Thursday, April 30, 2009

Operator Of Transportation Services Company Convicted Of Medicaid Fraud And Sentenced In Indiana

On April 22, 2009, Dennis Lennartz was sentenced to 43 months imprisonment today by U.S. District Judge William T. Lawrence in the Southern District of Indiana following his guilty plea to Medicaid fraud.

The plea agreement stipulated that from August of 2006 through December of 2008, Mr. Lennartz submitted false and misleading representations regarding transportation services he or his agents had purportedly provided to Medicaid patients of approximately $964,852.59. The investigation of Lennartz revealed a variety of ways in which there was false billing:

■ Mr. Lennartz was billing Medicaid for transporting patients receiving radiation treatments claiming that the distance was 300 miles per trip when, in fact, the trip was 31 miles.
■ Mr. Lennartz also billed Medicaid for transporting a patient for rehabilitation claiming the distance was 220 miles when, in fact, it was only 33 miles.

■ Another Medicaid recipient Lennartz transported to Riley Hospital once a month resulted in Medicaid being billed for mileage claims 42 times in a period of three months.

Indiana Medicaid pays for the transportation services of its beneficiaries to and from Medicaid covered services. Transportation providers who bill for services to Indiana Medicaid must first undergo an enrollment process, agree to abide by the program's rules and regulations, and then become approved providers. These approved providers receive provider manuals which detail the Indiana Medicaid Program's rules and regulations as well as provide instruction on how to appropriately bill for services. These providers also receive periodic regulation "bulletins" from the Indiana Medicaid Program which are designed to remind providers of existing regulations or inform them of any changes.

Non-emergency transportation services are generally billed as either a Commercial / Common Ambulatory Service (CAS) or as a Non-Ambulatory Service (NAS). Indiana Medicaid regulations state that CAS services are to be billed when beneficiaries are ambulatory. That is, they are able to walk. This service is billed under a particular procedure code and providers are paid $10.00 for each one-way transport. However, in addition to billing this code, CAS providers can bill separately for mileage, as well as waiting time, and receive additional reimbursement. Mileage is reimbursed based on the amount of "loaded miles" which are the miles driven when the patient is in the transportation vehicle.

Attorney Comment: First, the sentence in this case is high for a plea agreement because Mr. Lennartz has a prior federal felony conviction (after jury trial upheld on appeal) for Medicaid fraud involving transportation services. See U.S. v. Lennartz, 948 F. 2d 363 (7th Cir. 1991). For those with prior health care fraud convictions who continue to work in the health care business, they will be ripe targets for subsequent prosecutions where there are fraud investigations.

Second, Mr. Lennartz allegedly provided these services under another entity's provider number. This may have been due to the fact that he would not have been approved as a provider due to his prior criminal conviction.

Third, the enrollment process (including the agreement to know and understand the rules), provider manuals and provider bulletins are used to help establish guilty knowledge and establish inferences of deliberate ignorance.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers including those accused of Medicaid, Medicare, Medi-Cal and health care fraud.

Tuesday, April 28, 2009

FDA Misbranding Case: Former Manager For Medical Device Company Pleads Guilty To Felony In Boston

On April 14, 2009, Shane Doyle, who worked as a territory manager for Stryker Biotech (a publicly traded medical device company based in Hopkinton, Massachusetts), pled guilty before U.S. District Judge Woodlock in Boston, Massachusetts to one count of felony misbranding. The medical device at issue, OP-1 (Osteogenic Protein -1), is designed to promote bone growth and was approved by the FDA only pursuant to a Humanitarian Device Exemption (“HDE”), which is quite narrow and restrictive. It is approved in 28 other countries however.

At the plea hearing, the prosecutor told the Court that had the case proceeded to trial the Government’s evidence would have proven that Mr. Doyle, in his capacity as a territory manager for his employer, promoted the use of these devices in a manner that was different from its FDA approved use. Specifically, he promoted a combination of the HDE devices with a bone void filler, and in furtherance of that promotion provided mixing instructions to surgeons, medical technicians and others.

Sentencing is set for July 23, 2009, and Doyle faces up to 3 years imprisonment, to be followed by 1 year of supervised release and a $250,000 fine.

Attorney Comment: This is the third Stryker sales representative to have entered a guilty plea. On March 6, 2009, the U.S. Attorney's Office sent Stryker a letter that they are the target of a federal grand jury investigation for the alleged illegal promotion of OP-1 and Calstrux. The question will be how high up does this go? Sometimes corporations plea rather than individuals and here it looks like they're working from the bottom up.

Prior to this criminal investigation and guilty pleas from sales representatives, Stryker had received a "No" recommendation for approval from the FDA Ortho Panel and FDA warning letters for their plant in Massachusetts. For a product that had not been approved by the FDA, the sales representatives and company put a lot on the line and took a lot of risks.

For those who are working for corporations, this case is a reminder not to put short-term sales ahead of one's career or liberty. With one of these felony convictions, apart from the risk of prison time, one collateral consequence for the Stryker sales reps will be OIG exclusion from most health care related jobs for 5 years. Seek independent counsel if your 6th sense tells you that corporate policies are violating the law. For businesses and individuals, compliance is the key. Stryker is a large orthopedics company and the fact that even it can come under criminal investigation should be a sign as to how aggressive the government can and will be in health care cases -- especially where FDA non-approved devices or products are at issue.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Monday, April 27, 2009

Mortgage Fraud: Attorney And Title Agent Sentenced For Role In Florida Case - What Is Mortgage Fraud?

On March 20, 2009, Howard Gaines was sentenced after a jury trial by U.S. District Judge William Dimitrouleas in the Southern District of Florida for his role in a complex mortgage fraud case. Gaines was sentenced to 8 years in prison, to be followed by 3 years of supervised release.

In addition, Gaines was ordered to pay restitution in the amount of $422,465 to three lenders. A jury convicted Gaines in December 2008 on one count of conspiracy to commit mail and wire fraud and two counts of mail fraud.

Gaines, an attorney and a licensed title agent allegedly ran a company known as Your Title Choice, Inc., in Deerfield Beach, Florida. This is the sixth conviction in this case, following five earlier guilty pleas by other conspirators. It appears that the others cooperated and testified against Gaines at trial.

According to the evidence presented at trial, Gaines, as a title agent, aided co-conspirator Anthony Dehaney and others to close on fraudulent loans. Among the fraudulent documents presented at closings were HUD 1 Settlement Forms, which falsely represented that buyers were using their own money to close on the purchases. The evidence showed that Gaines helped Dehaney close more than $10,000,000 in loans during 2004, 2005, and 2006, including $5,000,000 in fraudulent mortgages. Related court documents and information may be found on the website of the District Court for the Southern District of Florida at or on

Attorney Commentary: For those convicted of mail fraud or wire fraud related to mortgages, the sentences will likely be long. You will note that there was no count of "mortgage fraud" in this case.
What is mortgage fraud? There is no specific statute that defines mortgage fraud. A mortgage fraud case usually has charges of mail or wire fraud combined with some type of material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.

Mortgage fraud can be broken down in two distinct areas: 1) Fraud for Profit; and 2) Fraud for Housing.

Fraud for Profit uses a scheme to remove equity, falsely inflate the value of the property or issue loans relating to fictitious property(ies). Many of the Fraud for Profit schemes rely on “industry insiders”, who override lender controls. Industry insiders are appraisers, accountants, attorneys, real estate brokers, mortgage underwriters and processors, settlement/title company employees, mortgage brokers, loan originators, and other mortgage professionals engaged in the mortgage industry.

Fraud for Housing represents illegal actions perpetrated by a borrower, typically with the assistance of real estate professionals. The simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding the borrower’s income or employment history to qualify for a loan.

There is an exponential rise in mortgage fraud investigations. The number of open FBI mortgage fraud investigations has risen from 881 in FY 2006 to more than 2,000 in 2009. Mortgage fraud is a priority for prosecution since the mortgage backed securities and related financial industry corporate fraud have shaken the world’s confidence in the U.S. financial system.

The current mortgage fraud trends that are being investigated include: equity skimming, property flipping, mortgage identity related theft, and foreclosure rescue scams.

Equity skimming schemes involve the use of corporate shell companies, corporate identity theft and the use or threat of bankruptcy/foreclosure to dupe homeowners and investors.

Property flipping is nothing new; however, law enforcement is focusing on those that use identity theft, straw borrowers and shell companies, along with industry insiders to conceal their methods and override lender controls.

Identity theft in its many forms is a growing problem and is manifested in many ways, including mortgage documents. The mortgage industry has indicated that personal, corporate, and professional identity theft in the mortgage industry is on the rise. Computer technology advances and the use of online sources have also been used to commit identity theft in committing outright mortgage fraud.

Foreclosure rescue companies will be investigated aggressively since the government wants to ensure that no one is taking advantage and illegally profiting from other individuals’ misfortunes. As foreclosures continue to rise across the country, so too have the number of foreclosure rescue companies. Where these customers lose their home while paying thousands of dollars in fees for little or no services – there will be scrutiny.

Any individual or company being investigated for these type of allegations need to be aggressive in their defense at the beginning when grand jury subpoenas, search warrants or interviews are conducted. We can see the likelihood of many common business practices being characterized as "fraud" where money is lost or properties are foreclosed.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings.

Thursday, April 23, 2009

Los Angeles Doctor On Trial For Allegedly Selling Oxycodone Prescriptions

Opening statements were held on April 23, 2009 in the trial of U.S. v. Masound Bamdad, M.D. in the Central District Court in Los Angeles. The prosecutor, Assistant U.S. Attorney Arteaga, gave an opening statement while Dr. Bamdad 's attorney opted not to make an opening statement but reserved the right to do so at a later time.

Remember that Indictments contain only allegations against an individual and all defendants must be presumed innocent unless and until proven guilty.

Federal authorities launched their investigation two years ago after receiving a tip regarding Dr. Bamdad's practice on Maclay Avenue in San Fernando, according to the testimony of DEA agent Susannah Herkert. Herkert testified that she ran a computer check and discovered that Dr. Bamdad was prescribing large quantities of oxycodone and OxyContin to patients younger than 30, which can be an indication of prescription abuse.

Dr. Bamdad is charged with needlessly prescribing oxycodone to more than a dozen patients. Opening statements are not evidence but the prosecutor said Dr. Bamdad admitted to receiving about $30,000 a week in cash -- or $1.5 million a year -- for prescriptions, and that agents found $60,000 in cash in a safe in his home

The Los Angeles Times reported on this case. The article can be found at:

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Wednesday, April 22, 2009

Cost Recovery In Disciplinary Cases And Administrative Hearings

One factor that is not often discussed in disciplinary discussions is that most California boards and bureaus are self-supporting in that the licensees' dues and payments are the source of these agencies' budgets. Thus, when it comes time for professional discipline, the licensees (except licensed M.D. physicians) are ordered to pay for "cost recovery." This means that the discipline order will require the licensee to reimburse the Board or Bureau for the costs of investigation and prosecution. This has taken on even greater importance in these times of shrinking budgets.

The cost recovery is something that licensees should take into account when deciding how aggressive to be and whether or not (and how) to cooperate from the beginning of the investigation. If you treat a disciplinary proceeding like hardball civil litigation, be prepared to pay for both your own attorneys' fees and the attorney fees and costs of the Attorney General's Office and the Board or Bureau at issue.

For example, if clients want to produce discovery in a disorganized manner thrown in a box, I remind them that they will be paying for the bills of the investigator and attorney in organizing the records and files. One advantage of "smart" cooperation is to help keep these unnecessary costs and expenses down while showing the Board and Bureau the strength of our client's position. Cooperation is also viewed as a "mitigating" factor in imposing less severe discipline.

For financially well-off licensees, cost recovery may be less of an issue. Most licensed professionals are not independently wealthy. Given that the Board's and Bureau's attorney's fees and costs for an investigation can easily run up to $30,000 well before a hearing -- this is something to take into account. A long hearing can result in significant costs and attorneys' fees.

The Boards and Bureaus allow the cost recovery to be paid over time. In addition, the amount can be negotiated. This is especially true where the investigator or deputy attorney general has changed one or more times. Just remember that there are a lot of factors to consider in creating your strategy when faced with an investigation or Accusation, and cost recovery is just one of them. The idea of cost recovery reflects the over view of the Board and Bureau and illustrates well how it is an unusual administrative system that differs from civil and criminal cases.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings.

Tuesday, April 21, 2009

Criminal Investigations, Charges And Convictions Have Consequences For Licensed Professionals

Licensed professionals and those with jobs in law enforcement or the types of job that require security clearances suffer more – almost a type of double jeopardy – when they are charged with or convicted of a crime. In some cases, professionals can suffer collateral consequences when they are charged but have yet to be convicted. For example, if a licensed physician is charged with Medi-Cal fraud, he or she will probably be subjected to a temporary suspension and temporary withhold by the Department of Health Care Services even when there is no conviction.

In California, if you have a professional license and plead guilty to a misdemeanor or felony (even one that can be reduced to a misdemeanor and be expunged), it is virtually certain that at some point you will face disciplinary action or investigation against your license arising from the conviction. This does not mean necessarily that your license will be revoked but there is a range of discipline. The level of that discipline may depend on how you handle your criminal case and disciplinary investigation from the beginning.

A recent review of recent Accusations filed by the California Board of Chiropractic Examiners and discipline imposed by the California Department of Real Estate -- just two of many professional boards -- reveal what we have known well from our practical experience: the most common ground for revocation of a license, probation or for even filing an Accusation against a license is a criminal conviction.

For example, out of 33 Accusations filed by the Chiropractic Board from July 1, 2008 to March 30, 2009 - 22 involved criminal convictions. For the Department of Real Estate, over a 3 month period, out of 101 licenses that were revoked, 72 were revoked on the ground that there was a substantially related criminal conviction in violation of Business & Profession Code Section 490 and/or there was a mere conviction of a crime in violation of Business & Profession Code Section 10177(b). For the 31 real estate licenses that were revoked with a right to a restricted license, 23 of those cases involved a criminal conviction. Most other professional boards and bureaus follow this same pattern.

One reason this occurs is that criminal convictions are easy targets for the Board investigators. There's no need to prove gross negligence or engage in a debate among the experts. It is simple to prove up a conviction -- even those that are not related to the professional practice. Most criminal acts involve "moral turpitude" and allow the Boards to look tough on discipline especially when they are not especially devoted to consumer or patient protection or simply do not have the budget to do so.

What are 8 things a licensed professional can learn from these statistics and do if they are facing the potential criminal charges?

First, it goes without saying, avoid criminal charges at all costs! Do not put your license at risk. If you are entering into a business or professional transaction that could expose you to some risk, seek legal advice to ensure compliance with the law. This could serve as a defense later in the event there are charges filed. If you are facing criminal charges or think they are a possibility, do everything in your power with the help of experienced counsel to get the charges dismissed if possible. Civil compromises, deferred prosecution agreements and other mechanisms should be considered if available.

Second, if you are facing a criminal investigation, be proactive at that time. If there is obvious true exposure, obtain experienced counsel and work on reaching the best result possible. Consider the collateral consequences to your professional license in every way possible. In some cases, reach an agreement pre-filing or early in the stages where you can influence the charge. Seek charges if possible that will have the least impact on the license. In cases that will proceed to trial, realize that the consequence of a criminal felony conviction could well be revocation of the license.

Third, do not falsely believe that only prosecutions related to the practice of your profession will result in professional discipline. The reality is that any criminal conviction for any criminal act can constitute professional misconduct. The various boards and licensed discipline professionals will discipline for anything from petty theft (shoplifting) to driving under the influence to domestic violence to tax fraud and business crimes. Disciplinary sanctions will depend on the nature of the crime committed and many additional factors.

Fourth, remember that even if you win your criminal case at trial, the burden of proof is lower at an administrative hearing. You can win the criminal trial battle but lose the war on your license. Winning your criminal case may not make the administrative matter go away. Be prepared for and aware of this fact.

Fifth, while fighting the criminal case, have counsel that will act in a manner that will not jeopardize your license. You also need to act in a manner that does not further harm your chances of holding onto your license or seeking reinstatement at an early time. Do not make any false statements or misrepresentations during proffer sessions, interviews or during testimony.

Sixth, with the help of experienced counsel, create a strategy to help bolster your professional defense while you defend your criminal case. This may include continuing education, volunteer work and other ways of showing that you are a professional who is valued in the community. Each case is different and there is no cookie cutter approach that works effectively. We like to tell clients that we help them earn the right to say they are sorry to the professional licensing boards and show them that they have learned from this experience. This needs to be done through hard work and not simply promises or letters. Action speaks louder than words.

Seventh, do not submit to interview with any government officials -- law enforcement or board investigators -- without having experienced counsel present and without being fully prepared. This is probably one of the most important points. More cases are damaged by ill-prepared interviews, confessions and misstatements which do more harm than good.

Eighth, a client who represents himself has a fool for a lawyer. Even if you think it is outside of your budget, think about the earning potential of your license over the course of your career and the value. In addition, see if you can at least hire an experienced attorney for objective guidance and advice on the key points and strategies.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings.

Monday, April 20, 2009

Physical Therapy Company Settles Federal Qui Tam Lawsuit And Pays Over $200,000

On April 13, 2009, after a settlement was reached, the government moved to dismiss a qui tam, or “whistleblower,” lawsuit with Interstate Rehabilitation LLC, a Glendale physical therapy company that contracts with Southern California Hospitals to operate hospital therapy departments and its owner/operators James Pietsch, Sandra Pietsch and Beth Celo. Interstate Rehabilitation and the other defendants agreed to pay the settlement of $233,345 to the government without admitting any wrongdoing to settle allegations in a “whistleblower” lawsuit that they caused the submission of false claims to Medicare.

The background of the case is as follows. A lawsuit was filed against Interstate Rehabilitation under the qui tam, or whistleblower, provisions of the False Claims Act in 2002. The complaint alleged that the company improperly billed Medicare for services that were supposed to be provided by licensed physical therapists, when in fact the services were not.

The lawsuit was filed by former Interstate Rehabilitation employees Janine Gostel and Sonia Sarmiento, who will split 16 percent of the settlement.

According to the lawsuit, from mid-1998 through the end of 2002, Interstate Rehabilitation violated Medicare rules by using clerical employees and other non-professional staff to provide physical therapy services without the presence of a licensed physical therapist. The services were allegedly provided to patients at skilled nursing facilities at area hospitals, which caused the facilities to submit false claims for payment to Medicare.

The affected facilities included California Hospital Medical Center, Community Hospital of Gardena, East Los Angeles Doctors Hospital, Memorial Hospital of Gardena, VitalCare Skilled Nursing Facility, Bay Harbor East Hospital, Bay Harbor West Hospital, Santa Teresita Hospital, Hemet Valley Medical Center, St. Vincent Medical Center, and Doheny Villa Skilled Nursing Facility.

On April 3, United States District Judge Stephen V. Wilson unsealed the whistleblower case. On April 13, 2009, the government moved to dismiss the lawsuit pursuant to the settlement.

Attorney Comments: Small to medium-sized providers often are concerned about potential criminal investigations without thinking about the potential for qui tam cases. There are both federal and state qui tam statutes. For these providers, prevention is an essential element of any False Claims Act strategy. Companies and individuals that regularly submit billings, invoices or reimbursement requests to the government should have a top-notch compliance program to try to avoid the submission of a potentially false claim.

A company that is the target of a False Claims Act investigation should examine its compliance program to see if it needs updating, particularly if there is a white collar investigation and/or a suspension and debarment proceeding. A state-of-the-art compliance program, or an upgrade to an existing program, may go a long way to persuade the government not to take drastic measures, such as indicting the company or its owners/operators or debarring it from receiving future government contracts.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of individuals, businesses and licensed professionals in civil, business, administrative and criminal proceedings, with a specialty in health care providers and defense of qui tam cases.

Sunday, April 19, 2009

Embezzlement And Theft: Attorney Comment Re: Increased Prosecutions

In the past, we have written about how during these economic times, small to medium size businesses are especially vulnerable to fraud by trusted employees or business partners. In addition, we have represented licensed professionals and business people who have committed financial crimes such as embezzlement. We have seen an increase in the prosecution of these cases and increased sentences.

The lessons to be learned are that businesses need to be vigilant about having checks on those with access to money. Individuals need to recognize that during economic crises they will have access to money but if they take funds (even with the intent to repay), they will face prosecution more often than they would have in the past. Financial crimes are being prosecuted with a greater vigilance. Felony theft charges can ruin a career and are not worth the risk. Sentences have increased significantly for state and federal white collar crimes.

Where the case is prosecuted has a significant impact on the sentence. For the most part, prosecutions in Orange and Ventura Counties result in more jail time than those cases in Los Angeles. Embezzlement of public institutions on non-profits will stand a greater risk of prosecution than embezzlement from private companies or individuals.

We have represented a number of individuals where repaying immediately and reaching a civil settlement has avoided criminal prosecutions. Each case is different and often the victims simply want repayment. The tougher cases are where there are no funds for restitution or repayment.

Here are a summary of four recent California prosecutions. Remember that complaints and arrest warrant affidavits contain only allegations against an individual and all defendants must be presumed innocent unless and until proven guilty:

Embezzlement From State Bar Of California

On April 7, 2009, the California Attorney General’s Office filed seven criminal charges in Alameda County against its former Director of Real Property, Sharon Elyce Pearl, who allegedly embezzled $675,000 from the State Bar of California over an 8-year period.

The charges include: (1) One criminal count of embezzlement for violating section 504 of the state Penal Code and (2) Six counts of filing false tax returns for violating section 19706 of the state Revenue and Taxation Code.

The facts underlying the felony complaint are alleged to be as follows. In 1999, the State Bar purchased an office building at 180 Howard Street, San Francisco, for use as its headquarters. The State Bar inherited tenants who leased retail space within the building. As the Director of Real Property, Ms. Pearl handled building management and was responsible for collecting tenant's rent. The complaint alleges that as early as 2002, Ms. Pearl began to embezzle a portion of the rental funds she collected.

The means of embezzlement was allegedly as follows: Ms. Pearl directed some tenants to make their rent checks payable to "PLOT-The State Bar of California." Unknown to the renters, "PLOT" stood for the Piedmont Light Opera Theatre. Ms. Pearl deposited some of the checks into accounts held by the Piedmont Light Opera Theatre (PLOT). Ms. Pearl, who was a signatory on the theater's accounts, would then transfer funds from the theater accounts to her personal bank account. She would then use the embezzled funds to pay for her personal expenses.

The State Bar contends that Ms. Pearl was able to continue doing this for years because the State Bar did not keep track of the rent payments it was owed. It had no reconciliation mechanism and did not track any gaps in payments. It simply deposited the payments it received from Ms. Peal. The State Bar contended it did not uncover Ms. Pearl's involvement until 2008 when she requested a check that she claimed was for a tenant's security deposit refund. Because there were no records that the tenant in question had ever paid a security deposit, the State Bar launched an internal investigation into the financial discrepancies.

The State Bar also claims it discovered that Ms. Pearl was maintaining two sets of books, and the investigation was referred to the Attorney General's Special Crimes Unit for prosecution. These allegations regarding “date of discovery” are set forth in order to allege why the statute of limitations should not begin to run until the date the State Bar discovered the alleged embezzlement. Ms. Pearl could face up to nine years in state prison if convicted on all charges.

Copies of the complaint and arrest warrant declaration can be found at:

Trustee of 401(k) Account Convicted For Taking 401(k) Funds

On March 19, 2009, after a 6 day trial, a jury in Ventura County found Michael Joseph Pearns guilty of grand theft of more than $50,000 for stealing $97,186 from his former employees and business partners. Pearns and two business partners ran MJP Financial, a.k.a Mountain View Financial, a real estate loan firm in Westlake Village from 1995 to 2000. In 2000 the loan firm closed. While the firm was in business, 12 employees made 401(k) contributions from their personal paychecks. The company's 401(k) had a total value of $97,186. Pearns was one of the trustees of the 401(k) account.

In April 2003 Pearns was having financial difficulties. Based on Pearns' status as a “trustee,” he submitted paperwork to Morgan Stanley, the investment company where the 401(k) money was held, that allowed him to transfer all the employees' 401(k) contributions into his own personal IRA. When a former business partner of the loan firm and co-trustee of the 401(k) learned what Pearns had done, she pressured him to return the $97,186. Pearns returned approximately $72,000. The remaining money was never paid back. Thus, repayment of the majority of funds in this case did not cause the case to go away.

It is not clear why this case proceeded to trial. It may have been due to a breakdown in plea negotiations regarding jail or prison time. After the jury's verdict, Judge Kevin DeNoce revoked Pearns' bail and remanded him into the Ventura County jail pending sentencing. Pearns faces a maximum sentence of four years in state prison.

Ventura College Athletic Director and Basketball Coach Diverted Public Funds

On February 25, 2009, Greg Winslow was arrested for grand theft and misappropriation of public funds. The six-count felony complaint alleges Winslow, the former men's head basketball coach and athletic director at Ventura College, misappropriated public funds when he received and diverted money directed to the Ventura College men's basketball program into his personal bank account.

It is also alleged that Winslow assisted in and/or provided fraudulent information on admission applications for certain student athletes. This false information caused the school to classify some student athletes as California residents rather than out-of-state residents. This false information allegedly resulted in a loss of approximately $40,000 in tuition money to Ventura College.

Soccer Club Treasurer Sentenced To 28 Months For Embezzling Funds

On February 25, 2009, Alan Olin was sentenced in Ventura County Superior Court to 28 months in state prison and ordered to pay $120,735 in restitution to the Conejo Valley United Soccer Club. Olin had plead guilty to one count of felony grand theft and admitted a special allegation that he stole more than $65,000.

According to the prosecuting agency, from December 2002 through November 2007, Olin embezzled $120,735 while acting as treasurer for the Conejo Valley United Soccer Club. The fraud was discovered in 2008 after a review of the soccer club's bank records.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of individuals, licensed professionals and businesses in civil, business, administrative and criminal proceedings.

Saturday, April 18, 2009

Practice Management: Texting Patients Can Cut Costs And Increase Efficiency

Health care providers are looking for ways to cut the amount of time their practice spends in calling patients to confirm and remind them of appointments, lab calls and follow-ups. Text messages can also be used for "outreach" messages reminding patients of needed mammograms, Pap smears and cardiovascular disease lab tests. They can also be used for other reminders such as: "You have a physical at 9 a.m. tomorrow. Please do not eat or drink anything after 12 p.m. midnight."

They can also be used for billing reminders: "You have a balance of $55. Please remit." Daily reminders can also be set up for patients in reminding them to put on sunscreen or other reminders to help patients be compliant. They can also be used to develop patient relationships such as "happy birthday" greetings. Many providers report that patients like it and do not find it overly intrusive.

Although we have written this to address health care providers, many other professional practices can use the ideas in this article and adapt for their business. For example, in our own practice we are sending text messages to confirm the time and place of appointments and court or hearing appearances. This helps confirm that the person will receive and see the message without checking home answering machines, cellphone voicemails or emails. All professional practices that rely on appointments could benefit from the idea although it is usually medical practices that have the volume of patients to justify using a web-based text messaging program.

There are many Web-based text messaging options. Most are free to set up, with users billed a set fee for the month, generally in the $200 range. Also available are physician-specific systems that can mine data from a practice management or electronic medical records system, which means the messaging is all done automatically. For other systems, cell phone numbers would need to be entered manually each day. Some of the text messages can also be sent to a phone as a voicemail.

Since many people have cell phones with text-messaging capabilities, some health care providers (including test programs by Kaiser Permanente) have decided that texting is the way to go. These providers are saving numerous staff time hours per week by using a text-messaging system that automatically sends the reminders. Some practices are reducing staff time from one hour, per doctor, per day to less than 10 minutes by using text messaging systems for appointment reminders, lab calls and follow-ups. They are also able to better predict the number of "no shows" so that revenue can be increased by filling that time with additional patient visits. This can boost the bottom line of practices significantly.

Many providers have enthusiastically adopted texting. However, to make sure texting is effective for your practice, it takes some groundwork and preparation. to make sure texting is effective for your practice.

First, determine what the texting system will be used for which will help make it easier to decide which system to buy.

Second, the practice should draft the outgoing messages that will be sent and have them cleared by the practice's attorney for possible HIPAA security rule violations. Our opinion is that in general, the use of text messaging is permissible on the same basis that telephone messages have been permissible under current law. However, there should be guidelines to ensure HIPAA compliance.

Third, patients need to be given the option of whether to use the communication mode. The patients should also be given instructions on how to opt out of receiving text messages. Senior patients may need instruction on how to check their text messages. Some text messages allow you to opt out. For example, in Kaiser's case, each message ended with, "Txt STOP to end msgs."

Fourth, your practice should start collecting cell phone numbers if they have not already been collected. For physicians just getting started it might be a slow process before the system reaches its fullest potential, as it might take several months for the databases to be populated with cell numbers.

Fifth, practices need to be vigilant about making sure data fields are updated regularly to avoid invalid numbers or bounced-back messages.

Sixth, if your practice sets up a two-way system, the staff must be equipped to deal with the return messages. Some providers' systems allow patients to respond to the text message to confirm appointments, for example. The messages are sent back as an e-mail that the staff must receive. Then, the staff manually enters any schedule changes or confirmations into the practice management system.

Finally, determine in advance the format and content of the messages so the staff has little discretion in what they write. To further protect yourself, it may be that the less specific the messages, the better. Messages about test results, for example, could say something like, "Everything looks normal," or in the case of a positive result, "UR lab results are in. Call 2 discuss."

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Friday, April 17, 2009

Practicing Medicine Without A License: Alternative Health Talk Show Host Arrested In San Diego

On April 9, 2009 San Diego County District Attorney’s Office charged Kurt Walter Donsbach, 73, of Bonita, with practicing medicine without a license and supplying patients with supplements containing non-FDA-approved drugs. An investigation led by the Federal Bureau of Investigation (FBI) in cooperation with the Food and Drug Administration (FDA) and District Attorney’s Office led to the arrest. Bail was initially set at $1.5 million.

Donsbach is charged with 11 felony counts including:

(A) 3 counts for treating patients without a license in violation of Business & Profession Code Section 2052(a);

(B) 2 counts of misbranding drugs for sale in violation of Health & Safety Code Section 111440;

(C) 2 counts of receiving or delivering a misbranded drug in violation of Health & Safety Code Section 111450;

(D) 1 count of fraudulent representations as to the method or treatment of cancer; and

(E) 1 count of grand theft in violation of Penal Code Section 487(a).

If convicted, he faces up to six years in state prison.

According to the arrest warrant declaration, Donsbach falsely identified himself as a “chiropractor and naturopathic doctor” in literature and online at Through a weekly, online radio broadcast from Chula Vista, he claimed to offer “alternative,” “natural,” and “nutritional” remedies for many conditions and ailments including cancer and autoimmune disorders. Donsbach is not licensed as a physician, chiropractor, nor naturopathic doctor in the State of California.

An arrest warrant affidavit contains only allegations against an individual and all defendants must be presumed innocent unless and until proven guilty.
The arrest warrant declaration further stated that Donsbach’s clinic advised one patient to inject herself with “neuropeptides” to treat arthritis, saying it would “re-program” her body’s T-cells. FDA tests revealed the “neuropeptide” contained a steroid not disclosed on the packaging or labels. The patient paid thousands of dollars for the drugs and injected herself for six years, leading to severe bone density loss.

In another case, Donsbach allegedly claimed he had treated pancreatic cancer successfully about 60 percent of the time and provided a supplement to a patient. FDA tests of the supplement revealed the presence of the drug nimesulide, a non-steroidal anti-inflammatory not approved by the FDA. In Europe, marketing of nimesulide has been suspended because of high rates of liver failure that resulted in deaths and liver transplants.

Attorney Commentary: There are alternative health care treatments that can be done in a legal manner by non-licensed persons. Compliance with the federal and state law is necessary, however, in order to avoid criminal charges. There are numerous clients of Donsbach who have come to his defense. However, when there are non-FDA approved medications and false claims of being licensed, these will be red flags to law enforcement and regulatory agencies.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They have represented those charged with the unlicensed practice of medicine (or the aiding and abetting of unlicensed practice) in internal investigations, disciplinary proceedings, search warrants and criminal matters.

Wednesday, April 15, 2009

Home Health Fraud: Attorney Commentary On L.A. Times Article

There are exceptional overall savings to be found in home health care. In addition, home health care helps low-income people who are old and incapacitated stay out of nursing homes and board and cares and minimizes in-patient visits to the hospitals by providing ongoing care. The benefits of California's home health program do not get fully reported. Instead, the focus is on the small percentage of fraud in the program.

The Los Angeles Times reports that fraud is infecting California's In Home Supportive Services Program. California is set to spend more than $5 billion this year to provide home health care. This program is only available to those who are over 65 or disabled or blind (and disabled children). However, according to the Los Angeles Times, fraud has become a problem because there are limited funds available for oversight and investigation. The L.A. Times admits the program is a success but does not give any examples of the money saved or the lives extended or improved by the program.

The L.A. Times has a couple of fraud examples in the article. One man who claimed he was disabled and couldn’t get out of bed had his children bill the state $150,000 to care for him and his wife. Turns out he was spending eight to 10 hours a day working on an ice-cream truck.

For the article:

An efficient initial screening program (such as a questionnaire to be completed under penalty of perjury), fraud prevention program and ongoing random audit should be implemented as soon as possible since if the fraud is allowed to increase, the fraud will be used as a reason to dismantle a program that makes great economic and health sense.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, CA. The firm focuses its practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Monday, April 13, 2009

Real Estate Licenses: Attorney Comments On Recent Case Of Unlicensed Practice As Real Estate Broker

The recent case of Venturi & Co. LLC v. Pacific Malibu Development Corp. (B205789 & B206774, Cal. App. 2d Dist., Apr. 10, 2009) reminds us that persons who perform services for which a real estate broker's license is required, but who do not hold a valid license, face the undesireable prospect of being uncompensated for such services. However, unlicensed persons who contract to perform both broker's services and related "non-professional services" (i.e., services for which no real estate broker's license is required) may still be entitled to compensation for the non-professional services.

How does one know whether they can be compensated for performing real estate related services? First, look at the applicable statutes. Section 10136 of the Business and Professions Code allows only licensed real estate brokers to receive compensation for real estate brokerage services. That section states:

"No person engaged in the business or acting in the capacity of a real estate broker or a real estate salesman within this State shall bring or maintain any action in the courts of this State for the collection of compensation for the performance of any of the acts mentioned in this article without alleging and proving that he was a duly licensed real estate broker or real estate salesman at the time the alleged cause of action arose." Cal. Bus. & Prof. Code § 10136.

Then, we proceed to Business and Professions Code Section 10131 which defines a “real estate broker” as one who:

-- (a) Sells or offers to sell, buys or offers to buy, solicits prospective sellers or purchasers of, solicits or obtains listings of, or negotiates the purchase, sale or exchange of real property or a business opportunity. [However, one who simply finds and introduces a prospective buyer to a person who wishes to sell his property, and does not engage in any negotiating to consummate the transaction, need not be licensed by the state in order to recover a commission for his services. Lindenstadt v. Staff Builders, 55 Cal. App. 4th 882, 886 n.3 (1997).]

--(b) Leases or rents or offers to lease or rent, or places for rent, or solicits listings of places for rent, or solicits for prospective tenants, or negotiates the sale, purchase or exchanges of leases on real property, or on a business opportunity, or collects rents from real property, or improvements thereon, or from business opportunities.

--(c) Assists or offers to assist in filing an application for the purchase or lease of, or in locating or entering upon, lands owned by the state or federal government.

--(d) Solicits borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity.

--(e) Sells or offers to sell, buys or offers to buy, or exchanges or offers to exchange a real property sales contract, or a promissory note secured directly or collaterally by a lien on real property or on a business opportunity, and performs services for the holders thereof.

Third, look at the actual services you or your company are performing and determine whether they are services that can only be performed by licensed real estate salesman or brokers.

Facts of Venturi Case

In June 2003, appellant Venturi and Pacific Malibu entered into a contract involving development of a resort on the Bahamian island of Little Exuma. Under the contract, Venturi agreed to serve as a financial advisor and find financing for the Little Exuma project through a private placement of equity, preferred stock, debt securities, or a combination of those financial instruments, which collectively the contract called “Securities.” The contract called for Venturi to provide the following services:

review the proposed development costs, business operations and financial requirements of the Project;

 assist Pacific Malibu in preparing information materials and documents with regard to a Placement, including an executive summary, confidential information memorandum, term sheets and related due diligence information in connection with the Project;

 assist Pacific Malibu in formulating a marketing strategy for the Securities, including identifying and contacting selected parties with regard to a Placement, scheduling meetings with such parties and participating in meetings and/or relevant discussions relating thereto;

 advise Pacific Malibu as to the strategy and tactics of negotiations in connection with the Placement and, if requested, assist in the negotiations with the related parties; and

 provide such other financial advisory and investment banking services as may be mutually agreed upon.

Pacific Malibu agreed to compensate Venturi with two possible fees: (1) upon “completion of a Placement,” a "Monthly Advisory Fee" of $30,0000 for at least three months “at the close of any such Placement;” and (2) a “Success Fee” to appellant “promptly upon consummation of any Placement of Securities.”

The amount of the success fee, depended on Venturi’s role in the consummated placement: (a) 5% if Venturi either introduced Pacific Malibu to the party who provided financing, or participated in “active negotiations” with that party; or (b) 1% if Venturi neither introduced the party providing financing nor negotiated the financing.

After signing the contract, Venturi contacted more than 60 potential sources of financing for the project. However, in the end, Pacific Malibu did not receive financing from any source that appellant had identified.

Pacific Malibu terminated the contract in January 2005. Two months earlier, however, Pacific Malibu had signed a term sheet with the Talisker Group. Venturi was not involved in Pacific Malibu's negotiations with the Talisker Group or in the placement of Securities with that group. Nevertheless, Venturi claimed it was entitled to the 1% Success Fee following the placement. Pacific Malibu refused to pay, and the litigation began.

Venturi sued for breach of contract and, alternatively, for "quantum meruit" to recover the reasonable value of its services.

Pacific Malibu argued that Venturi could not recover either for breach of contract or quantum meruit because Venturi provided the services of a real estate broker by soliciting financing for the Little Exuma project yet did not have a broker’s license. In turn, Venturi argued that it properly provided real estate broker's services because one of its managing principals (Jane Venturi), had a real estate sales license and was employed by an unnamed real estate broker at the time that Pacific Malibu signed the term sheet with the Talisker Group. The trial court found Venturi was not entitled to any compensation, and the decision was appealed.

The court of appeal agreed that Venturi performed services for which a broker's license was required by: (1) helping find possible sources of financing for the Little Exuma project; and (b) helping negotiate the placement of Securities to procure that financing. But it also found that the contract called for Venturi to provide services different from a real estate broker: (a) reviewing the project’s costs and financial requirements; (b) helping Pacific Malibu prepare information materials and documents related to financing the project, and to help formulate a marketing strategy to secure financing; and (c) providing mutually agreed upon financial advice and investment banking services.

The court of appeal affirmed that Venturi could not receive compensation for providing real estate broker services to Pacific Malibu because Venturi was not a licensed broker. The court of appeals rejected Venturi's argument that Jane Venturi's status as a real estate agent working under an unnamed broker permitted Venturi to perform broker's services, noting that a broker under whose authority a salesperson may act must itself be a party to the real estate contract, which was not the case here.

However, the appellate court found that the trial court failed to consider whether Venturi might be entitled to recover for other services called for under the contract which did not require a broker's license. See, e.g., Executive Landscape Corp. v. San Vicente Country Villas IV Ass'n, 145 Cal. App. 3d 496, 499-500 (1983) (statute barring unlicensed contractor from receiving fees for some services did not prohibit recovery for work not within scope of licensing statute). The case was returned to the trial court for further proceedings on that issue.

Attorney Commentary: There are several issues to analyze in entering into and structuring agreements regarding real estate transactions that are required to be performed by a licensed broker. First, if your services would require being licensed as a broker, your contract may be unenforceable. This is similar to not having a valid contractor's license when one seeks to enforce a contract for contracting work.

Second, those in the real estate, foreclosure and loan modification business can expect to receive close scrutiny by the Department of Real Estate (DRE) to ensure compliance with licensing requirements. Business and Professions Code § 10131(d) requires anyone who "[s]olicits borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity" to have a real estate broker's license. All it takes is one unhappy customer to make a complaint to trigger an inquiry.

If you or your company receives a Desist and Refrain Order from the DRE, you should immediately contact an attorney to respond within the deadline and analyze whether the Order has any merit.

Third, persons performing real estate finance and loan modification services without a license face not only the prospect of going uncompensated, but also criminal liability. Business and Professions Code § 10139 provides that any person acting as a real estate broker without a license shall be guilty of a public offense punishable by a fine not exceeding twenty thousand dollars ($20,000), or by imprisonment in the county jail for a term not to exceed six months, or by both fine and imprisonment; or if a corporation, be punished by a fine not exceeding sixty thousand dollars ($60,000).

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, CA. The firm focuses its practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, including real estate brokers and salespersons.

Sunday, April 12, 2009

HIPAA Privacy Rule: What Does The Average Provider Have To Do?

Although HIPAA has been around for years, there are still questions and fears regarding HIPAA. Just this past week, nearly two dozen employees at Kaiser Permanante Medical Center in Bellflower, California were fired or disciplined for peering into the medical records of octuplet mom Nadya Suleman.

Fifteen employees were fired and eight were disciplined for snooping into Suleman’s records without authorization. Hospital officials discovered Suleman’s medical records had been inappropriately accessed on two different occasions beginning three weeks ago, while security personnel were monitoring Kaiser’s computer network. Kaiser officials notified Suleman about the matter on both occasions, shortly after the employees had either been fired or disciplined.

For the average health care provider , the HIPAA Privacy Rule requires activities, such as:

■ Notifying patients about their privacy rights and how their information can be used.

■ Adopting and implementing privacy procedures for its practice.

■ Training employees so that they understand the privacy procedures.

■ Designating an individual to be responsible for seeing that the privacy procedures are adopted and followed.

■ Securing patient records containing individually identifiable health information so that they are not readily available to those who do not need them.

Responsible health care providers and businesses already take many of the kinds of steps required by HIPAA to protect patients’ privacy. To ease the burden of complying with the new requirements, HIPAA's Privacy Rule gives needed flexibility for providers and plans to create their own privacy procedures, tailored to fit their size and needs. The scalability of the Privacy Rule provides a more efficient and appropriate means of safeguarding protected health information than would any single standard.

For example, the privacy official at a small physician practice may be the office manager, who will have other non-privacy related duties. However, even a small practice needs a designated privacy official. The privacy official at a large practice or health plan, in contrast, may be a full-time position, and may have the regular support and advice of a privacy staff or board.

The training requirement may be satisfied by a small physician practice’s providing each new member of the workforce with a copy of its privacy policies and documenting that new members have reviewed the policies. In addition, a small or large practice may provide training through live instruction, video presentations, or interactive software programs.

The policies and procedures of small providers can be more limited under the HIPAA Privacy Rule than those of a large hospital or health plan. This limitation is justified based on the volume of health information maintained and the number of interactions with those within and outside of the health care system. Nevertheless, there should be policies and procedures as part of a basic compliance plan. HIPAA training and compliance need not be expensive or time consuming but it must be set up. Once it is set up and implemented there is little left to do except ensure that new employees receive the training and sign documentation indicating that they have received the training.

As part of compliance plans, we encourage health care providers to have all employees attend a training overview of HIPAA (which can be conducted in-house), which will prepare them to:

(1) describe what HIPAA is and how it came to be;
(2) identify major components and implementation timeframes of HIPAA (privacy, security, code sets, due diligence, and transactions);
(3) be cognizant of the HIPAA privacy rules, current practice policies and California’s privacy laws regarding medical records;
(4) determine what is considered private vs public information;
(5) identify penalties associated with violations of HIPAA rules;
(6) report suspected violations of HIPAA rules;
(7) identify how to obtain additional assistance or information regarding HIPAA within the practice; and
(8) describe generally how HIPAA could affect them and their work unit.

Upon completion of HIPAA training, employees will sign a form acknowledging receipt of this training. One copy of the acknowledgement form will be given to the employee and another will be placed in their personnel file.

If your practice is not compliant with HIPAA training and having each employee sign a HIPAA form as part of their personnel file, it's not too late to become compliant. Most health care attorneys or other compliance providers can conduct in-office seminars or draft a training manual that can be reviewed at a reasonable cost. Don't wait for a patient to file a complaint or until an employee improperly discloses protected health information (PHI).

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, Califonria. The firm focuses its practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers and HIPAA compliance.


Friday, April 10, 2009

Hospital Peer Review: Attorney Comments On Recent Case And Peer Review Procedures And Strategies

A recent California Supreme Court case considered whether the hearing officer appointed to preside over such hearings could summarily dismiss the proceedings due to the physician's lack of cooperation with the process. In Mileikowsky v. West Hills Hospital and Medical Center (S156986, April 6, 2009), the California Supreme Court ruled that once a hearing is requested, the hearing officer lacks authority to prevent a reviewing panel from reviewing the case by dismissing it on his or her own initiative before the hearing has been convened, and also lacks authority to terminate the hearing after it has been convened without first securing the approval of the reviewing panel.

The case is discussed at length below. A review of this case can educate a provider about the procedure of a peer review process and what health care providers can learn from Dr. Mileikowsky's case:

First, the physician's problems arose in large part from an initial failure to accurately disclose information in his application for privileges.

Second, one cannot perform procedures at a facility without privileges. This was also one of the grounds for denial.

Third, peer review hearings have their own rules which are set forth in the California Business & Professions Code statutory scheme and the hospitals' bylaws and must be followed. However the bylaws cannot be inconsistent with the California statutory scheme.

Fourth, the hearing officers cannot be arbitrary. Nevertheless, the provider must cooperate with the peer review process. Even in cases where we have gone to hearing and won we remind the provider that he or she will need to be working with the hospital administration and persons on the committee and need to keep a long-term view while fighting for privilege rights. Burning bridges is not a wise strategy in the long run.

Fifth, peer review hearings can be emotional. Providers need to have objective legal advice and not let their ego or political disputes with hospital administrators or other providers lead to a denial of privileges which can harm a career. Denial of privileges by law is reported to the Medical Board of California (MBC) and the National Practitioner Data Bank. Thus, applying for privileges needs to be an educated process.

Sixth, something that is not discussed in the case, what do you do when you know the hospital is likely to deny privileges before there is a denial in order to preclude it being reported to the National Practitioner Data Bank? In our experience, hospital administrators will let a provider's attorney know that the application is likely to be denied and allow the provider to withdraw the application to avoid any negative reporting. This needs to be evaluated on a case by case basis.

Factual and Procedural History Of The Mileikowsky Case
Dr. Gil N. Mileikowsky, a physician and surgeon board certified in obstetrics and gynecology, had staff privileges to practice gynecology at West Hills Hospital and Medical Center (West Hills), an acute care facility. Dr. Mileikowsky applied for obstetrical privileges at West Hills and for renewal of his gynecological privileges.

His applications were reviewed by a peer review committee and its executive committee, both of which recommended denial, finding:
(1) he had failed to notify the medical staff that his privileges at a second facility had been terminated;
(2) he misrepresented that he had voluntarily resigned from a third facility, when in fact he had been summarily suspended; and
(3) he attempted to perform a caesarean section on a patient at West Hills when he lacked obstetrical privileges and after the patient had requested he stay away.

Dr. Mileikowsky filed a timely request for a hearing, challenging the peer review committee’s recommendation. West Hills’ medical executive committee (the reviewing panel) appointed a hearing officer to preside over the hearing, which was to be held no later than 45 days from the date of the request for hearing pursuant to West Hills' bylaws.

California’s statutory peer review process is governed by the Business and Professions Code (BPC). BPC § 809 et seq. affords a physician with the right to a hearing for the purpose of reviewing a hospital peer review committee’s recommendation to deny the physician’s application for reappointment to staff privileges. A hearing officer may be appointed to preside at the hearing, but the officer is prohibited by statute from acting as a prosecutor or advocate or from voting on the merits. Cal. Bus. & Prof. Code § 809.2(b). The merits are determined by the trier of fact, often a panel drawn from other of the physician’s peers. Cal. Bus. & Prof. Code § 809.2(a).

In Dr. Mileikowsky’s case, however, month after month went by without a hearing, largely because Dr. Mileikowsky refused to produce documents requested by West Hills, challenged the hearing officer’s authority, and refused to comply with the officer’s directions or orders. In the interim, West Hills amended its notice of the recommendation to include an allegation that Dr. Mileikowsky had failed to cooperate in West Hills’ investigation of the actions taken against him by a fourth facility, which had reported to the MBC and to the National Practitioner Data Bank that Dr. Mileikowsky’s privileges at that facility had been suspended for actions falling into the adverse action classification of “Incompetence/ Malpractice/Negligence.”

Eventually, the hearing officer ordered Dr. Mileikowsky to produce documents relating to the fourth facility, warning he would impose terminating sanctions should Dr. Mileikowsky fail to comply. Dr. Mileikowsky did not comply with the hearing officer's order. Finally, the hearing officer issued an order dismissing Dr. Mileikowsky’s request for a hearing, finding Dr. Mileikowsky’s refusal to make the documents available prevented West Hills from prosecuting its case.

In dismissing the proceedings, the officer invoked a provision in West Hills’s bylaws providing that a physician who fails to request a hearing shall be deemed to have accepted the action involved, the action will become effective immediately, and the physician will be deemed to have waived all other rights inuring to him or her under the bylaws. The order thus declared that the dismissal constituted Dr. Mileikowsky’s voluntary acceptance of the peer review committee’s recommendation and that the recommendation therefore “shall become effective immediately.”

As a result of the order, no hearing was convened, and the matter was never submitted to the reviewing panel for decision. Dr. Mileikowsky appealed the order to West Hills’ governing board, which adopted the hearing officer’s order. Dr. Mileikowsky sought relief in the superior court by petition for a writ of administrative mandate. After losing in the trial court and prevailing in the Court of Appeal, the matter was accepted for review by the California Supreme Court.

Upon review, the Supreme Court determined that the hearing officer was without authority to dismiss the hearing on the grounds of Dr. Mileikowsky's failure to cooperate. The Court found no provision in either the BPC or West Hills’ bylaws that expressly conferred authority on a hearing officer to issue terminating sanctions, and it determined that inferring such power was inconsistent with the goal of the statutory review process. The purpose for providing a physician with a review of the peer review committee’s recommendation—to secure for the physician an independent review of that recommendation by a qualified person or entity (the reviewing panel)—is defeated if the matter is dismissed before the reviewing panel becomes involved. A hearing officer who summarily dismisses a hearing in effect "votes" on the merits by ensuring that the peer review committee’s recommendation will be the final decision of the reviewing panel, in violation of section 809.2(b).

Thus, the Court held that "once a hearing has been requested, the review process may not be concluded without the reviewing panel’s informed approval."
Even though finding in favor of the physician, the Court pointed out potential adverse consequences of a physician's refusal to cooperate in the peer review proceedings:

■ A physician’s refusal to cooperate in an investigation of reported problems may support a recommendation that the physician’s staff privileges be denied. See Webman v. Little Co. of Mary Hospital, 39 Cal.App.4th 592, 602-03 (1995). However, a physician may not be denied staff privileges merely because he or she is argumentative or has difficulty getting along with other physicians or hospital staff, if those traits do not relate to the quality of medical care the physician is able to provide. Miller v. Eisenhower Medical Center, 27 Cal.3d 614, 627-29 (1980).

■ Where a delay in proceedings may result in an imminent danger to the health of any individual, the physician’s clinical privileges can be summarily suspended. Cal. Bus. & Prof. Code § 809.5.

■ A reviewing panel reasonably could infer from a physician’s failure to provide information that the information in question is unfavorable or tends to show the physician cannot or will not cooperate with others and for that reason may be unwilling or unable to function effectively in a hospital setting.

■ Initial applicants for hospital privileges may not introduce “information not produced upon request of the peer review body during the application process, unless the initial applicant establishes that the information could not have been produced previously in the exercise of reasonable diligence.” Cal. Bus. & Prof. Code § 809.3(b)(2).

Attorney Commentary: While the physician won the battle, whether he wins the war remains to be seen. The Supreme Court decision merely puts him back where he started—before the review panel—where the merits of his applications for staff privileges will have to be considered over again.

Even if the physician ultimately obtains the staff privileges he seeks, his aggressive conduct has resulted in time consuming (and expensive!) litigation which appears wholly unnecessary. This case illustrates the need to cooperate in the peer review process even while fighting for a provider's privileges.

We can infer two scenarios from the physician's conduct: (1) he didn't take the process seriously; or (2) he was trying to avoid disclosing bad facts. As to the first scenario—failing to cooperate won't make the process go away—it just raises negative inferences on the physician's fitness or willingness to practice in cooperation with others and in compliance with the facilitity's bylaws.
As to the second scenario—facts are facts, and not cooperating will not make them disappear. What needs to be done is full disclosure, and, with respect to past deficiencies, developing a plan to prevent their reoccurrence. An attorney experienced in peer review processes can assist the physician in presenting the facts in the best light possible and devising a plan that will acknowledge and address the concerns of the reviewing committee.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. The firm focuses its practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Posted by Tracy Green, Esq.
Phone: 213-233-2260

Thursday, April 9, 2009

Mortgage Modification And Foreclosure: FTC Filing Lawsuits And Sending Warning Letters

The Federal Trade Commission announced on April 6, 2009 a crackdown on fraud and deception by mortgage modification and home foreclosure rescue companies. The FTC is seeking to halt the proliferation of these mortgage relief offers – which target distressed and vulnerable consumers who are delinquent or facing foreclosure.

The FTC has filed numerous criminal and civil cases. In addition, the FTC sent a warning letter out to over 70 companies in the past few weeks who they suspect of engaging in deceptive marketing mortgage loan modification or foreclosure rescue services. A copy of the warning letter can be seen at:

On February 2, 2009, the California State Bar has also issued an "Ethics Alert" regarding legal services to distressed homeowners and foreclosure consultants on loan modifications.

The State Bar expresses the opinion that there is evidence that some foreclosure consultants may be attempting to avoid the statutory prohibition on collecting a fee before any services have been rendered by having a lawyer work with them in foreclosure consultations. The State Bar opines that many of the proposed relationships between these foreclosure consultants and lawyers could violate the Rules of Professional Conduct and other ethical rules and, therefore, could result in lawyer discipline. The State Bar's stated purpose of the Ethics Alert is to remind California lawyers of several ethics rules that may apply in the event a foreclosure consultant or another non-lawyer requests assistance from a lawyer and/or refers potential distressed homeowner clients to the lawyer.

A copy of this Ethics Alert can be seen at:

California law specifically addresses foreclosure consultants and restricts their activities; among other things, they are prohibited from collecting upfront fees for their work. (See California Civil Code Section 2945 and following). However, because attorneys are permitted to accept advance fees, they are in demand by some loan modification businesses. (Licensed brokers also may accept advance fees under certain circumstances.)

Attorney Commentary: Companies or individuals who are engaged in this business need to be aware of the law and ensure that they are compliant with federal and state law. The FTC is not waiting for consumer complaints and sent the warning letter to companies that were discovered on the Internet by a review of their advertisements or websites. Anyone working in the area of loan modification should be especially careful to be fully compliant with the law. Attorneys working in this area with loan modification consultants should also be mindful of fee splitting issues, referral fee issues and the aiding and abetting of the unlicensed practice of law. Licensed brokers should have similar concerns about being compliant with the law.

Scott Drexel, the State Bar’s chief prosecutor, says that for the last three months, the bar has received 50 complaints each day — about 950 complaints a month — about lawyers involved in some way with the foreclosure crisis. While the complaints are varied, Drexel said the most common concerns lawyers who lend their name to a loan modification operation but non-lawyers do most of the work. The non-lawyers get fees upfront through the lawyer and either do not complete the modification or do it incompetently. As a result, he said, the client loses his or her money.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. The firm focuses its practice on the representation of individuals, licensed professionals and businesses in civil, business, administrative and criminal proceedings.


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