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From Health Law Daily, October 25, 2018

Company sale scheme intended to defraud CMS into making improper reimbursements

By Matt Pavich, J.D.

The sale of two medical supplies companies defrauded the government, because the sale was intended to allow the owner of the first company to continue getting reimbursements, despite being placed in a payment suspension, a federal district court in Florida has ruled. The court denied the defendants’ motion to quash an order granting application for prejudgment remedies (U.S. v. Central Medical Services, LLC, October 19, 2018, Antoon, J.).

Background. Central Medical Systems, LLC (CMSI) provided medical equipment and other Medicare reimbursable items to patients. The owner of CMSI also owned Meddex, which provided similar services. CMS learned, based on interviews with current and former employees, that CMSI had been submitting inflated billing and initiated a payment suspension and review.

After the owner learned that CMSI had been placed on payment suspension, he transferred ownership of Meddex to one of his employees for $150,000. As of the hearing, the employee had not yet received any part of the payment. CMSI and Meddex had the same phone number and address and were listed together on service authorization forms. After the sale, Meddex, which had been billing nothing, billed hundreds of thousands of dollars, while CMSI’s billing went to zero. Meddex received reimbursements for three months before also being placed on payment suspension. The government intervened in the relator’s action and filed a motion for application for prejudgment remedies. A magistrate judge granted the motion and the defendants sought to quash that order.

Probable validity. In order to prevail, the government needed to show that its claim for debt for which the remedy was granted was probably valid. The court found that the government alleged that a debt existed by alleging that the defendants submitted false claims and conspired to submit false claims through the Meddex transaction. The court further found that the government claims were based on a thorough investigation that revealed the overbilling and the hurried nature of the Meddex transaction. Furthermore, the court found the sale price inconsistent with Meddex’s value, given that Meddex gross revenue in three months was $460,597.29. Moreover, hundreds of CMSI patients began receiving their products from Meddex after the CMSI payroll suspension.

Conversion with intent. The court also ruled that the defendants conduct had the effect of hindering or defrauding the government. By using the Meddex sale to circumvent the payment suspension, the defendants conspired to convert their claims into money to defraud the government. Because of the suspension, any reimbursement to CMSI would have been placed in escrow and those funds could have bee used to satisfy any judgment against CMSI. The Meddex sale prevented those funds from being placed in escrow, thereby hindering the government in its ability to collect a judgment. Indeed, when the bank responded to the Writ of Garnishment, only $7,000 remained in the Meddex account. The court therefore found that the government had met its burden and denied the motion.

The case is No. 6:14-cv-512.

Attorneys: Jeremy Ronald Bloor, U.S. Attorney's Office, for the United States, The State of Florida and Jael Cancel. Dale R. Sisco (Sisco-Law) and Jura Christine Zibas (Wilson Elser LLP) for Central Medical Systems, LLC.

Companies: Central Medical Systems, LLC; Meddex Solutions, LLC

MainStory: TopStory CaseDecisions CMSNews BillingNews DMENews FCANews FraudNews ProgramIntegrityNews FloridaNews

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