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

1. Board Sins of Omission: Failure to Oversee Quality Creates Fraud and Fiduciary Liabilities Elisabeth Belmont, MaineHealth Lewis Morris, Office of the Inspector General Brian M. Peters, Post & Schell PC Robert G. Homchick, Davis Wright Tremaine LLP

2. Sins of Omission in the Board Room Conflicts? QUALITY

3. 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

4. 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

5. 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

6. 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

7. 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?

8. 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

9. 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

10. 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?

11. 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?

12. 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?

13. 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”

14. 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

15. 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?

16. 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

17. 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

18. 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

19. 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?

20. 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

21. 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?

22. 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?