Fraud charges dropped, but doctor can't recoup costs
■ A column analyzing the impact of recent court decisions on physicians
By Amy Lynn Sorrel — covered legal, antitrust, fraud and liability issues from 2005 to 2010, and has also written the "In the Courts" column. Posted Feb. 1, 2010.
They say you can't fight city hall. A recent federal appeals court ruling shows just how difficult it is for physicians to take the government to task.
In a Jan. 8 decision, the 9th U.S. Circuit Court of Appeals overturned a rare award to a physician for legal fees he spent defending himself in what turned out to be a failed health care fraud prosecution. Nevada otorhinolaryngologist Mark Capener, MD, denied any wrongdoing, and a jury in 2006 acquitted him of criminal fraud charges after a trial judge dismissed most of the claims.
Although appellate judges agreed that Nevada prosecutors committed several mistakes throughout their investigation, the court said the errors did not rise to the level of misconduct that warranted any recompense.
Dr. Capener's attorney and the U.S. Attorney's Office for the District of Nevada declined to comment.
The investigation into Dr. Capener's billing practices began when a health insurance company reported to the state what it believed were patterns of excessive sinus surgeries, according to court records. During the probe, the government consulted with a physician expert who reviewed Dr. Capener's patient files, pathology reports and computed tomography scans, and concluded that many of the procedures were either unnecessary or never performed.
A grand jury indicted Dr. Capener in 2005. At trial, the government's main argument centered on testimony from its expert that the surgeries in question would require breaking bones, yet no bone fragments appeared in the pathology reports. The expert concluded, therefore, that Dr. Capener did not perform the surgeries. Nor could he have completed them in the short time frames reported in his claims, the government argued in legal documents.
But Dr. Capener fired back with evidence contradicting the government's claims.
His expert witnesses -- including the pathologist who processed the patient samples -- revealed that bone fragments were clearly visible in most, if not all, of the slides, according to court records.
Although the presence of bone fragments may not have been documented separately in each pathology report, it was often accounted for in other references to sinonasal mucosa, which was not atypical, the experts testified.
Dr. Capener also produced videos showing him quickly performing the surgeries that the government claimed were unlikely, as well as other documentation disputing charges of upcoding claims.
The U.S. District Court for the District of Nevada ultimately dismissed half of the 52 criminal health care fraud charges levied against Dr. Capener. A jury cleared him of the remaining counts.
After the verdict, Dr. Capener sued the government in 2007 for the $1.4 million it cost to fight what he claimed was a frivolous case. He sued under the federal Hyde Amendment, which allows defendants in criminal cases to recover legal expenses when the government pursues a case that is "vexatious, frivolous or in bad faith."
Dr. Capener argued that prosecutors should have done a more thorough investigation of the pathology samples to discover the bone fragments and of the insurance company's records to verify his patients' medical histories and supporting evidence of their need for the surgeries.
The district court agreed, in a 2007 order granting Dr. Capener $279,000 in partial relief. While the court did not find that the government had acted out of ill will, it did conclude that prosecutors pursued frivolous fraud claims regarding the purported lack of bone fragments.
"Either the government consciously decided to proffer a theory it knew was false, or it failed to conduct any investigation or inquiry to confirm whether [its expert's] contentions regarding lack of bone fragments was in fact accurate," the court said.
But the brief win was met with swift defeat in the 9th Circuit, after an appeal by Nevada prosecutors. They argued to appellate judges that the lower court was wrong to consider the case's merits piecemeal -- rather than viewing it as a whole -- to determine if an award was justified.
Although the appeals court did not directly take up the issue, it found that the district court's conclusion was "clearly erroneous."
Appellate judges acknowledged that the government fell short in probing the pathology samples, calling the misstep "a regrettable mistake -- a clear failure by the prosecution to do its homework." Nevertheless, "the district court's finding that it was misconduct of the sort that could justify a fee award, however, goes too far," the 9th Circuit opinion states. "The Hyde Amendment [is] targeted at prosecutorial misconduct, not prosecutorial mistake."
The court recognized that it is not necessary to prove all three elements of the Hyde test -- that a claim is vexatious, frivolous and in bad faith -- and that in limited circumstances, a lack of investigation can constitute frivolousness. But the government had no reason to believe its theory was false and did its best to pursue a complex case with the expert information it had gathered, judges said.
"Reliance on an expert may well be faulty judgment in a given instance," the court said. But it generally would not constitute misconduct unless prosecutors knowingly depended on mistaken information.
In this case, however, the government interviewed the pathologist who took the samples, and prosecutors' main expert -- while reviewing only the medical and pathology records -- did not point to any need for further investigation of the related slides, the court noted.
As for ignoring the insurance company's files, "in an ideal world, perhaps, the prosecutors would have tracked down these records," the court said. "However, their failure to do so was, at worst, negligence. Mere negligence cannot form the basis of an award under the Hyde Amendment."
Legal observers say the case raises several caution flags for physicians, particularly in a health care environment in which the government is stepping up its anti-fraud efforts.
"Here the government brought a criminal action, saying these procedures are not medically necessary, which often comes down to a difference of opinion, and unfortunately that's becoming a criminal action," said Nashville, Tenn., attorney Brian D. Roark, who defends physicians in health care fraud matters.
Reversal not a surprise
The 9th Circuit's reversal came as no surprise because frivolous claims are difficult to prove, he said, and the ruling serves as a grave reminder that physicians have little recourse against the government.
"The hope is, if the government is going to pursue something criminally, it only does so after careful consideration because the risk to the defendant is so great," said Roark, of Bass, Berry & Sims, adding that physicians face anything from fines to jail time to exclusion from federal health care programs.
"Generally, the physician has no option other than to try and settle and work it out. ... So at the first sign of any government inquiry, the physician needs to move quickly to resolve it, and the government is always willing to have a back-and-forth."
Physicians would be remiss to expect the government not to make mistakes, said William B. Mateja, a former Justice Dept. special counsel for health care fraud. But the high bar for recovery is there to encourage the government to take on difficult cases.
"You don't want to hamstring prosecutors from taking hard cases and have them looking over their shoulders for Hyde claims," said Mateja, a partner at Fish & Richardson PC in Dallas who defends clients in health care fraud matters. "So [Hyde claims] are confined to cases where there is wanton behavior" -- for example, if the government pursued a case despite knowledge of a grudge a whistle-blower had against a defendant.
In addition, grand juries can serve as a check on prosecutors, who cannot win an indictment without first proving probable cause of criminal violations.
"The administration is really focused on the fact that, if we are going to solve the health care problem, one piece of the puzzle is clamping down on fraud and abuse," Mateja said. "But it's important to take heed of the fact the government is not perfect."
Amy Lynn Sorrel covered legal, antitrust, fraud and liability issues from 2005 to 2010, and has also written the "In the Courts" column.