If physicians didn't have enough to worry about with governmental enforcement of Stark law, the Anti-kickback statute and other fraud, waste and abuse laws, many physicians are now finding their doors darkened by a new menace in the form of bankruptcy trustees seeking "claw backs."
A case in point, Aetna Life Insurance Company v. Humble Surgical Hospital LLC, case number 4:12-cv-01206, in the U.S. District Court for the Southern District of Texas. On Jan. 3, 2017, Aetna won a $51 million judgment against Humble, alleging, in part, that Humble illegally paid 103 doctors up to 30 percent of its technical fee in exchange for referrals. Humble immediately filed for bankruptcy protection. Aetna then sued each of the 103 doctors, claiming that Aetna, as a judgment creditor of Humble, should be allowed to claw back the illegal payments.
A similar scenario occurred when Health Diagnostics Laboratory (HDL) paid physicians processing and handling fees of $10 to $17 per referral as inducements for the physicians to refer patients to them for blood tests. HDL filed for bankruptcy protection and the trustee appointed by the bankruptcy court began notifying physicians that the transfers were fraudulent under the bankruptcy code, and the trustee expected the payments to be returned to the bankruptcy estate.
Whether or not these claims will be allowed to proceed may depend upon judicial interpretation of the bankruptcy code, and common law equitable principles. As a general rule, a bankruptcy trustee stands in the shoes of the debtor and the trustee is subject to all defenses available against the debtor. In other words, if Humble or HDL in the above examples, could not recover in court against the doctors, the trustee likewise cannot recover. Several defenses may apply.
As a general rule, parties to an illegal contract may not sue for a return of payments on an illegal contract. In Texas, for example, courts have held, "[w]hen an attempt is made to bring an action upon an illegal contract, the courts of this state have uniformly held that they will leave the parties where they found them." Flynn Bros. v. First Medical Assoc. 715 S.W.2d 782 (Tex. App.—Dallas 1986). Thus, if a corporate scheme involves the payment of what is ultimately found to be illegal kickbacks for referrals, the corporation usually cannot sue to get its money back, even if the company and the physician are found to be in pari delicto (equally at fault.) When a bankruptcy trustee takes over, in the eyes of some courts, however, the equities change. The trustee is like a new board of directors.
It can be argued, the trustee didn't do anything wrong and wasn't even around when the bad acts occurred. The trustee merely acts as an agent seeking to recover for the innocent creditors of the debtor, often those who were the real victims of the fraud. I consider this specious, but bad facts do make bad law.
In many cases, the judge may be called upon to rule whether or not the doctors were innocent victims too. Often, the company/debtor, affirmatively misrepresented the investment to the doctors, which is a form of securities fraud. Or the scheme could have been performed lawfully, but the company/debtor's mismanagement failed to do something necessary to keep the scheme lawful. For example, the company may have failed to attempt to collect copays or meet some element of a safe harbor. Often, these failings are unknown to, or out of the control, of the doctors. In these cases, the physician may be able to assert these defenses to the clawback claim.
The good news, if there is any to be found here, bankruptcy trustee will offer that the physician can settle without being sued, and is not required to agree that he did anything wrong in the settlement papers. Further, because the rules of court encourage settlements, the offer in compromise or actual settlement, is usually inadmissible in any subsequent case. If there is to be a governmental enforcement action, the trustee's claim is independent, and has nothing to do with the work of the OIG or DOJ.
If you receive a clawback letter from a bankruptcy trustee, consult an experience healthcare lawyer immediately.