IN United States v. Anderson, No. 98-20030 (D. Kan. transcript filed Mar. 9, 1999) ("Anderson"), a federal jury convicted two hospital executives and two physicians in an alleged $2.2 million Medicare and Medicaid anti-kickback scheme. The government alleged that the two physicians referred Medicare patients to the hospital in return for remuneration under sham consulting contracts. In the same case, almost a month earlier, the district court had acquitted two Kansas City health care transactional lawyers who were indicted for their part in drafting the alleged sham consulting contracts. The district court acquitted the two health care transactional attorneys before they were to appear before a jury, based on the court's finding that the attorneys relied in good faith on their clients' representations, and that the attorneys used their best efforts to provide sound advice in an ambiguous area of the law. However, as a result of what the jury viewed to be a conspiracy between the hospital executives and physicians to illegally obtain remuneration for Medicare referrals, two hospital executives face a maximum of 10 years in prison, one physician faces 35 years in prison, and another faces up to 25 years in prison. The convicted hospital executives and physicians plan to file motions for acquittal and for a new trial, and if not successful, plan to appeal the case. However, the traumatic litigation, and the damage done to their professional reputations, cannot be reversed.
Anderson has wide ranging ramifications in the health law community. First, Anderson serves as a reminder that physicians and executives may be indicted for allegedly illegal contracts many years after the contract is drafted. In fact, the district court acquitted a third physician only because the statute of limitations had passed since his involvement with the alleged illegal contract. Second, Anderson is a reminder that health care executives and providers will be judged by a jury which may have little experience in the regulatory landscape of health care, and of the complex transactions which have become common in the industry. Finally, Anderson presents concerns about the confidentiality of legal advice and counseling that lawyers give clients about fraud and abuse matters. The latter concern is the focus of this article.
The indictments in Anderson were unprecedented in that the government sought to criminalize the core legal advice that health care transactional lawyers have traditionally dispensed to health care providers about structuring business relationships to comply with the requirements of applicable law. In the indictments, the government alleged that, over a ten year period, the attorneys sought to assure their hospital client of continued patient referrals from nursing homes by structuring business ventures in a way that violated the federal healthcare program antikickback statute (the "Antikickback Statute"). In addition, the government alleged that both lawyers concealed illegal payments for referrals by several methods, including the preparation of sham consulting agreements to disguise the payments as consulting fees; the modification of existing agreements to eliminate expressed references to patient referrals; and the use of the attorney-client relationship to protect business discussions regarding the referral arrangements.
By alleging that the attorneys used the attorney-client privilege in furtherance of a crime, the government was able to pierce the attorney-client privilege with the crime fraud exception to the privilege. In this way, the government was able to gain access to documents which would otherwise have been protected from disclosure. This application of the crime fraud exception suggests that there is no guarantee that counsel's advice in fraud and abuse cases will be protected. The government's strategy of piercing the attorney-client privilege may result in a chilling effect on the free flow of communications between attorneys and their clients.
The comments of the court concerning the advice of counsel and the ambiguity of the Antikickback Statute provide some reassurance to health care clients and their counsel. The court in Anderson found that the indicted health care attorneys merely endeavored to provide sound legal advice in an ambiguous area of the law -- something lawyers do every day. After finding that no reasonable jury could find beyond a reasonable doubt that the health care attorneys committed any criminal act, the court stated as follows:
"The Court is firmly convinced from the evidence presented that the only reasonable inference a jury could draw is that the lawyers, each in their own turn, attempted to advise their clients to engage in legal transactions and that these two Defendants did not prepare sham agreements to paper over a fraud but, rather, tried their best to prepare agreements that would reflect what they intended to be legal transactions into which they believed their clients desired to enter. The state of the law was in flux; and the lawyers adapted their advice to it as it changed.
"The Government, in effect, argues that the relationship between [the hospital] and [the physicians] was so tainted by an overarching desire on the part of the [hospital] to receive referrals and on the part of the [the physicians] to receive payments for those referrals that illegal remuneration to induce was virtually inescapable. The Court disagrees. It is undisputed from the evidence that all the lawyers who dealt with or reviewed those transactions . . . held good faith beliefs that it was possible to facilitate some business relationship that was legal between the hospitals and the [the physicians]. Even if patient referrals were devoutly hoped for and anticipated; even if the volume of patients could be large; even if the parties might never have come together, but for [the hospital] having embarked on a long-range plan that depended on attracting nursing home patients, there is nothing in the evidence or the law that would have a priori precluded a legal relationship from being entered into under these circumstances.
"The Government also contends that the evidence of guilt is sufficient because [the lawyers] knew the services were not worth fair market value and knew that the services were not being provided. I've studied the evidence marshaled by the Government, in its brief to that effect, but the Court finds it to be insufficient. It shows that the lawyers relied on their clients, were not engaged to monitor the activities of the consultants, and each time it came to their attention that there was a potential compliance problem, they urged their clients to make sure that fair market value for real services was being required."
The Anderson case demonstrates that federal prosecutors will look beyond sham agreements to the real intent of the parties and to the actual facts and circumstances of each arrangement. The reason that the health care attorneys were acquitted, and their clients were convicted, appears to be that while the lawyers attempted to advise their clients to comply with the government's current application of the Antikickback Statute, their clients apparently continued to violate the law. As a result, the hospital executives and the physicians face several years in prison.
In the wake of Anderson, wise health care attorneys and their clients should employ certain tactical safeguards as they deliver and solicit advice in transactions where fraud and abuse laws may be at issue. When structuring a financial transaction between a client and a referring physician, whether or not it fits a safe harbor, a good lawyer will document all advice and all of the client's representations. A good lawyer will also ask hard questions about the purpose of the transaction and memorialize the answer. The government's ability to pierce the attorney-client privilege means that it is important for health care providers and their attorneys to make all notes, write all correspondence, and conduct all communications as if a federal prosecutor, judge, and jury were observing and listening. After Anderson, health care clients and their attorneys must consider the possibility that the legal advice given in fraud and abuse cases today may appear on the front page of the local newspaper tomorrow. Even so, this concern must be subordinated to the need for a free flow of information between attorney and client, so that the client may receive the most accurate advice that the attorney can provide.
The Anderson case contains lessons for both the provider and the legal community. Although the attorneys who were prosecuted were acquitted at the close of the government's case, the fact remains that the government was able to obtain otherwise privileged and confidential communications from health care providers and their attorneys. Attorneys and clients should be aware that the government may have the ability to pierce the attorney-client privilege in some instances. However, this should not inhibit attorney-client communications. It remains critical that clients freely communicate with their attorneys regarding the health transactions into which they enter, and that clients heed the advice of their attorneys, so that fraud and abuse scrutiny may be avoided in the first place.