Board Sins of Omission: Failure to Oversee Quality Creates Fraud and Fiduciary Liabilities

Elisabeth Belmont, MaineHealthLewis Morris, Office of the Inspector GeneralBrian M. Peters, Post & Schell PCRobert G. Homchick, Davis Wright Tremaine LLP

Sins of Omission in the Board Room

Summary of Hypothetical

Hospital recruited Dr. Bones a couple years ago $ubstantial investment He is the face of the Ortho Center of

Excellence Generates a lot of $ for Hospital

Dr. Bones controls credentialing and peer review processes for his department

Some indications that Dr. Bones’ clinical performance and perhaps that of his partners is sub standard

Summary

Dr. Bones has lucrative contracts with hospital as Director of Institute and Medical Director of SNF Total director fees $450,000 SNF MD compensation 4x that of his

predecessor Admissions from SNF increasing since

Dr. Bones became Medical Director

Summary

Dr. Bones is the Principal Investigator for the Excellogen Clinical Trial

Excellogen treats deep joint infections Dr. Bones steering patients to skew

results Inaccurate data are being reported to FDA

and Drug Company Deep joint infections causing spike in

readmissions to hospital

Summary

Dr. Bones sits on the Hospital Board and is reassuring the Board that all is well

Hospital CEO doesn’t want to rock the boat

You are in-house General Counsel and aware of all of the above

The Key Players

Hospital System Board Informed leaders or dead cosmonauts?

Hospital CEO Sergeant Shultz

General Counsel You (in the hot seat)

Dr. Bones Charismatic, Entitled, Competent?

The Ubiquitous Dr. Bones

Member of Board Chair of Department of Surgery Member of MEC Director of Bone & Joint Institute Medical Director for Hospital’s SNF In charge of Peer Review for Department Principal Investigator for Excellogen trial

Guideposts for Prosecution

When evaluating substandard but medically necessary care at least some in the government will look for: Knowing conduct by institution or gross

and systemic leadership failures Intentional acts by individuals False reporting or failure to report Appalling clinical outcomes

Outside Peer Review of Dr. Bones’ Charts?

Data on Dr. Bones’ clinical performance: High rate of infection following surgery Rate of injury to patients outside norm Readmission rates high SNF admissions spike

How Can Board Effectively Monitor? What tools are available? What reports? Informational gatekeepers? In this case, tension between GC and CEO Need for systemic change in Peer Review?

Review of Dr. Bones’ Charts

What if Board does not address Dr. Bones’ clinical performance?

Risks include: Malpractice exposure increases

Negligent credentialing False Claims Act claim – Whistleblower? Administrative Sanctions Quality statistics decline – loss of P4P funding? Claims against Board members for breach of

fiduciary duties?

Beyond Dr. Bones: Potential Exposure for other quality failures

Scope of False Claims Act exposure based on quality of care is in flux

Existing claims/settlements for unnecessary care or care that puts patients’ lives at risk

In the future possible FCA claims based on: Never Events Hospital Acquired Conditions Failure to meet either quality or P4P standards?

Review of Dr. Bones’ Credentialing processes

Dr. Bones controls the credentialing process for everyone in his group

Self credentialing -- bias or at least appearance of bias

Are there procedural safeguards in the credentialing process?

Will Board step up if there are problems? What is obligation of counsel when the

CEO “knows nothing”

Self Credentialing

If Board does not address issues: Malpractice risks (hospital liability for

negligent credentialing) False Claims Act claims Breach of Fiduciary Duties Administrative Sanctions

Dr. Bones’ Presence at Meetings Discussing His Performance

Dr. Bones’ presence inhibits candor and discourages Board from asking hard questions

But, Dr. Bones is respected physician, VIP and substantial economic contributor

Who has the courage to raise the issue? Would that person be marginalized? Would an independent review be a better

approach?

What are the risks to the Hospital or the Board if nothing is done?

Dr. Bones’ Contracts with Hospital

Medical Director Contract: Dr. Bones’ threatens to establish

competing ASC Hospital offers SNF medical directorship to

Bones at four times current compensation Hospital admissions from Dr. Bones’ group

spike after Dr. Bones becomes Medical Director

Dr. Bones’ Contracts

Director of Bone & Joint Insitute $250K Salary Duties, other that promotion of the

Institute, are unclear Dr. Bones’ total compensation from

Hospital for director services is $450K

Dr. Bones’ Contracts

Director Agreements suspect Need to review the FMV of

compensation Are services commercially reasonable Payments for Promotion? Referrals? Investigate the facts to determine

kickback and Stark risks

Dr. Bones’ Contracts

Who is overseeing Dr. Bones’ contracts? Has Hospital Compliance Officer been

informed of facts? What processes are in place to inform

the Board of these arrangements? Need for Corrective Action?

Ingnore? Disclose and repay? Who makes that decision?

The Excellogen Clinic Trial

Background Facts: Centurion’s new drug for treatment of deep

joint infections Dr. Bones hired as principal investigator Dr. Bones steering patients Dr. Bones and assistant submitting false

data to FDA and Company Some indications patients are being injured

The Clinical Trial

Who is overseeing the Clinical Trial? Dr. Bones is steering patients and

tampering with data These fraudulent activities may well be

harming patients Where is the Hospital’s IRB? What data does the Board receive? What safeguards are in place?

The Clinical Trial

The Board should understand how clinical trials are regulated and the activiites of its IRB Informational Gatekeepers? Lack of Expertise on Board?

What steps should the Board take? Risks if the Board does not act?