An Update on Patient Brokering: “Clever” Scams Exposed
by M. David (Mick) Meagher, Esq., © 2017
Within the past several months, there have been numerous law enforcement raids on treatment centers and patient brokering services. These raids have focused mostly on the large entities whose insurance billing numbers are in the many millions of dollars. However, in Riverside County, California, the District Attorney has successfully prosecuted others for smaller dollar amounts. They recently got two convictions for operating an outpatient program in concert with a sober living home, where the owner was paying for referrals. Both the owner and the man who was selling her the clients were convicted, given jail time, and ordered to pay restitution, returning the illegally gained profits.
Surprisingly, many people still hold on to the notion that what they are doing when they enter into brokering programs is legal and in some manner ethical. As recent convictions and raids in California are showing, this practice is not legal. Patient brokering through the various devices trying to hide the illegal brokering payments has never been ethical.
In past articles I discussed some of the legal issues related to patient brokering as well as the profound ethical lapses that brokering causes. As someone who has been involved in the addiction treatment field for 41 years, I cannot conceive of any scenario where getting paid to make a referral is ethical. As my most recent article (May, 2017) “Patient Brokering: The Silent Enabler © 2017″ showed, patient brokering leads to enabling behaviors to “protect the investment” pad for the referral. By the very act of paying for the referral, the center has an overriding economic interest which precludes unbiased clinical judgment. The result is enabling.
In this article, I discuss the legal issues of brokering, including the specific California and federal statutes making patient brokering a crime and that may lead to significant criminal charges against the person who is involved.
CA Insurance Code Sec. 750
(a) Except as provided in Section 750.5, any person acting individually or through his or her employees or agents, who engages in the practice of processing, presenting, or negotiating claims, including claims under policies of insurance, and who offers, delivers, receives, or accepts any rebate, refund, commission, or other consideration, whether in the form of money or otherwise, as compensation or inducement to or from any person for the referral or procurement of clients, cases, patients, or customers, is guilty of a crime.
The plain language of this statute shows that if billing insurance is involved in the addiction treatment process, no matter how you describe the payment (marketing expense is popular), it is illegal. For those who cling to the notion that addiction treatment isn’t health care so the laws don’t apply, you are wrong.
In addition, the fact that the crime may only be a misdemeanor is not likely to offer much comfort. When two or more people conspire to commit any crime, the conspiracy itself is a felony. As shown above, insurance fraud is a crime. Penal Code §182 (a)(1).
“Clever” Scams – The Non-Profit dodge
As more and more organizations try to distance themselves from the paper-trail that shows their patient brokering activities, many are trying a new scam. The owners and or their families of these center owners start a “non-profit” corporation. The center then “donates” money to the non-profit, frequently in the form of a pre-paid credit card. These pre-paid cards are then given to the call center – intake staff so when an uninsured caller seeks treatment, an insurance policy can be purchased using the pre-paid card.
The problems with this scam are significant. First and foremost, it violates the Insurance Code prohibition against the inducement of clients through financial or other forms of incentives. In every case where I’ve been asked to address the legal propriety of this model, I have seen a host of other legal violations.
Yes it is true that in California, a non-profit may buy an insurance plan for a third party.
What is overlooked are the following:
1. The policy must be paid for, and maintained in full force for a minimum of 12 months.
A. Most simply cancel the policy as soon as the addiction benefit has been exhausted.
B. The failure to pay for 12 months voids the propriety of the action.
2. The non-profit that is buying the policy may not direct where the insured gets health care services from.
A. These scam non-profits are operated by a treatment center or call center and the client has no choice in where they go to treatment.
B. Directing which health care provider the client must go to make the transaction illegal.
3. The IRS treats non-profit companies very differently from for profit businesses. These scam non-profits are easy to test:To be valid, a 501(c)(3) organization must be organized as a corporation, trust, or unincorporated association. An organization’s organizing documents (articles of incorporation, trust documents, articles of association) must:
• limit its purposes to those described in section 501(c)(3) of the IRC;
• not expressly permit activities that do not further its exempt purpose(s), i.e., unrelatedactivities; and,
• permanently dedicate its assets to exempt purposes.
Because a substantial portion of an organization’s activities must further its exempt purpose(s), certain other activities are prohibited or restricted including, but not limited to, the following activities. A 501(c)(3) organization:
✓ must ensure that its earnings do not inure to the benefit of any private shareholder or individual;
Once the insurance is designated for use in the for profit treatment center, it becomes an improper purpose under the tax code.
✓ must not operate for the benefit of private interests such as those of its founder, the founder’s family, its shareholders or persons controlled by such interests;
Like above, once the insurance is designated for use in the for profit treatment center, it becomes an improper purpose under the tax code; and,
✓ must not have purposes or activities that are illegal or violate fundamental public policy. This means that violation of the Insurance code, business and professions code or health
and safety negates the value of this purchase.
In other words, if the non-profit is:
• controlled or directed by a company, individual, family member or associate of the treatment or call center, if doesn’t pass the sniff test.
• requiring the person who receives the insurance policy to go to a specific treatment center, it doesn’t pass the sniff test.
• if the center is involved in any form of insurance fraud, such as kick-backs from labs, illegal inducements to acquire clients in the form of cash payments, airplane tickets, waivers of deductibles/co-payments etc., it doesn’t pass the sniff test.
Non-Profit Record Keeping
Section 501(c)(3) also holds that organizations are required to keep books and records detailing all activities, both financial and nonfinancial. Financial information, particularly information on its sources of support (contributions, grants, sponsorships, and other sources of revenue) is crucial to determining an organization’s private foundation status.
A failure to keep the proper records can result in the loss of the non-profit status, and may have significant tax penalties for the non-profit operator.
If a non-profit is found to be a scam, used by the owners of a treatment center or call center illegally, they also face the very unpleasant prospect of a federal indictment for tax fraud.
Other California laws making patient brokering illegal
There is a long list of other codes that make patient brokering illegal. CA Bus. & Prof C. Sections 650 &1250; also B&P Section 2273(a) holding that paying for clients constitutes unprofessional conduct, (which can lead to the suspension or loss of a license); CA Health & Safety Code section 445 (no insurance involvement required for these preceding codes to apply); and, Insurance Code sections 750 and 1871.7(a).
Other Federal laws that may apply
Because insurance companies require electronic billing for health care claims, the federal government may also look at 18 U.S.C. 1343 Wire Fraud. This law holds that “Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both.”
This can apply to the insurance fraud and non-profit scams described above.
In response to the actions of those profiteers who violate these laws, insurance companies, and government agencies have begun an aggressive crack-down on the addiction treatment community. Unfortunately, insurance companies cannot tell the ethical/legal operators from the scams without audits.
After careful reflection, if you believe a person or entity you are concerned with is truly violating the law, you can report them. Reports can be made to:
1. California Attorney General. The main office is in Sacramento, but there are satellite offices in your county;
2. The Department of Consumer Affairs, which has an investigations division;
3. The National Insurance Crime Bureau, which also has investigators; and,
4. I suggest you also send it to the Consumer Fraud Division of your county’s District Attorneys Office.
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THE LAW OFFICES OF
M. DAVID MEAGHER
Phone: (760) 743-2200
Facsimile: (760) 743-4500
Mick is a California State Bar member. He divides his services between addiction treatment professionals and courts. He has represented clients in Federal and State courts. His practice consists of matters related to ethical and effective management for health care professionals and organizations, the First Amendment (called SLAPP) Litigation and Business Litigation. His SLAPP representation is primary focused on defense from SLAPP suits. In Business Litigation the focus is on contracts, trade secrets, and unfair business practices.
Mick holds a business degree, and prior to entering law spent over 17 years in Chemical Dependency Treatment, Intervention training, Treatment facility management and consulting full time. After 12 years of experience, and over 2200 interventions, Mick wrote Beginning of a Miracle: How to Intervene with the Addicted or Alcoholic Person (Health Communications, Inc. 1987). This book has been described as one of the best books ever written on the subject Intervention. Mick’s book is a step by step guide that teaches the reader how to develop strategies to overcome the denial present in anyone who suffers from chemical dependence.
His addiction consulting services range from restructuring treatment centers that were failing to provided training for over 5,000 professionals to establish Intervention services. Participants in his programs include Family Members, Attorneys in MCLE programs, members of Physician Well-Being Committees, Physicians, Therapists, Educators and business leaders.