Provider Fraud: Why Due Diligence Matters in Health Care Acquisitions

During the 35th Annual ACFE Global Fraud Conference, Leah Lane, CFE, a director at SunHawk Consulting, presented a compelling session titled "A Case Study in Provider Fraud." Drawing from her extensive experience, Lane provided a detailed examination of the risks, misconduct and repercussions resulting from a health care company’s acquisition.

Rendering Provider vs. Billing Provider

In health care, a rendering provider delivers medical services directly to patients as prescribed, focusing on patient care. The billing provider handles administrative tasks, ensuring accurate documentation and submitting claims for reimbursement to insurance companies or payers, maintaining compliance and financial integrity in health care billing processes.

Case Study

LL Medical Group faced significant operational and ethical challenges due to widespread fraudulent billing practices and regulatory non-compliance. The case centered on the acquisition of N.O. Urgent Care Clinic and N.O. Cardiology Clinic by LL Medical Group, which brought to light fraudulent billing practices involving Dr. Jane and operational mismanagement under Dr. John.*

Dr. Jane, while managing operations remotely, orchestrated a sophisticated scheme where billing under her National Provider Identifier (NPI), a unique ID used by health care providers in the U.S., was systematically falsified. Lane provided an example of this by sharing that, “Those new patients, that showed [Dr. Jane] on the claim form as the rendering physician, we could prove she was out of state.” The investigation uncovered evidence, including emails instructing clinic staff to use her electronic signature on documents she had not reviewed or services she had not personally provided. These revelations pointed to a deliberate effort to inflate billing claims and manipulate reimbursement processes, undermining LL Medical Group's billing integrity.

In addition to Dr. Jane's actions, similar billing irregularities were discovered at the clinic managed by Dr. John. Patients were billed under Dr. John's NPI without his direct involvement, a practice aimed at maximizing reimbursements but lacking proper documentation of patient care.

The Investigation

An extensive investigation into the N.O. clinic’s operations revealed a pervasive culture of misconduct and regulatory breaches extending beyond billing irregularities. Billing specialists confessed to altering rendering provider information under management directives to ensure reimbursement, regardless of the actual service provider, violating billing regulations and patient care documentation standards.

The N.O. urgent care facility that LL Medical Group acquired faced scrutiny for lacking certification under the Clinical Laboratory Improvement Amendments (CLIA). This oversight resulted in denied claims for laboratory services performed at the facility, exacerbating financial pressures and operational challenges. Testimonies and documentation highlighted mismanagement and compliance failures implicating multiple personnel, including the office manager, in facilitating fraudulent practices.

Investigation Results

In response to the findings, LL Medical Group terminated Dr. Jane and Dr. John, despite contractual agreements guaranteeing structured payouts, citing conclusive evidence of their involvement in fraudulent activities and breach of trust. Legal actions ensued, with both doctors seeking recovery of withheld incentives and alleging unfair treatment during termination proceedings. LL Medical Group defended its decisions in court, presenting investigative findings to support terminations and refute claims of wrongful dismissal.

The fallout prompted LL Medical Group to shut down both acquired clinics, recognizing unsustainable liabilities and reputational risks associated with the acquisition. This strategic decision aimed to mitigate further financial losses and regulatory liabilities stemming from unethical practices.

The Importance of Due Diligence

Lane underscored “how important due diligence is before your acquisitions, before you close.” LL Medical Group's decision to acquire N.O. clinics was influenced by personal connections; someone within the organization knew Dr. John and recommended bringing his practice onboard swiftly to expand into a new geographic market. This personal connection might have hastened the acquisition process, potentially compromising the depth of due diligence conducted. Lane speculated whether a more rigorous evaluation, examining data such as provider billing practices and operational metrics, could have uncovered the underlying issues earlier. The case unfolded with numerous complexities and surprises, making it a compelling and insightful experience for Lane and her team.

*Lane notified the audience that all the names of the doctors and clinics mentioned in this case study were changed to ensure anonymity.