECHEM, together
with others known and unknown to the United States Attorney, committed, among
other acts, the following overt acts in the District of Massachusetts and
elsewhere:
a. In or about May, 1991, the defendant LIFECHEM and others
initiated a Profit Recovery Program to offset revenue losses from government
regulatory actions in connection with the manufacturing of certain MPD dialysis
products by adding the Hepatitis C test to LIFECHEM's Hepatitis panel, and by
marketing and causing the substitution of the Hepatitis panel for the individual
Hepatitis test ordering practices then in place at the BMAs (the "Hepatitis
plan").
b. In or about June 1991, the General Manager of LIFECHEM obtained
approval from the President of NMC, and the President and the Vice President of
Finance of MPD, among others, to purchase equipment to enable LIFECHEM to
perform additional Hepatitis testing that was expected to result from the
Hepatitis
47
plan, which, the General Manager informed her superiors, included an estimated
additional 55,000 Hepatitis C tests and an additional 94,117 IgM Core tests that
she expected would result from the implementation of the Hepatitis plan in the
first year alone.
c. In or about June, 1991, to justify approval to purchase the
laboratory equipment that defendant LIFECHEM needed to perform the additional
Hepatitis tests, the General Manager of LIFECHEM informed the President of NMC,
and the President and Vice President of Finance of MPD, among others, that
LIFECHEM projected an increase in 1991 revenue by $524,000 and profit from
operations ("PFO") by $308,000 if the Hepatitis C test could be added to the
Hepatitis panel by July 1, 1991, with a five year projected revenue stream of
over $6,000,000 and PFO of over $3,300,000; and that LIFECHEM projected an
increase in 1991 revenue by $2,083,000 with a PFO of $1,330,000 if Hepatitis
panels were substituted for individual Hepatitis test ordering in the BMAs, with
a five year projected revenue stream of $27,453,952 with a PFO of $18,989,618.
d. In or about June 1991, the LIFECHEM Product Manager notified the
MPD sales force about the new plan to market LIFECHEM's Hepatitis panels and
explained that the goal was to cause BMA physicians to order the entire
Hepatitis panel rather than the separate Hepatitis B antigen and/or antibody
tests then being ordered by those physicians.
e. On or about July 31, 1991, the LIFECHEM Product Manager announced
the addition of the Hepatitis C test to the
48
LIFECHEM Hepatitis panel, without providing customers an option on the pre-
printed requisition forms to obtain the LIFECHEM Hepatitis panel without the
added Hepatitis C test.
f. In or about August 1991, the LIFECHEM General Manager and Product
Manager, and the MPD Vice-President of Marketing, rejected a plan to prevent
repeated medically unnecessary testing for Hepatitis C on ESRD patients who were
previously confirmed positive for the antibody.
g. In or about September, 1991, the LIFECHEM General Manager directed
that no separate panel would be included on the LIFECHEM pre-printed requisition
form to provide doctors the choice of ordering LIFECHEM's Hepatitis panel
without the added Hepatitis C blood test, despite complaints about the lack of
choice from both physicians and the MPD sales force, and despite requests
certain from physicians to delete the Hepatitis C test from the Hepatitis panel.
h. In or about January 1992, after an important customer of LIFECHEM
threatened to withdraw its entire laboratory business if the Hepatitis C test
was not deleted from LIFECHEM's Hepatitis panel, LIFECHEM created a special
panel without the Hepatitis C test for that particular customer only, and did
not offer that choice to any other LIFECHEM customer.
i. LIFECHEM supplied to dialysis clinics preprinted paper LIFECHEM
requisition forms that, from August, 1991 through early 1993, did not list the
contents of the Hepatitis panel on the front of the form and did not offer
physicians the option of ordering LIFECHEM's Hepatitis panel without the
Hepatitis C test.
49
j. From in or about 1991 through 1994, certain members of the MPD
sales force falsely informed some physicians and others that ordering the
LIFECHEM Hepatitis panel was the standard of care at the BMA's, falsely informed
physicians and others that ordering the tests in the LIFECHEM Hepatitis panel
was more economical than ordering tests separately as needed for individual
patients, and failed to provide material information to physicians and others
regarding the cost to Medicare for the often medically unnecessary Hepatitis C
tests and IgM Core tests included on LIFECHEM's Hepatitis panel.
k. In or about June, 1992, MPD announced a new commission program
designed to increase sales of LIFECHEM's Hepatitis panel by paying each sales
representative $3.00 for each additional Hepatitis panel sold with the Hepatitis
C test, and $2.00 per panel for every Hepatitis panel sold without the Hepatitis
C test.
l. In or about August, 1992, LIFECHEM's General Manager sought and
received approval from the President of NMC, and the President and the Vice
President of Finance of MPD, and others, to purchase equipment for LIFECHEM to
perform the anticipated additional Hepatitis tests resulting from the further
sales and marketing efforts, and she informed them that the projected increase
in 1992 revenues would be $763,000 with PFO by $465,000 as a result of the
additional testing to be performed by LIFECHEM.
m. From in or about January, 1993 through June, 1994, LIFECHEM
purchased and installed a computerized laboratory test
51
ordering system in both BMA and non-BMA dialysis clinics, which system included
software that did not include on the computerized ordering screen the contents
of the Hepatitis panel, and that made it difficult to order the Hepatitis panel
without the added Hepatitis C test, and that made it difficult to order
Hepatitis tests for individual patients based upon their serologic status.
n. From in or about January, 1993 through June, 1994, LIFECHEM
directed the sales force of MPD, and others, to install the computers and to
instruct employees of the dialysis facilities about how to set up standing
orders, and how to use an "assign all" function on the LIFECHEM computerized
ordering system, that would assign the test for all patients, or a designated
group of patients, in a dialysis facility, and would assign for billing purposes
and insert into the computer the same ICD-9 diagnosis code as the medical
justification for performing a particular laboratory blood test for each and
every patient, or group of patients, at a given facility, regardless of each
individual patient's medical condition.
o. From in or about March, 1994 through June, 1994, LIFECHEM utilized
the MPD sales force to install LIFECHEM's computerized ordering system at the
BMAs, despite the potential for abuse by a sales force whose commissions were
tied directly to the number of BMA orders for particular enumerated laboratory
tests, such as Hepatitis panels, and which, in some cases, resulted in increased
medically unnecessary laboratory blood testing and caused the addition of tests
to orders for individual patients without the physician's knowledge or approval.
51
p. From in or about August, 1991 through June, 1997, the defendant
LIFECHEM submitted false, fictitious and fraudulent claims to the Medicare
Program for Hepatitis B IgM Core tests that the defendant LIFECHEM knew were not
medically necessary for the diagnosis or treatment of a Medicare Program
beneficiary, and without disclosing that lack of medical necessity to the
Medicare Program, HCFA, or any carriers employed by the Medicare Program for the
processing and payment of claims. By this conduct, the defendant LIFECHEM
received at least $8,000,000 in payment from Medicare to which LIFECHEM was not
entitled. Among many other medically unnecessary Hepatitis B IgM Core tests that
LIFECHEM caused to be billed to the Medicare Program were the following tests,
conducted on or about the dates set forth below, and billed to the Medicare
Program on or about the dates set forth below, using the "HIC" code indicated:
- ---------------------------------------------------------------------------
HIC No. Date of Service Date Claim Submitted
- ----------------- ----------------------- -------------------------------
Patient A 8/15/94 8/23/94
- ---------------------------------------------------------------------------
Patient A 9/19/94 9/27/94
- ---------------------------------------------------------------------------
Patient A 10/17/94 10/24/94
- ---------------------------------------------------------------------------
Patient A 11/14/94 11/22/94
- ---------------------------------------------------------------------------
Patient A 12/12/94 12/19/94
- ---------------------------------------------------------------------------
Patient A 1/2/95 1/17/95
- ---------------------------------------------------------------------------
Patient A 2/6/95 2/16/95
- ---------------------------------------------------------------------------
Patient A 3/6/95 3/14/95
- ---------------------------------------------------------------------------
Patient A 4/3/95 4/20/95
- ---------------------------------------------------------------------------
Patient A 5/1/95 5/8/95
- ---------------------------------------------------------------------------
Patient B 8/3/94 8/10/94
- ---------------------------------------------------------------------------
Patient B 9/7/94 9/14/94
52
- ---------------------------------------------------------------------------
Patient B 10/5/94 10/14/94
- ---------------------------------------------------------------------------
Patient B 11/9/94 11/15/94
- ---------------------------------------------------------------------------
Patient B 12/7/94 12/13/94
- ---------------------------------------------------------------------------
Patient B 1/4/95 1/17/95
- ---------------------------------------------------------------------------
Patient B 2/8/95 2/23/95
- ---------------------------------------------------------------------------
Patient B 3/8/95 3/14/95
- ---------------------------------------------------------------------------
Patient B 5/3/95 5/9/95
- ---------------------------------------------------------------------------
Patient B 7/5/95 7/17/95
- ---------------------------------------------------------------------------
Patient B 8/9/95 8/15/95
- ---------------------------------------------------------------------------
Patient B 9/6/95 9/12/95
- ---------------------------------------------------------------------------
Patient C 8/1/94 8/8/94
- ---------------------------------------------------------------------------
Patient C 9/12/94 9/22/94
- ---------------------------------------------------------------------------
Patient C 10/3/94 10/10/94
- ---------------------------------------------------------------------------
Patient C 11/7/94 11/14/94
- ---------------------------------------------------------------------------
Patient C 12/5/94 12/19/94
- ---------------------------------------------------------------------------
Patient C 1/9/95 1/19/95
- ---------------------------------------------------------------------------
Patient C 2/6/95 2/16/95
- ---------------------------------------------------------------------------
Patient C 3/6/95 3/16/96
- ---------------------------------------------------------------------------
Patient D 8/4/95 8/15/94
- ---------------------------------------------------------------------------
Patient D 9/8/94 9/19/94
- ---------------------------------------------------------------------------
Patient D 10/6/94 10/12/94
- ---------------------------------------------------------------------------
Patient D 11/3/94 11/10/94
- ---------------------------------------------------------------------------
Patient D 12/8/94 12/19/94
- ---------------------------------------------------------------------------
Patient D 1/5/95 1/17/95
- ---------------------------------------------------------------------------
Patient D 2/2/95 2/14/95
- ---------------------------------------------------------------------------
Patient D 3/2/95 3/9/95
- ---------------------------------------------------------------------------
Patient D 4/7/95 4/21/95
- ---------------------------------------------------------------------------
Patient D 5/4/95 5/11/95
- ---------------------------------------------------------------------------
Patient D 6/8/95 6/15/95
- ---------------------------------------------------------------------------
Patient D 7/6/95 7/14/95
- ---------------------------------------------------------------------------
Patient D 8/3/95 8/8/95
53
- ---------------------------------------------------------------------------
Patient E 8/8/94 8/15/94
- ---------------------------------------------------------------------------
Patient E 9/13/94 9/20/94
- ---------------------------------------------------------------------------
Patient E 10/10/94 10/18/94
- ---------------------------------------------------------------------------
Patient E 11/14/94 11/21/94
- ---------------------------------------------------------------------------
Patient E 12/12/94 12/19/94
- ---------------------------------------------------------------------------
Patient E 1/9/95 1/24/95
- ---------------------------------------------------------------------------
Patient E 2/13/95 2/28/95
- ---------------------------------------------------------------------------
Patient E 3/13/95 3/23/95
- ---------------------------------------------------------------------------
Patient E 4/10/95 4/21/95
- ---------------------------------------------------------------------------
Patient E 5/8/95 5/15/95
- ---------------------------------------------------------------------------
Patient E 7/17/95 7/25/95
- ---------------------------------------------------------------------------
Patient E 8/21/95 8/29/95
- ---------------------------------------------------------------------------
Patient F 2/8/95 2/27/95
- ---------------------------------------------------------------------------
Patient F 4/6/95 4/20/95
- ---------------------------------------------------------------------------
Patient F 5/3/95 5/11/95
- ---------------------------------------------------------------------------
Patient F 6/7/95 6/15/95
- ---------------------------------------------------------------------------
Patient F 7/5/95 7/14/95
- ---------------------------------------------------------------------------
Patient F 8/9/95 8/17/95
- ---------------------------------------------------------------------------
Patient F 9/6/95 9/12/95
- ---------------------------------------------------------------------------
q. From in or about August, 1991 through June, 1997, the defendant
LIFECHEM submitted false, fictitious and fraudulent claims for payment to the
Medicare Program for Hepatitis C antibody tests that LIFECHEM knew were not
medically necessary for the diagnosis or treatment of a Medicare Program
beneficiary, and without disclosing that lack of medical necessity to the
Medicare Program, HCFA, or any carriers employed by the Medicare Program for the
processing and payment of claims. By this conduct, LIFECHEM received at least
$1,900,000 in payment to
54
which LIFECHEM was not entitled. Among many other medically unnecessary
Hepatitis B IgM Core tests that LIFECHEM caused to be billed to the Medicare
Program were the following tests, conducted on or about the dates set forth
below, and billed to the Medicare Program on or about the dates set forth below,
using the "HIC" code indicated:
- ---------------------------------------------------------------------------
HIC No. Date of Service Date Claim Submitted
------- --------------- --------------------
- ---------------------------------------------------------------------------
Patient A 8/15/94 8/23/94
- ---------------------------------------------------------------------------
Patient A 9/19/94 9/27/94
- ---------------------------------------------------------------------------
Patient A 10/17/94 10/24/94
- ---------------------------------------------------------------------------
Patient A 11/14/94 11/22/94
- ---------------------------------------------------------------------------
Patient A 12/12/94 12/19/94
- ---------------------------------------------------------------------------
Patient A 1/2/95 1/17/95
- ---------------------------------------------------------------------------
Patient A 2/6/95 2/16/95
- ---------------------------------------------------------------------------
Patient A 3/6/95 3/14/95
- ---------------------------------------------------------------------------
Patient A 4/3/95 4/20/95
- ---------------------------------------------------------------------------
Patient A 5/1/95 5/8/95
- ---------------------------------------------------------------------------
Patient B 8/3/94 8/10/94
- ---------------------------------------------------------------------------
Patient B 9/7/94 9/14/94
- ---------------------------------------------------------------------------
Patient B 10/5/94 10/14/94
- ---------------------------------------------------------------------------
Patient B 11/9/94 11/15/94
- ---------------------------------------------------------------------------
Patient B 12/7/94 12/13/94
- ---------------------------------------------------------------------------
Patient B 1/4/95 1/17/95
- ---------------------------------------------------------------------------
Patient B 2/8/95 2/23/95
- ---------------------------------------------------------------------------
Patient B 3/8/95 3/14/95
- ---------------------------------------------------------------------------
Patient B 5/3/95 5/9/95
- ---------------------------------------------------------------------------
Patient B 7/5/95 7/17/95
- ---------------------------------------------------------------------------
Patient B 8/9/95 8/15/95
- ---------------------------------------------------------------------------
Patient B 9/6/95 9/12/95
- ---------------------------------------------------------------------------
Patient C 8/1/94 8/8/94
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Patient C 9/12/94 9/22/94
- ---------------------------------------------------------------------------
Patient C 10/3/94 10/10/94
- ---------------------------------------------------------------------------
Patient C 11/7/94 11/14/94
- ---------------------------------------------------------------------------
Patient C 12/5/94 12/19/94
- ---------------------------------------------------------------------------
Patient C 1/9/95 1/19/95
- ---------------------------------------------------------------------------
Patient C 2/6/95 2/16/95
- ---------------------------------------------------------------------------
Patient C 3/6/95 3/16/96
- ---------------------------------------------------------------------------
Patient D 8/4/95 8/15/94
- ---------------------------------------------------------------------------
Patient D 9/8/94 9/19/94
- ---------------------------------------------------------------------------
Patient D 10/6/94 10/12/94
- ---------------------------------------------------------------------------
Patient D 11/3/94 11/10/94
- ---------------------------------------------------------------------------
Patient D 12/8/94 12/19/94
- ---------------------------------------------------------------------------
Patient D 1/5/95 1/17/95
- ---------------------------------------------------------------------------
Patient D 2/2/95 2/14/95
- ---------------------------------------------------------------------------
Patient D 3/2/95 3/9/95
- ---------------------------------------------------------------------------
Patient D 4/7/95 4/21/95
- ---------------------------------------------------------------------------
Patient D 5/4/95 5/11/95
- ---------------------------------------------------------------------------
Patient D 6/8/95 6/15/95
- ---------------------------------------------------------------------------
Patient D 7/6/95 7/14/95
- ---------------------------------------------------------------------------
Patient D 8/3/95 8/8/95
- ---------------------------------------------------------------------------
Patient E 8/8/94 8/15/94
- ---------------------------------------------------------------------------
Patient E 9/13/94 9/20/94
- ---------------------------------------------------------------------------
Patient E 10/10/94 10/18/94
- ---------------------------------------------------------------------------
Patient E 11/14/94 11/21/94
- ---------------------------------------------------------------------------
Patient E 12/12/94 12/19/94
- ---------------------------------------------------------------------------
Patient E 1/9/95 1/24/95
- ---------------------------------------------------------------------------
Patient E 2/13/95 2/28/95
- ---------------------------------------------------------------------------
Patient E 3/13/95 3/23/95
- ---------------------------------------------------------------------------
Patient E 4/10/95 4/21/95
- ---------------------------------------------------------------------------
Patient E 5/8/95 5/15/95
- ---------------------------------------------------------------------------
Patient E 7/17/95 7/25/95
- ---------------------------------------------------------------------------
_______________________________________________________________________
Patient E 8/21/95 8/29/95
- -----------------------------------------------------------------------
Patient F 2/8/95 2/27/95
- -----------------------------------------------------------------------
Patient F 4/6/95 4/20/95
- -----------------------------------------------------------------------
Patient F 5/3/95 5/11/95
- -----------------------------------------------------------------------
Patient F 6/7/95 6/15/95
- -----------------------------------------------------------------------
Patient F 7/5/95 7/14/95
- -----------------------------------------------------------------------
Patient F 8/9/95 8/17/95
- -----------------------------------------------------------------------
Patient F 9/6/95 9/12/95
- -----------------------------------------------------------------------
r. From in or about August, 1991 through June, 1997, the defendant
LIFECHEM submitted false, fictitious and fraudulent claims to CHAMPUS for
Hepatitis B IgM Core tests that LIFECHEM knew were not medically necessary for
the diagnosis or treatment of the medical condition of a CHAMPUS beneficiary,
and without disclosing that lack of medical necessity to the CHAMPUS Program.
By this conduct, LIFECHEM received payments for these tests from CHAMPUS to
which LIFECHEM was not entitled. Among other medically unnecessary Hepatitis B
IgM Core tests that LIFECHEM caused to be billed to CHAMPUS were the following
tests, conducted on or about the dates set forth below, and reimbursed by
CHAMPUS on or about the dates set forth below:
- ----------------------------------------------------------------------
Patient/Test Date of Service Reimbursement Date
------------ --------------- ------------------
- ----------------------------------------------------------------------
Patient X/IgM Core 5/4/95 9/5/95
- ----------------------------------------------------------------------
Patient Y/IgM Core 5/4/95 9/5/95
- ----------------------------------------------------------------------
Patient Y/IgM Core 6/8/95 7/22/95
- ----------------------------------------------------------------------
Patient Y/IgM Core 7/6/95 8/21/95
- ----------------------------------------------------------------------
Patient Y/IgM COre 8/2/95 9/16/95
- ----------------------------------------------------------------------
s. In or about June, 1990, LIFECHEM installed a new
57
computer billing system and began submitting claims for payment to the Medicare
program that were generated by that new computer system, despite the fact that
the billing computer had not been completely programmed with the Medicare ESRD
billing rules, and the billing computer had not been parallel tested to
determine whether or not it generated accurate claims for payment.
t. By July, 1990, LIFECHEM knew that the new billing computer was
generating inaccurate claims for payment for laboratory blood tests conducted on
ESRD patients but continued to submit those false claims for payment to the
Medicare Program.
u. In or about February, 1991, LIFECHEM discovered a computer
programming error that caused the new billing computer to generate claims for
payment to the Medicare program for individual chemistry tests that were
performed in the laboratory on a automated chemistry analyzer as part of
LIFECHEM's automated Chem 20, despite the fact that Medicare had already paid
for the monthly Chem 20 for most ESRD patients by directly paying the dialysis
facilities the Composite Rate Payment.
v. From in or about February, 1991 through at least June, 1992,
LIFECHEM submitted false, fictitious and fraudulent claims for payment for
individual chemistry tests for which LIFECHEM knew Medicare had already paid,
without disclosing to the Medicare Program that those claims for payment were
duplicate bills to the Medicare Program, HCFA, or any carriers employed by the
Medicare Program for the processing and payment of claims. By this conduct,
LIFECHEM received at least $5,300,000 in payment to which LIFECHEM was not
entitled.
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All in violation of Title 18, United States Code, Section 286.
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COUNT THREE (18 U.S.C. (S) 371 -- Conspiracy to Commit an Offense)
-----------
151. The allegations set forth in paragraphs 1-3, 5-16, and 134-145
are realleged as if fully set forth herein and incorporated in full.
152. From in or about May, 1987 through in or about July, 1996, the exact
dates being unknown to the United States Attorney, in the Districts of
Massachusetts, Florida, North Carolina, and New Jersey, and elsewhere across the
United States, the defendant
NMC MEDICAL PRODUCTS, INC.
together with others known and unknown to the United States Attorney, knowingly,
willfully, and intentionally combined, conspired, confederated and agreed to
commit an offense against the United States and its agency the Health Care
Financing Administration, namely, to knowingly, willfully and intentionally
offer and pay remuneration, directly and indirectly, overtly and covertly, in
cash and in kind, to induce dialysis facilities to order, and arrange for the
ordering, from LIFECHEM of a service and item paid for, in whole or in part, by
the Medicare Program, specifically clinical laboratory blood testing conducted
for dialysis patients in the facilities, all in violation of Title 42, United
States Code, Section 1320a-7b(b)(2)(B).
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OBJECTIVE OF THE CONSPIRACY
---------------------------
153. The objective of the conspiracy was to offer and give things of
value to dialysis clinics, and to their employees, owners, and administrators,
for the purpose of inducing dialysis clinics to order, and to arrange for the
ordering of LIFECHEM's laboratory blood testing services, including Non-Routine
Tests and medically unnecessary laboratory blood tests for dialysis patients,
which services were paid for primarily by Medicare.
MANNER AND MEANS OF THE CONSPIRACY
----------------------------------
154. It was a part of the manner and means by which the conspiracy was
accomplished that the defendant MPD, together with others known and unknown to
the United States Attorney, offered and paid remuneration to certain dialysis
facilities in the form of lavish entertainment and hunting trips, payment of
salary and benefits for full-time dialysis center staff who were not devoted to
spinning and packaging blood tests for shipment to LIFECHEM, payment of study
grants for research that was never performed, and payment of up-front rebates on
dialysis products based upon commitments to purchase certain volumes of product
that were never met, all for the purpose of inducing the referral of orders for
laboratory blood testing services to LIFECHEM, including orders for Non-Routine
Tests that were not medically necessary for the diagnosis or treatment of
Medicare beneficiaries, which services were paid for primarily by Medicare Trust
Funds.
155. As a result of MPD's knowing, willful and intentional payment of
illegal remuneration to various dialysis facilities to obtain referral of their
laboratory blood testing business to
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LIFECHEM, MPD generated an unlawful pecuniary gain or profit from that
laboratory business in an amount of at least $9,500,000.
OVERT ACTS
----------
156. In furtherance of the conspiracy, the defendant MPD, together with
others known and unknown to the United States Attorney, committed among other
acts the following overt acts in the District of Massachusetts and elsewhere:
a. In or about 1992, MPD knowingly, willfully and intentionally
offered and paid to the manager/administrator of Dialysis Facility I illegal
remuneration in the form of payment for a bear hunting trip to Canada to induce
him to refer Dialysis Facilities I's laboratory blood testing business to
LIFECHEM.
b. At various times between May, 1987 and January, 1995, MPD
knowingly, willfully and intentionally offered and paid to Dialysis Facility F
illegal remuneration in the form of payment of salary and benefits for two full-
time dialysis center personnel whose responsibilities were not limited to
spinning and packaging blood for shipment to LIFECHEM but included
administrative, clerical and nursing practitioner work, and in the form of
grants for studies that were never performed, all to induce referrals of
Dialysis Facility F's laboratory blood testing business to LIFECHEM;
c. In or about December, 1990, MPD knowingly, willfully and
intentionally offered and paid to Dialysis Facility G illegal remuneration in
the form of payment for lavish holiday entertainment parties including a yacht
rental worth thousands of dollars to induce referrals of dialysis facility G's
laboratory blood testing business to LIFECHEM; and
d. At various times between 1991 and 1993, MPD knowingly, willfully
and intentionally offered and paid to Dialysis Facilities B and J illegal
remuneration in the form of an up-front credit on
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dialysis products based upon a commitment to purchase a specified volume of
dialysis products that was not met, to induce referrals of Dialysis Facilities B
and J's laboratory blood testing business to LIFECHEM. All in violation of Title
18 United States Code, Section 371.
Respectfully submitted,
MARK W. PEARLSTEIN
Acting United States Attorney
/s/ Peter A. Mullin
---------------------------
PETER A. MULLIN
Assistant U.S. Attorney
/s/ Susan Winkler
---------------------------
SUSAN G. WINKLER
Assistant U.S. Attorney
/s/ Susan Hanson-Philbrick
---------------------------
SUSAN HANSON-PHILBRICK
Assistant U.S. Attorney
/s/ Joshua Levy
---------------------------
JOSHUA LEVY
- ---------------------------- Assistant U.S. Attorney
Dated: January 19, 2000
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