Earlier this month, the US Department of Justice (DOJ) announced that a grand jury indicted the Chesapeake Regional Medical Center (CRMC) in Virginia for conspiracy to defraud the United States and for healthcare fraud.

In a significant move, this means that DOJ seeks to hold a hospital criminally responsible for alleged fraudulent conduct committed by a physician at the hospital.

It is also noteworthy for its troubling allegations – that the medical center deliberately ignored repeated evidence of gross misconduct by a doctor in repeatedly credentialing him to perform procedures at the hospital and billing for those procedures.

Finally, the indictment emphasizes the need for medical providers to maintain documentation demonstrating that medical procedures performed are all medically necessary.

CRMC has entered a plea of not guilty on all charges, asserting that it exists as an arm of the Commonwealth of Virginia and is therefore immune from federal criminal prosecution. And it argues it could not have formed the criminal intent necessary for the government to prove the charged conspiracy and healthcare fraud.

An indictment does not indicate the guilt of any party and is just the formal start to further, possible court action.

Indictment allegations

The indictment alleges that from 2010 to 2019, CRMC and a former obstetrician-gynecologist with surgical privileges at CRMC conspired to defraud the government by performing medically unnecessary operations, submitting inaccurate and false bills, and failing to comply with applicable rules and regulations.

CRMC allegedly received approximately $18.5m in reimbursements from health care benefit programs over that time for procedures performed by the former physician at the hospital. 

The indictment alleges in specific detail the alleged illegal conduct performed by Dr Javaid Perwaiz, a former obstetrician-gynecologist with privileges at CRMC.

In 2020, Perwaiz was convicted of 52 counts of healthcare fraud and false statements related to health care matters for a “scheme to bill private and governmental insurers millions of dollars for irreversible hysterectomies” and other non-medically necessary procedures.

The indictment alleges a variety of red flags related to Perwaiz that CRMC deliberately ignored in repeatedly credentialing him to perform procedures at the hospital and billing for those procedures.

Perwaiz’s privileges at another nearby hospital had been terminated in 1983 for “performing unnecessary gynecological surgeries, including irreversible hysterectomies …”

The indictment alleges, for example, that CRMC granted Perwaiz privileges in April 1984, despite being notified that Perwaiz’s privileges at another nearby hospital had been terminated in 1983 for “performing unnecessary gynecological surgeries, including irreversible hysterectomies on approximately a dozen patients, including young patients of child-bearing age. 

CRMC reviews the credentials of privileged physicians every two years, and it re-credentialed Perwaiz every two years between 1984 and 2019 – despite knowing Perwaiz had been convicted of felony tax fraud and after CRMC heard from another CRMC physician that an estimated two-thirds of Perwaiz’s patients’ surgeries were not medically necessary, the indictment states.

Also according to the indictment, CRMC also knew that Perwaiz “routinely and knowingly” misclassified inpatient-only surgeries as outpatient procedures, but the medical center allowed him to continue that practice, knowing that he would bill healthcare benefit programs for reimbursement. Between 2010 and 2019, CRMC employees raised concerns about his billing practices to CRMC executives, but nothing was done.

The indictment further alleges that CRMC employees also reported concerns that Perwaiz’s medical records did not support the medical necessity of the operations and that he repeatedly performed sterilizations on Medicaid patients at CRMC without valid consent forms, or altered patients’ consent forms after the operation was initiated.

Citing “independent, post-arrest analyses by health care benefit programs Anthem and Optima,” the indictment alleges that between 2015 and 2019, approximately 80% of the surgeries Perwaiz performed were medically unnecessary. 

And CRMC allegedly conducted “an internal audit” identifying sterilization procedures for which patient consent was not obtained 30 days in advance.

Finally, according to the indictment, it was known in CRMC’s labor and delivery unit that Perwaiz scheduled patients for elective inductions before 39 weeks to enable him to perform (and bill for) the patients’ deliveries during his surgical block at CRMC on Saturdays. To schedule elective inductions, Perwaiz submitted flowsheets with dates he falsified to make it look like a delivery was after 39 weeks of pregnancy when it was not. 

In a tip to the FBI, another obstetrician-gynecologist with privileges at CRMC flagged concerns that Perwaiz was falsifying charts to allow him to perform elective deliveries “when it was convenient for him to induce labor” because he was scheduled to be in the hospital.

Legal and regulatory mandates

Conspiracy to defraud the US government is one charge in the DOJ’s case, as is “knowingly and willfully” defrauding any “healthcare benefit program.” The latter is defined by statute to include public programs such as Medicare for seniors, state-administered Medicaid for low-income individuals, and TRICARE for active-duty service members, plus healthcare plans administered by private insurers. 

The alleged fraud in this matter concerns false information provided to healthcare benefit programs. 

Also under law, medical providers can submit claims to healthcare benefit programs only for medically necessary procedures and services provided to the patient. The provider must certify that the services rendered were medically indicated and necessary to the patient’s health and keep documentation demonstrating that fact.

Significance

This case exists against a backdrop in which the DOJ recently announced the dramatically named 2024 National Health Care Fraud Enforcement Action, resulting in criminal charges against an equally dramatic 193 defendants. The agency has not hesitated in pursuing fraud charges criminally against medical providers in the past, and these egregious charges were certainly ones it felt it had to pursue.

The allegations point to a need for strong compliance policies, procedures and internal controls, including functional, well-advertised, strongly encouraged (and anonymous) internal reporting mechanisms. The regulatory and legal obligations around when medical procedures can be performed and the documentation needed to substantiate and document those efforts should form the foundation of any healthcare compliance programs. Of course.

Perhaps more obviously, any knowledge of illegal conduct by an affiliated doctor, along with actually billing for the procedures undergirding the illegal conduct, will present severe criminal liability potential. Any business must recognize the risk of paying, re-credentialing and enabling a person engaged in such misconduct and take every step to ensure it never becomes a risk factor at the organization again, thanks to policies, processes and having a code of conduct people must attest adhere to there.

Although CRMC has made certain defenses on its behalf at this stage to dismiss the charges, perhaps it will consider in future immediate action on its part to remediate its compliance program immediately, and the personnel changes and new ethical leadership this remediation process might warrant. Or the court could order it.