Odyssey healthcare: a Department of Justice investigation related to the False Claims Act. (CASES).

Newbold, John ; Sullivan, Laura

CASE DESCRIPTION

The primary subject matter of this case is the application of the False Claims Act by the Department of Justice to investigate the recruitment and patient care policies of a for-profit hospice: Odyssey Healthcare. The case provides examples of the types of marketing and management practices which could fall under the purview of the False Claims Act. Secondarily, the case gives instruction as to management practices which would help firms establish and maintain ethical and legally-compliant corporations.

This case has a difficulty level of" two" or" three", and is appropriate for undergraduate students who are being introduced to the topics of business ethics and/or business law. Through its focus on the hospice industry, the case provides a poignant backdrop for the need for ethical business behaviors. The case describes the basics of the Odyssey Healthcare business model, with an emphasis on the types of marketing and management practices which drive hospice businesses in the United States. It culminates with the investigation of the Department of Justice and sets up a beneficial discussion of why False Claims Act investigations are initiated and the specific types of corporate behaviors which are sometimes scrutinized. Finally, the case gives some instruction on the manner in which ethical and legally-compliant corporations can be established and maintained.

The case is designed to be taught in three class hours, with roughly one hour spent on understanding the hospice industry and Odyssey Healthcare, one hour spent on the specifics of the False claims Act. The final hour would be dedicated to the discussion of how to establish and maintain an ethical corporate culture and compliant operations. It is expected to take two hours of preparation by students.

CASE SYNOPSIS

Richard Burnham had major legal and public relations issues on his hands. He had stepped down as CEO of his for-profit hospice firm, Odyssey Healthcare, less than a year previously, in January of 2004. His cofounder, David Gasmire, had assumed his responsibilities, while he stayed on as Chairman of Odyssey's Board of Directors. Now, less than a year later, a Department of Justice investigation was threatening the viability of his company.

In October of 2004, Odyssey Healthcare senior management informed investors and analysts that the firm was under investigation by the Department of Justice for violations of the False Claims Act, with respect to the company's practices for patient admissions, patient retention and billing practices. Immediate action was required. The first thing Burnham needed to do was find out what had given rise to the DOJ investigation. Even if some "rogue" employees had disregarded the firm's Code of Ethics and engaged in illegal activities, could his firm really be held responsible for these actions? Going forward, what steps should the company take to create a more ethical corporate culture and maintain more compliant operations in order to avoid future investigations from the Department of Justice?

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches

This case provides a unique context for business ethics and legal issues, since Odyssey Healthcare, Inc. is a for-profit hospice operating in an industry still dominated by non-profit entities. The case brings to the fore the aspects of the False Claims Act, which is the tool of choice when the federal government is investigating the fraudulent billing of a business entity. The fact that the subject matter involves the hospice industry makes the implications of the discussion more vivid and poignant.

It is recommended to first discuss the business model of Odyssey and other health care providers and the resulting business and marketing strategies deployed. Odyssey and others were aggressive in promoting rapid growth and achieving economies of scale. They were also creative in the manner in which they targeting potential patients, sometimes going after cancer patients, sometimes not, depending on the situation at each site. One key conclusion: Due to its tremendous rate of growth, Odyssey struggled to adequately track and control its operations.

The most compelling discussion will likely revolve around the question of whether or not Odyssey Healthcare, Inc. was indeed guilty of fraudulent behavior with respect to inappropriate billing of Medicare. The instructor may wish to set up this issue by asking students to describe a typical trip to the doctor's office and trying to identify areas where fraudulent behavior could occur. For example: Did you actually visit the doctor at all? Did the doctor use all of the equipment he claimed he did? Did the doctor prescribe all of the medicine that was claimed? This will give the students some idea of the myriad of areas where false claims can be made. Next, the discussion can be turned to the specifics of the forms of hospice care. Where is it possible for false claims to be made in regard to hospice care?

The second segment of the discussion should then turn to the False Claims Act itself. It would be beneficial to talk about the unique nature of the qui tam provision of the False Claims Act. The qui tam provision provides an incentive for private citizens to report wrongdoing to the federal government. This can lead to a fruitful discussion of whether or not the government is promoting a "squealer society". It may be useful to discuss what other approaches, if any, are available to the government to help them identify and prosecute fraudulent behavior? At this point, key aspects of the False Claims Act can be examined relative to the business practices of Odyssey. There is a discussion question with a table summarizing some key points in this regard.

Finally, this case can serve as a springboard for a discussion of what companies can do to foster a more ethical corporate culture and maintain compliant operations. Schein's framework for establishing a corporate culture can be utilized to discuss what Odyssey was and was not doing to promote a cultural environment that might preclude the need for a Department of Justice investigation. In regard to operational issues, the final discussion question, dealing with some of the particular requirements of the Corporate Integrity Agreement between Odyssey and the Department of Justice, provides specific steps that can be taken to help ensure compliance with government regulations.

Discussion Questions

1. What circumstances have led to this DOJ investigation?

At the outset, it should be emphasized that Odyssey Healthcare, Inc. and its management have not been found guilty of anything. The Department of Justice is involved in an investigation, but the case is yet to be determined. However, Odyssey is already paying a price, as the DOJ investigation, in conjunction with the Barron's article, has caused the marketplace to lose faith in Odyssey and the firm has slipped significantly in market value. Thus, one can appreciate that even the look of impropriety can prove costly.

There are several factors that may have led to the DOJ investigation, most of which are related to Odyssey's aggressive growth strategies:

* The growth has outstripped Odyssey's ability to manage its widespread operations effectively,

* Its acquisitions of previously non-profit hospice operations may have led to current or recently-released employees who do not appreciate or agree with some of the processes Odyssey utilized for recruitment and care, and

* The culture of the firm may have been more dominated by the financial goals of continued revenue growth and bottomline performance which, when combined with loose management of operations, gave certain employees the incentive to engage in fraudulent activities.

The DOJ investigation was instigated by two separate qui tam actions (to be explained in the next section). These complaints were likely filed by current or former employees of Odyssey, or perhaps a recent patient or patient's family member. It is certainly possible that an employee of a recently-acquired non-profit hospice did not quite agree with some of the Odyssey business processes and guidelines. By virtue of the federal government's decision to take up these claims, one is led to believe there is some merit to them.

2. Why would the Department of Justice send a letter to Odyssey with such little information regarding the offense?

The Department of Justice, like any investigating agency, wants to ensure that they obtain as much information as possible from the entity being investigated. When a simple one-page letter is sent, the party under investigation may provide additional information regarding offenses that the DOJ was not even aware of. This is why it is extremely important that any responses be carefully drafted and reviewed by Odyssey's legal staff.

One of the more challenging aspects of this question is the fact that Odyssey has not been fully informed of the nature of the claims in the qui tam complaints. This is due to the fact that the qui tam complaints are sealed (secret) to provide the federal government time to conduct their own investigations without the alleged violator being tipped off to their investigation. Thus, when the government approached Odyssey with the notification of their investigation, they were not specific, as they were trying to preclude employees of Odyssey destroying or otherwise ridding themselves of incriminating files, evidence, etc.

3. What types of misconduct would come under the purview of the False Claims Act?

It is important to note that we do not know specifically what charges the Department of Justice was investigating with respect to Odyssey. The following table summarizes some of the areas of the False Claims Act which may have been brought to bear upon the activities of Odyssey. It is based upon what the case tells us about Odyssey's activities and the areas covered under the False Claims Act.

The most alarming revelations of possible wrong-doing under the False Claims Act can be found under the section dealing with the Barron's article. Here we see specific charges of "providing a level of care and services below the standards set forth under government guidelines" and questions regarding the guidelines used for admission. The article cites the relatively high average length of stay of Odyssey's patients as evidence of lax standards in regard to the "six months to live" guideline.

4. If the investigation turns up some form of misconduct, can Odyssey be held responsible for the behavior of a few rogue employees?

The False Claims Act is leveraged very broadly to include essentially all business activities carried out by Odyssey or third parties acting on Odyssey's behalf. Perhaps of most concern to senior management at Odyssey was the broad interpretation of the term "knowingly". Under the False Claims Act, a person knowingly engages in misconduct if he/she acted with the actual knowledge, reckless disregard, or deliberate ignorance of the information underlying the misconduct (Vogel 1996). Thus, if a lower level employee of the organization has engaged in some type of inappropriate behavior, the organization is not relieved of liability just because senior management was unaware of the employee's activities.

5. What business measures should Odyssey take to avoid this type of investigation?

While improvements can be made to the technology used to process and validate claims, and new processes can be instituted to help prevent fraudulent behavior, the main deterrent to inappropriate behavior from top to bottom of the corporation lies with the corporate culture.

Odyssey should work to create a culture of patient caring that supersedes the culture of the profit-driven company. This culture should be supported by business processes that measure critical aspects of patient care. Once this culture is well-established, Odyssey should work to promote their image as incorporating this culture, in order to build up goodwill in the case of any additional allegations to come in the future.

The strategic plan of the corporation should reflect a greater focus on patient care. Thus, performance metrics, by which the company measures its effectiveness, would change from a stock market, profit-maximization orientation to a customer-satisfaction driven orientation. In addition, long-term investment in patient care should not be validated on return-on-investment standards, but instead on patient quality-of-life issues.

Finally, caregivers in these facilities would not be evaluated not the impact their actions on a company's cost structure, but instead on the experience and care that they can bring to bear on their patient's needs (Cruise 2002).

Odyssey can establish a more ethical climate by identifying common values and beliefs so that employees are better able to recognize them on hold themselves and coworkers responsible for them. Employees should have a visceral understanding of cheating of any kind on patient recruitment, care and billing is not condoned by the firm under any circumstances. Hopefully, they can be shown how detrimental a DOJ investigation, a class action suit, or a negative piece of investigative journalism can be to the firm.

6. What, if anything, could Odyssey do to promote a corporate culture where the ethical issues were better balanced with its business objectives?

In his book on organizational culture and leadership, Edgar Schein outlines a framework of major management tools by which corporate leaders can influence the culture of their organizations (Schein 2004). The following table outlines these management tools, and indicates whether or not the case provides enough information to attempt to assess Odyssey's use of each tool. The shaded areas of the table indicate areas where some conclusions may be drawn about Odyssey's shaping of its corporate culture.

Thus, five of the twelve major tools can be assessed for the case. The table below summarizes information from the case relative to the five tools as outlined by Schein and where information is available.

Odyssey Healthcare appeared to have many of the necessary elements in place to ensure the culture of an ethical company. They had a senior executive in charge of compliance. They possessed a formal code of business conduct and ethics. And they administered internal audits of ethical behavior. However, given its position as one of the leading for-profit hospice operations in the country, one may easily argue that Odyssey did not go far enough. Perhaps senior management could have taken a more active role in promoting an ethical culture. Perhaps the firm could have engaged in more training emphasizing ethical behavior. Perhaps organizational incentives related to patient care should have been implemented to balance out the recruitment incentives. On balance, it appears that Odyssey may not have gone far enough to promote an ethical culture inside their organization.

7. What types of specific operational practices under the following categories should Odyssey put in place to avoid any further investigation by the United States Department of Justice?

a. Training

b. Written Standards or Policies

c. Disclosure Program

d. Internal Compliance Audits

(Note: the following answers were gleaned from the Settlement and Corporate Integrity Agreement between Office of Inspector General of Department of Health and Human Services and Odyssey Healthcare, Inc., July 6, 2006)

a. Training

In Odyssey's settlement agreement with the Department of Justice, Odyssey agreed to establish corporate compliance training programs. Further, not only was initial training required but also annual "refresher training" for employees. In addition, for employees that dealt specifically with the compliance and reporting portion of the business, an additional four hours of training was required. The specific training required that the employee learn about federal health care program requirements, proper requirements regarding documentation of medical records, applicable reimbursement statutes and regulations and the legal sanctions for violations of the Federal health care program requirements.

Employees that completed the relevant required training were to receive a written or electronic certification upon successful completion. The training certifications were to be kept on file with Odyssey.

Odyssey's training program and trainer certification were to be reviewed and updated annually. Any changes in the Federal laws or significant issues uncovered during internal annual audits were to be included in the annual "refresher training."

b. Written Standards or Policies

Per Odyssey's agreement with the Department of Justice, it was required to create a Code of Conduct. The code was to cover the following:

1. Odyssey's commitment to full compliance with all applicable legal health care statutes. In addition, its dedication to submit accurate claims that were in compliance with the relevant Federal statutes.

2. Corporate policies and procedures.

3. Reporting of any suspected violations of any Federal statutes.

4. Consequences to employees if they failed to comply with any Federal statutes and/or corporate policies and procedures.

5. A disclosure program. This program was to allow employees to report suspected violations in a confidential manner.

The Code of Conduct was to be updated periodically. The revised code was to be distributed to employees within thirty days of the completion of the revision.

Further, Odyssey was required to create a Policy and Procedures manual. The manual was to include subjects included in the Code of Conduct, as well as compliance program guidance for hospice and an internal billing review protocol. The billing protocol included a plan for admissions and long length of stay reviews. Odyssey was required to update its policy and procedures manual at least annually. A more frequent review could be done if Odyssey deemed it necessary.

c. Disclosure Program

Odyssey's Disclosure Program was to allow for an employee to disclose any issues he or she may find regarding compliance to any federal statute and/or policy or procedure. The key to the disclosure program was that it was non-retaliatory and allowed for the anonymous communication of violations.

Once the Compliance Officer had received notification of a potential violation, the Office was to make a good faith investigation to determine the legitimacy of the allegations. The Compliance Officer was required to maintain a compliance log. The log documented all complaints and the status of each compliant.

d. Internal Compliance Audits

Odyssey was required to have a full-time Compliance Officer who was charged with developing Odyssey's policies and procedures. In addition, it was the Compliance Officer who ensured compliance with all relevant federal statutes. The Compliance Officer was required to make quarterly reports regarding the above mentioned policies and procedures to the Compliance Committee and the Board of Directors. The Compliance Officer did not report to the General Counsel or the Chief Financial Officer in order to ensure that the position had sufficient autonomy.

A Health Care Compliance Committee was created so that all federal statutes were adhered to and the internal policies and procedures were followed.

EPILOGUE

In February 2006, Odyssey announced that they had reached an agreement in principal with the Department of Justice to settle its civil investigation, agreeing to pay the federal government a sum of $13 million, but admitting no wrongdoing or liability.

Odyssey has maintained its strategy of aggressive growth. Odyssey has implemented a new IT system to help with internal controls and reporting.

In October of 2005, Odyssey named a new President and CEO to replace the departed David Gasmire. His name is Robert A. Lefton. Mr. Lefton joined Odyssey from Select Medical Corporation, a privately-held operator of acute care hospitals. Mr. Lefton is expected to spearhead Odyssey's operational initiatives as well as contribute to the partnering efforts of the firm. Richard Burnham retained his position as Chairman of the Board.

In January 2006, Odyssey announced the creation of a new position: Senior Vice President of Strategy and Development. Mr. Woodrin Grossman, a former member of Odyssey's Board of Directors, was named to the post. Prior to serving on Odyssey's board, Mr. Grossman was Chairman of PricewaterhouseCoopers Global Healthcare Practice.

REFERENCES

Web-related Resources

The Investor Relations page at the Odyssey website can be found at: http://www.corporateir.net/ireye/ir_site.zhtml?ticker=odsy.

Book and Journal Resources

Cruise, P. (2002). Are There Virtues in Whistleblowing? Perspectives from Health Care Organizations. Public Administration Quarterly. Winter 2002, pp. 413-435.

Schein, Edgar H. (2004). How Leaders Embed and Transmit Culture. Organizational Culture and Leadership. Ch. 13. Jossey-Bass. 2004, p. 245-271.

Settlement and Corporate Integrity Agreement between Office of Inspector General of Department of Health and Human Services and Odyssey Healthcare, Inc.; July 6, 2006.

Vogel, R. (1996). What Providers Need to Know About the False Claims Act. Healthcare Financial Management. March 1996, Vol. 50 Issue 3.

John Newbold, Sam Houston State University

Laura Sullivan, Sam Houston State University

Specific Areas Where Odyssey May Have Been Investigated
Under the False Claims Act

Number Aspect of False Claims Act Odyssey Activities

 1 Knowingly presenting, Odyssey was very aggressive in
 a false claim for payment. their recruitment tactics. If
 any patients were admitted for
 hospice care who did not truly
 meet the criteria (e.g., were
 not actually six months or
 less from dying), claims for
 payment for hospice services
 would be considered false
 claims.

 2 Kickbacks for referrals Again, relative to recruiting,
 and other activities Odyssey was engaged in
 developing relationships with
 larger healthcare providers
 such as pharmaceutical
 companies, nursing homes and
 HMOs. If any of these business
 arrangements were to be deemed
 inappropriate (e.g.,
 kickbacks), this would be a
 violation of the False Claims
 Act.

 3 Services provided without If Odyssey were found to be
 the medical necessity. unnecessarily providing
 "value-added" services, such
 as those requiring durable
 medical equipment (and thereby
 engendering higher levels of
 reimbursement), they may have
 been deemed guilty of
 providing unnecessary
 services.

 4 Inadequate care. In their efforts to control
 costs, Odyssey may have been
 found to have been
 administering inadequate care.
 For example, if a patient were
 in need of more pain relief,
 such as morphine. If Odyssey's
 national formulary called for
 a level of medication which
 the patient or his/her family
 deemed ineffective, they may
 have been accused of providing
 inadequate care. If Odyssey
 were seen as not providing
 proper bereavement care for
 patients' families, this might
 be construed as inadequate
 care.

Schein's Major Tools to Influence Corporate Culture

No. Tool Case
 Information

 1 What leaders pay attention to, measure and Yes
 control
 2 Leader reactions to critical incidents and crises No
 3 How leaders allocate resources Yes
 4 Deliberate role modeling, teaching and coaching No
 5 How leaders allocate rewards and status No
 6 How leaders recruit, select, promote and Yes
 ex-communicate
 7 Organizational design and structure Yes
 8 Organizational systems and procedures No
 9 Rites and rituals No
 10 Design of physical space, facades and buildings No
 11 Stories about important events and people No
 12 Formal statements of organizational philosophy, Yes
 creeds and charters

(Schein, 2004)

Table 2: Information Relative to Schein's Framework

No. Tool Odyssey

 1 What leaders pay The case indicates that Odyssey management
 attention to, was focused primarily on the metrics of
 measure and the business, such as average daily census
 control. and average length of stay. There is no
 indication in the case that management was
 utilizing a set of metrics focused upon
 patient recruitment processes and patient
 care. This is an area where Odyssey
 management could provide more emphasis
 moving forward.

 3 How leaders Odyssey's resources were mostly directed
 allocate resources. at driving growth in patient census. As
 Odyssey was adding new hospice sites, they
 dedicated an increasing share of their
 operational budget to establish and staff
 personal selling teams. In addition,
 resources were dedicated to the training
 of these "Community Education Reps", or
 CERs.

 6 How leaders This issue is addressed only tangentially
 recruit, select, in the section titled "Driving Admissions
 promote and ex- Growth through Personal Selling". In this
 communicate. section it is indicated that compensation
 plans for CERs were geared around numbers
 of referrals and types of patients
 obtained. While base salaries were set
 higher than market (presumably to attract
 the best candidates), bonuses were based
 upon the growth in referrals from
 quarter-to-quarter. There was no
 discussion regarding incentives or
 compensation for those who cared for the
 patients. Going forward, Odyssey
 management would be better served to
 provide more emphasis in this area.