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North Texas Is on the Leading Edge of Prosecuting Healthcare Fraud

Novel uses of the law, healthcare fraud strike forces, and innovative companies are all fighting a growing problem.
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Image by Cactus Creative Studio
The red flags at Forest Park Medical Center came early and often. Doctors at the Dallas hospital observed questionable practices, and partners noted vast sums of money being allocated for “marketing.” A 2016 lawsuit became a harbinger of trouble for the now-infamous Dallas operation. Dr. Lisa Umholtz, an early investor in the company, alleged that she was expelled for not sending enough patients to the hospital. Ultimately, Forest Park was revealed as being the core of a $200 million kickback scheme that, by the spring of 2021, sent 14 defendants to jail.

North Texas has emerged as a hotbed for healthcare fraud. The region ranked in 2019 as the third most active in the country for such offences. Although the total number of offenders nationwide has been trending down for the last several years, the median loss is rising, standing at $1.2 million in 2020. The National Health Care Anti-Fraud Association estimates that fraud costs the nation about $68 billion a year—or about 3 percent of all healthcare costs nationwide.

The U.S. government launched a healthcare fraud strike force in 2007, with Dallas taking on a significant role shortly after. The local office works with federal attorneys and uses data analytics to identify anomalies in healthcare claims data. By stopping bad actors, it is a solid financial investment for the government. “Healthcare fraud enforcement pays for itself,” says Jay Dewald, a partner at Norton Rose Fulbright who led the rollout of the region’s fraud strike force. “The return on investment for the prosecutor is off the charts.”

At Forest Park, investigators found an organization rife with questionable practices. The hospital was paying physicians to refer patients to the facility while its high out-of-network prices racked up massive profits for the owners. In the end, the $200 million fraud involved $40 million in kickbacks—mostly bilked from private insurers who were footing the bills for procedures at the hospital. 

After looking into numerous complaints, the U.S. Attorney’s Office wanted to prosecute. But because most of the fraud was against private insurance companies rather than a federal payer like Medicare, they could not use federal anti-kickback laws, which focus on protecting government dollars.

Texas has its own anti-kickback statute that could have been used to prosecute providers who commit fraud against private insurance companies and patients. But the crime is a Class A misdemeanor—small potatoes for physicians making millions on bribery and kickback schemes.

So, prosecutors had to get creative to go after fraud that wasn’t directly against the government. The Forest Park case was one of the first in the country to use the federal Travel Act to go after healthcare fraud. The law prohibits any facility from using interstate or foreign commerce to distribute the proceeds of unlawful activity. Forest Park used services in other states, including an out-of-state lab, so that qualified it in the eyes of prosecutors.

The innovation marked a shift in how healthcare fraud investigations are pursued, opening the door to prosecuting fraud even if there are no federal dollars. But it wasn’t easy. The case included multiple victims and government agencies, nearly two dozen defendants, and a seven-week trial with multiple convictions and sentences involving decades of prison time and millions in restitution. 

“There is a certain element of greed everywhere.”

Andrew Wirmani, Reese Marketos

“These investigations are tremendously complex in terms of keeping everybody moving in the right direction and working together as a team,” says Andrew Wirmani, who led the federal fraud prosecution in the Forest Park case and is now a partner at trial law firm Reese Marketos. “Fortunately for us, we had some really good agents working together to bring this all to a head.”

The method of prosecution was a wake-up call for providers and their legal counsel. “Lawyers in our neck of the woods were operating under the belief that you didn’t need to pay close attention to anti-kickback statutes if no federal or state money was involved,” says Bill Mateja, a partner in the white-collar defense group in Sheppard Mullin’s Dallas office who, for a time, represented one of the Forest Park defendants.

The defendants may still appeal the case, but the ruling and prosecution open up opportunities to prosecute cases even when government payers aren’t involved. Private payers are applauding the decision, as they now have confidence that federal prosecutors can go after fraudulent activity against them. 

The judgment, Mateja says, “was essentially a Mack truck for the federal government, allowing the way for them to be able to do this.”

The unscrupulous flock to money, and with the North Texas economy and population still booming, Wirmani says the region will continue to be a target for those prosecuting fraud. “It has been a hotbed for fraud in recent years. There is a certain element of greed everywhere.”  

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