Case report: Medicare fraud and abuse can open the door for other charges

When fraud is suspected, a fine line divides personal and practice records and Constitutional rights may not be a given.

Editor's note:

Since the last issue of Orthopedics Today, there has been much public discussion about health care insurance. President Obama, in discussing health care reform and its estimated $1.2 trillion cost, has referred to more aggressive Medicare fraud enforcement as a means to partially offset this figure. He has also discussed a public option for health insurance to create a more competitive environment for private insurers. It remains to be seen whether a public option, if enacted, would have the same criminal and civil penalties associated with Medicare/Medicaid for fraudulent billings.

Given the likelihood that orthopedic surgery will be under more intense scrutiny, we will report cases of interest to inform our readers about evolving issues in Medicare fraud and abuse. In this column, we report on the case of United States v. Srivastava.

Lawrence H. Brenner, JD, and B. Sonny Bal, MD, JD, MBA
OMLA Co-Editors

B. Sonny Bal

Lawrence H. Brenner

In early 2003, a criminal investigation by the Department of Health and Human Services, the Federal Bureau of Investigation (FBI), and the Office of Personnel Management, focused on an alleged health care fraud scheme involving a cardiologist, Pradeep Srivastava, MD, which was based partly on information gained from a former employee.

Accordingly, the authorities began an investigation into Srivastava’s billing practices. The list of alleged violations was long and included billing for medical services not provided, duplicate billings, and specifying inappropriate diagnostic codes.

Constitutional rights

Consistent with the requirements of the Fourth Amendment to the U.S. Constitution, the federal government petitioned a magistrate judge for a search warrant of Srivastava’s two business offices and his personal residence to look for evidence of the alleged fraud. No other crime was specified, and the purpose of the search warrant was to obtain evidence relating specifically to the health care fraud investigation. The search warrant was granted and the FBI executed the search warrants at his offices and his home.

In his home, they seized the individual tax returns of Srivastava and his wife, as well as other personal information such as unopened mail, travel information, his wallet, and checks from various banks. They also discovered documents relating to multiple transfers of money to the State Bank of India.

The agent in charge of the investigation provided the U.S. Attorney and the Internal Revenue Service with copies of the money transfers to the bank in India. In October 2005, Srivastava was indicted by a grand jury on two counts of tax evasion and one count of making false statements on a tax return. According to the indictment, Srivastava had concealed more than $40 million in capital gains on investments in technology stocks and stock options and underpaid his income taxes for tax years 1998 and 1999 by more than $16 million. Nothing in the indictment related to the initial allegations of health care fraud, for which the search warrants had been sought.

Lower court finding

Srivastava petitioned the trial court to suppress the evidence relating to the tax-fraud indictments on the grounds that it exceeded the authority granted by the magistrate judge in the search warrant. He challenged the constitutionality of the search and seizure, arguing that the documents and records seized from his home were of a personal nature, unrelated to health care fraud, and that the seized evidence exceeded the scope of the warrants.

The court agreed that Srivastava’s Fourth Amendment rights against warrantless search and seizure were violated because the items that led to the tax evasion charges were beyond the scope of the search warrant, and were collected from Srivastava’s personal residence rather than from his office.

In its ruling the court stated, “In order to fall within the scope of the warrant, a financial record not only had to have some relationship to Dr. Srivastava’s business, but it also was subject to the requirement that it may constitute evidence that health care fraud had been committed.” It concluded that the seizure was improper because the evidence related to personal tax fraud “Neither tended to show violations of the health care fraud statute, nor related to the business of Dr. Srivastava.” Finally, the court found the conduct of the federal agents so egregious and aggressive that it excluded all evidence collected as part of the search and seizure authorized by the warrant.

Federal appeal

The federal government appealed the suppression ruling to the case to the U.S. Court of Appeals for the Fourth Circuit. In September 2008, it reversed the lower court’s ruling and reinstated the seized evidence.

In its opinion, the court of appeals recognized that the Fourth Amendment does provide “the right of the people to be secure in their persons, houses, papers, and affects against unreasonable searches and seizures and … warrant… (must describe) the place to be searched, and the persons or things to be seized.”

Notwithstanding the protections of the Fourth Amendment, it reversed the lower court’s ruling on the basis that Srivastava’s medical practice operated as a Subchapter S corporation. It reasoned, “In such circumstances, it is difficult to realistically define a bright line between ‘personal financial records’ and ‘business records,’ as Dr. Srivastava implores us to do. Rather, it is consistent with both common sense and realism to deem the financial records relating to the medical practice as being nearly synonymous with the financial records of Dr. Srivastava individually.”

It also described Srivastava’s personal financial records as “an important piece of a jigsaw puzzle.” It concluded, “The complexity of a fraud scheme, however, should not be permitted to confer some advantage on the suspected wrongdoer.”

The protections afforded by the Fourth Amendment have always posed difficult problems for the judicial system. The remedy for illegally seized evidence is the application of the so-called “exclusionary rule,” which was created by the U.S. Supreme Court.

Exclusionary rule

Civil libertarians have long argued that the exclusion of the evidence is the only effective method for preventing overzealous law enforcement officers from violating the Fourth Amendment rights of citizens. They argue that in the absence of the exclusionary rule, there would be no disincentive for law officers to conduct searches without probable cause, unreasonable searches, or to seize items unrelated to the crime in question.

Advocates for victims’ rights have expressed equally intense feelings in opposition to the exclusionary rule. They argue that a mistake made by law enforcement is an insufficient rationale for excluding evidence that would allow a guilty person to go free. Over the years, courts have carved out a number of exceptions to the exclusionary rule and allowed the admission of improperly seized evidence. However, the inherent tensions in interpreting the protections of the Fourth Amendment have led to inconsistent and often confusing court rulings on the application of the exclusionary rule.

Often, the courts tend to allow the evidence and narrowly construe the exclusionary rule because they are offended by the criminal behavior and reluctant to set a criminal free. Thus, it is often difficult to differentiate black-letter law from policy considerations in exclusionary rule cases.

In the case of United States v. Srivastava, the ruling of the court of appeals may reflect its intense distaste for fraudulent medical billing, as much as its narrow interpretation of the Fourth Amendment.

For more information:

• B. Sonny Bal, MD, JD, MBA, is associate professor of hip and knee replacement in the department of orthopedic surgery, University of Missouri School of Medicine.
• Lawrence H. Brenner, JD, is on the faculties of orthopedics at Yale University and the University of Southern California and practices in Chapel Hill, N.C. Address all correspondence to Brenner at lb@lawrencebrennerlaw.com.