Posted On Friday, March 11, 2016
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On Wednesday, the SEC charged California’s largest agriculture water district, Westlands Water District, with misleading investors about its financial condition when it issued a $77 million bond offering. On that same date, Westlands agreed to pay $125,000 to settle the charges, making it only the second municipal issuer in history to pay a financial penalty in an SEC enforcement action. The SEC also charged Westlands’ General Manager, Thomas Birmingham, and former Assistant General Manager, Louis David Ciapponi. Birmingham and Ciapponi also agreed to settle the charges against them by paying $50,000 and $20,000 respectively.
At the heart of the case were the SEC’s allegations that Westland made misleading statements about its financial condition through what the SEC described as “extraordinary accounting transactions.” According to the SEC, Westlands agreed in prior bond offerings to maintain a 1.25 debt service coverage ratio, constituting the measure of an issuer’s ability to make future bond payments. In 2010, Westlands learned that drought conditions and reduced water supply would prevent the Water District from generating enough revenue to maintain that ratio. In order to meet the ratio, Westlands reclassified funds from reserve accounts to record additional revenue. According to the SEC, the general manager, Birmingham, jokingly referred to the reclassification transactions as “a little Enron accounting” when describing the transactions to Westland’s Board of Directors.
Based in part on the extraordinary accounting transactions, when Westlands issued the $77 million bond offering in 2012, it represented to investors that it met or exceeded the 1.25 ratio for each of the prior five years. Westlands did not disclose that it would not have been possible to meet that ratio without the extraordinary 2010 accounting transactions. In addition, Westlands omitted separate accounting adjustments made in 2012 that would have negatively affected the ratio had they been done in 2010. The difference was significant, as the SEC indicated that Westlands coverage ratio for 2010 would have been only 0.11 instead of the 1.25 reported to investors. The SEC found that Birmingham and Ciapponi improperly certified the accuracy of those bond offering documents.
A complete copy of the SEC’s order settling the charges against Westlands can be found here.
Posted On Tuesday, March 8, 2016
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On Friday, a Florida physician admitted to making false diagnoses of Medicare Advantage beneficiary patients, and entered a plea of guilty to one count of healthcare fraud in the United States District Court for the Southern District of Florida. The physician, Dr. Isaac Kojo Anakwah Thompson, is an internal medicine specialist who operated a medical clinic in Del Ray Beach, Florida. He was a primary care physician (PCP) enrolled in Humana, Inc.’s Medicare Advantage Health Maintenance Organization (HMO). He carried out the fraud by making false diagnoses of patients in order to receive excess capitation fees from Humana.
The Medicare Advantage program, administered under Medicare Part C, allows beneficiaries to enroll in health insurance plans sponsored by private insurance companies. Medicare pays the sponsoring insurance company a fixed monthly fee for each beneficiary who enrolls. Unlike Medicare’s fee-for-service model, the Medicare Advantage fee is based on the beneficiary’s medical conditions. Accordingly, the fee paid for beneficiaries with serious medical conditions is larger than the capitated fee paid for a healthier beneficiary. Medicare determines the beneficiary’s medical conditions in part by using diagnoses submitted by the beneficiary’s physician.
According to the government, between 2006 and 2010, Dr. Thompson diagnosed 387 Medicare Advantage beneficiaries with ankylosing spondylitis, which is a rare chronic inflammatory disease of the spine. Dr. Thompson reported these diagnoses to Humana, which in turn reported them to Medicare. These reported conditions resulted in Medicare paying approximately $2.1 million in excess capitation fees for those patients. According to the government, approximately 80% of those excess capitation fees went to Dr. Thompson. At the plea hearing, Dr. Thompson acknowledged that all or almost all of the ankylosing spondylitis diagnoses were false.
The charge to which Dr. Thompson pleaded guilty to carries a maximum statutory prison sentence of 10 years. In addition, he faces orders of restitution and potential fines. Sentencing in this case is scheduled for May 18, 2016.
While the actions acknowledged by Dr. Thompson in his plea hearing demonstrated blatant disregard for the requirements of the Medicare Advantage program, all providers should be aware of the scrutiny that continues to be applied to program participants. In its FY 16 Work Plan, HHS-OIG reaffirmed its commitment to review medical record documentation to ensure that it supports the diagnoses submitted by Medicare Advantage organizations for use in CMS’s risk-score calculations. The Work Plan indicates that OIG reviews have shown that medical record documentation does not always support the diagnoses submitted to CMS by Medicare Advantage organizations. A link to the FY 16 Work Plan can be found here.
