When it comes to fraud, government plays hardball

Tuesday, October 31, 2006

As reported in the October issue of HME News, federal prosecutors recently threatened to bring criminal charges against an attorney who represented the owner of an HME company in a federal criminal case. The owner was convicted of defrauding Medicare out of $2 million by billing for medically unnecessary power wheelchairs. The prosecutors demanded that the attorney forfeit $124,000 in legal fees, alleging that the fees were paid out of fraudulently obtained funds. They also announced that they were seeking permission to charge the attorney with knowingly accepting criminal proceeds, a federal crime. The government does not allege that the attorney helped the owner set up a fraudulent scheme--only that the attorney's fees were paid out of funds obtained through fraud.
The government's action is a hardball tactic that falls outside the realm of fairness. Certainly, if the attorney had advised the owner on how to set up a fraudulent scheme, then the government would be justified in pursuing a criminal action against the attorney. If the fees paid to the attorney were proven to have come from fraudulent activities, then the civil forfeiture laws would permit the government to require the attorney to disgorge the fees. This is most commonly seen in the situation where a drug dealer pays fees to an attorney that clearly come from the sale of illegal drugs. In these cases, attorneys have sometimes been required to forfeit the fees. Rarely, however, would the government pursue a separate criminal case against the attorney, unless the attorney was actively involved in the criminal activity.
In illegal drug cases, the line between guilt and innocence is well defined, and it is clear what activity is criminal and what is not. In the healthcare fraud area, on the other hand, the lines are much less definite. The statutes and regulations are broad and subject to conflicting interpretations. In many cases, an attorney cannot tell a client with certainty whether a particular practice will be considered to be a violation of the law or not. In a drug case, if prosecutors can prove that a defendant did certain things, then the defendant's guilt is clear. In a healthcare fraud case, even if the conduct is proven, the question of whether that conduct is criminal remains. This situation is complicated by the existence of two parallel enforcement mechanisms. The government may bring a criminal case and then dismiss it after reaching a civil settlement, or may bring a civil case and later turn it into a criminal case.
Assuming that an HME company has engaged in activity that is later determined to be illegal, the company's revenues are not segregated into neat piles of legal proceeds and illegal proceeds. Any funds that the company uses to pay legal fees could be claimed to be proceeds of illegal activity. If attorneys face the prospect of fee forfeiture and criminal prosecution in connection with their acceptance of fees in healthcare fraud cases, they will naturally be reluctant to accept fees from any source that could include "criminal proceeds." The result will be that owners of HME companies who do not have substantial assets other than business assets will find it very difficult to retain qualified counsel to defend against government allegations of fraud. If the tactics of the Kansas City prosecutors are widely adopted, HME companies and their individual owners will be at an even greater disadvantage against government authorities, because they will have been deprived of their right to legal representation.
In order to afford themselves some protection against this type of government action, the HME company, its individual owner, and the defense attorney should consider taking the following steps:
- If possible, the fees paid to the attorney should come from a source other than a company account or an account of the individual owner. These sources may include a relative of an individual owner or a home equity loan.
- If payment to the attorney must come from one of the company's operating accounts, then the funds tied to the alleged criminal activity should be segregated into one account. The attorney should then be paid out of a different account. The attorney may wish to disclose this to the prosecutor in order to prevent any misperceptions on the prosecutor's part.


Jeff Baird is chairman of the Health Care Group at Brown & Fortunato, an Amarillo, Texas-based law firm.