A Medical Device Daily

The owner and operator of a Florida durable medical equipment (DME) company and an assisted living facility has been convicted by a federal jury in Miami of Medicare fraud, Assistant Attorney General Alice Fisher of the Criminal Division and U.S. Attorney R. Alexander Acosta of the Southern District of Florida reported.

After a seven-day trial at federal court in Miami, the jury found Marianela Smith guilty on all charged counts including conspiracy to defraud the U.S. government, to submit false claims to Medicare, and to receive kickbacks; conspiracy to commit healthcare fraud; and three counts of receiving kickbacks in exchange for referring patients to a co-conspirator pharmacy. Smith faces a maximum sentence of 30 years in prison. She is scheduled to be sentenced on Nov. 9 before Judge Joan Lenard of the Southern District of Florida.

Smith owned and operated Smith Medical Equipment and M.P. Residence, providing her access to Medicare patients. At trial, the jury heard evidence that Smith paid kickbacks to physicians to obtain phony prescriptions for compounded aerosol medications, paid kickbacks to patients to accept unnecessary treatments, and received kickbacks from pharmacy owners to refer the false prescriptions.

Specifically, Smith conspired with the owners of Lily's Pharmacy to refer paid patients to the pharmacy in exchange for half of what Medicare paid for "compounded" aerosols. Compounding is the process of a pharmacist making medication as opposed to a pharmaceutical manufacturer. Smith referred at least 48 patients and their Medicare billing information to the owners of Lily's Pharmacy during the course of the conspiracy. Along with those patients, Smith provided phony prescriptions for compounded aerosol medications purchased from local physicians. One of the patients testified during trial that Smith paid him $150 per month to use his Medicare card and to obtain phony prescriptions in his name that were ultimately provided to the pharmacy. Lily's Pharmacy fraudulently billed Medicare more than $271,000 using the phony prescriptions for compounded aerosol medications provided by Smith. In exchange, Smith received more than $81,000 in kickbacks.

In 2006, the Medicare program paid for more than $155 million worth of aerosol medications in Miami-Dade County alone. These drugs amassed the single most common item billed to Medicare Part B and accounted for over 32% of all claims filed with the Durable Medical Equipment Regional Carrier (DMERC) in Miami-Dade County. From 2005 to 2006, claims for aerosol medications rose about 115%. According to Medicare data, Miami-Dade County alone accounted for more paid DME claims than every state in the country except California, Texas, New York, Michigan, and Ohio.

Centers for Medicare and Medicaid Services recently reported that it will no longer pay for compounded aerosol, as it has concluded that such drugs are medically unnecessary. Trial testimony established that compounding was done for the sole purpose of defrauding Medicare, and the prescriptions were predetermined before any of the more than 1,000 beneficiaries at Lily's saw a physician or received a prescription. The Medicare Fraud Strike Force led by Department of Justice prosecutors has focused on driving these compounding pharmacies out of the Medicare fraud business as the losses to Medicare are extreme and the risk to patients are enormous.

In other legalities:

• The Supreme Court of Texas has ruled that hospitals providing Medicare-related services can seek reimbursement in state court without first being forced to pursue costly and time-consuming reviews through "the federal administrative machinery."

"This is a huge victory for health care providers," said attorney Scott Clearman of Houston-based McClanahan & Clearman, who represents five area hospital systems in their case agains Aetna (Hartford, Connecticut). "It's not often that the Texas Supreme Court rules against insurance companies. More important, this decision puts a little more certainty in the healthcare system and that's good for everyone."

Clearman represents Christus Health Gulf Coast, Christus Health Southeast Texas, Gulf Coast Division Inc, Memorial Hermann Hospital System, and Baptist Hospitals of Southeast Texas.

In the late 1990's, the hospitals contracted with North American Medical Management of Texas (NAMM; Nederland, Texas). NAMM received payments from NYLCare, a subsidiary owned by Aetna to provide healthcare services under the Medicare+Choice program. Medicare+Choice was established in 1997 to provide Medicare beneficiaries with a wider range of health plan choices.

In a state court lawsuit, the hospitals alleged that NAMM grossly mismanaged its accounting and, ultimately, ceased paying the hospitals for their services. The hospitals claimed that Texas law made Aetna responsible for $13,967,759.19 in unpaid service fees once NAMM was placed into supervised conservatorship by the Texas Department of Insurance.

Initially, the trial court dismissed the lawsuit, finding that the dispute was governed exclusively by the federal Medicare Act. That ruling meant that the hospitals had no other remedy but to pursue their 6,000 individual claims through a lengthy federal administrative process. A Texas court of appeals affirmed the trial court decision.

However, the Texas Supreme Court found that "requiring Hospitals to exhaust administrative remedies before coverage decisions have been made would turn the administrative scheme on its head ... ."

The court reversed the court of appeals decision and remanded the case to the trial court to determine Aetna's contractual obligations to the hospitals.

• DaVita (El Segundo, California) reported that it received a copy of a civil complaint filed in U.S. District Court for the Central District of California by plaintiff Sheet Metal Workers National Health Fund. The complaint names as defendants Amgen (Thousand Oaks, California), Fresenius Medical Care Holdings (Bad Homburg, Germany) and DaVita.

The complaint, which has not yet been served on DaVita, is styled as a request for class action and alleges claims against DaVita relating to the administration and use of Epogen. The complaint's principal allegations against DaVita are that Epogen was administered to hemodialysis patients intravenously, as opposed to subcutaneously, and that Epogen was over-utilized.

DaVita said it administers Epogen only pursuant to a physician's order, and the physician determines both the dosage amount and route of administration of Epogen. Also, the FDA-approved package insert for Epogen recommends that Epogen be administered intravenously for patients on hemodialysis.

DaVita said it intends to vigorously defend the plaintiffs' claims and allegations contained in the complaint.

DaVita is a provider of dialysis services for patients suffering from chronic kidney failure.