Blackstone faces fraud settlement as DOJ alleges “culture of kickbacks”

Blackstone faces third portfolio company healthcare fraud settlement as DOJ alleges “culture of kickbacks” at TeamHealth

Last month, medical staffing firm Team Health Holdings, Inc. and three other defendants agreed to pay nearly $4.4 million to settle allegations of billing fraud.[1] TeamHealth is owned by private equity firm Blackstone Group, which has owned the company since taking it private in 2017.[2]

TeamHealth has also faced high-profile scandals, involving surprise medical billing and aggressively pursuing debts from low-income patients to cutting physician hours amid the height of the COVID-19 pandemic.[3]

This is not the first time a Blackstone-owned company has faced billing fraud allegations – Blackstone is in fact a repeat offender when it comes to owning healthcare companies that have paid out multimillion dollar settlements for allegedly defrauding Medicare and other government health programs.[4]

TeamHealth’s “culture of kickbacks”
TeamHealth is a medical staffing firm that provides outsourced physicians and other healthcare staff to hospitals throughout the US, including in Michigan where the alleged fraud occurred. The United States and the State of Michigan alleged that TeamHealth and its co-defendants “violated the False Claims Act by upcoding inpatient hospital services, allowing their doctors to bill for more services than they could possibly provide in one day, and billing for services not rendered.”[5]

The False Claims Act (FCA) is a federal law that establishes liability for individuals or companies that defraud governmental programs. It includes liability for collecting money from the federal government to which the individual or company may not be entitled, and using false statements to retain that money.[6]  Fraudulent activities may include providing substandard care, providing medically unnecessary services, receiving kick-backs for services provided, and filing claims for services not provided.[7]

According to the government’s complaint, TeamHealth “continues to foster a culture of kickbacks in cash and kind to many physicians to induce referrals.”[8]

The complaint explains that:

“All physicians employed by TEAM HEALTH received bonuses based on a formula driven by how many patients they see. Simply stated the more patients seen and billed for by any physician, the more money they make. Every few months RVU’s [relative value units] were tallied and physicians working for TEAM HEALTH could earn a ‘bonus.’”[9]

This practice allegedly incentivizes upcoding:

“Over the last several years, corporate management at TEAM HEALTH has created pressure to generate more revenues by way of physicians such as ZAMLUT [physician named as a co-defendant] that it employs. Further and in exchange, more revenue generated means more money paid in ‘incentives’ or ‘bonuses’ to physicians such as ZAMLUT. TEAM HEALTH uses a carrot and a stick to get physicians to drive revenue for TEAM HEALTH customers such as the [Detroit Medical Center] and HP Health.”[10]

Cheyvoryea Gibson, the Special Agent in Charge of the FBI in Michigan, said of the settlement: “Healthcare fraud is not a victimless crime. Whenever the integrity of our healthcare programs is compromised, everyone bears the cost through potentially higher insurance premiums, out-of-pocket expenses, and even reduced or lost benefits.”

Despite Blackstone’s ownership of TeamHealth, the firm was not a party to the lawsuit. Private equity owners of healthcare companies are rarely implicated in FCA actions, though there is substantial overlap between the risks associated with private equity ownership of healthcare companies and the activities targeted by the False Claims Act.

For more on private equity and healthcare billing fraud, see our report: Money for Nothing: How Private Equity has Defrauded Medicare, Medicaid, and Other Government Health Programs, and How that Might Change(February 2021)

TeamHealth’s checkered history
Under Blackstone’s ownership, TeamHealth has faced scrutiny for other practices that seemed to prioritize profits at the expense of patients.

In November 2019 ProPublica reported that after Blackstone’s acquisition, low-income patients treated by TeamHealth physicians faced far more aggressive debt collection lawsuits.[11] The company cut physician hours in April 2020, in the height of the COVID-19 pandemic.[12] And later that year, another ProPublica investigation found that TeamHealth billed for multiples more than the cost of emergency care and used all the all the money left over after covering costs to boost profits for investors, not the doctors who treated the patients.[13]

TeamHealth also helped fund a $53.8 million dark money campaign in 2019 to block federal legislation cracking down on “surprise medical billing” practices in which patients are unexpectedly hit with exorbitant charges, often following visits to emergency rooms.[14]

Blackstone a repeat offender
TeamHealth’s recent settlement is at least the third time a Blackstone-owned company paid to settle FCA suits related to conduct that occurred under Blackstone’s ownership.

In December 2020, Blackstone’s respiratory equipment supplier Apria Healthcare agreed to pay $40.5 million to settle allegations of fraudulent billing practices, including overbilling for non-invasive ventilators (NIVs).^[15] In its complaint, the Department of Justice alleged that Apria executives tried to aggressively boost profits by taking advantage of the increased reimbursement rates for NIVs, establishing a goal for Apria to increase its NIV rental revenue from $5 million in 2014 to $30 million in 2015.^[16]

For more on Blackstone’s ownership of Apria Healthcare see our report: Private Equity In Durable Medical Equipment: How Private Equity Profits Off of Disabled and Chronically Ill Americans (November 2023)

Blackstone also owned Vanguard Health Systems, which in 2015 settled False Claims Act allegations with the Department of Justice. The complaint against Vanguard alleged that the company inflated patient bills, billed for services not provided, performed unnecessary tests to fraudulently increase billing, and altered certain data to fraudulently increase billing.[17] Blackstone owned Vanguard Health Systems from 2004 until selling it to Tenet Healthcare in 2013, but the FCA allegations related to actions taken in 2012, while Blackstone owned the company.[18]

Blackstone has also faced grave allegations of misconduct for its companies outside the healthcare industry. In February 2023, its slaughterhouse cleaning company Packers Sanitation Services (PSSI) was ordered to pay a $1.5 million fine by the US Department of Labor for “oppressive child labor.” DOL investigators found more than 100 children working in hazardous jobs, under illegal conditions, with multiple children suffering injuries.[19]

[1] U.S. Attorney’s Office, Eastern District of Michigan, “Hospitalist Companies Agree To Pay Nearly $4.4 Million To Settle False Claims Act Allegations,” October 17, 2023. https://www.justice.gov/usao-edmi/pr/hospitalist-companies-agree-pay-nearly-44-million-settle-false-claims-act-allegations

[2] TEAMHealth, “Completes Previously Announced Transaction with Blackstone,” TeamHealth press release, https://www.teamhealth.com/news-and-resources/press-release/blackstone/

[3] For example see here, here, and here.

[4] Eileen O’Grady, “Blackstone a Repeat Offender in Health Care Fraud Settlements,” Private Equity Stakeholder Project, March 10, 2021. https://pestakeholder.org/news/blackstone-a-repeat-offender-in-health-care-fraud-settlements/

[5] U.S. Attorney’s Office, Eastern District of Michigan, “Hospitalist Companies Agree To Pay Nearly $4.4 Million To Settle False Claims Act Allegations,” October 17, 2023. https://www.justice.gov/usao-edmi/pr/hospitalist-companies-agree-pay-nearly-44-million-settle-false-claims-act-allegations

[6] Centers for Medicare and Medicaid Services False Claims Act primer. https://downloads.cms.gov/cmsgov/archived-downloads/SMDL/downloads/SMD032207Att2.pdf

[7] Johns Hopkins Medicine Federal & State False Claims Act/Whistleblower Protections Policy. https://www.hopkinsmedicine.org/johns_hopkins_healthcare/providers_physicians/health_care_fraud_and_abuse/Federal_State_False_Claims_Act_Whistleblower_Protections_Policy.html

[8] United States Of America Et Al V. TeamHealth Holdings, Inc. Et Al, Amended Qui Tam Complaint filed by All Plaintiffs. US District Court for the Eastern District of Michigan. April 9, 2021, Filed. 2:21cv10799. Pg. 13.

[9] United States Of America Et Al V. TeamHealth Holdings, Inc. Et Al, Amended Qui Tam Complaint filed by All Plaintiffs. US District Court for the Eastern District of Michigan. April 9, 2021, Filed. 2:21cv10799. Pg. 23.

[10] United States Of America Et Al V. TeamHealth Holdings, Inc. Et Al, Amended Qui Tam Complaint filed by All Plaintiffs. US District Court for the Eastern District of Michigan. April 9, 2021, Filed. 2:21cv10799. Pg. 32.

[11] Wendi C. Thomas et al, “This Doctors Group Is Owned by a Private Equity Firm and Repeatedly Sued the Poor Until We Called Them,” ProPublica, November 27, 2019. https://www.propublica.org/article/this-doctors-group-is-owned-by-a-private-equity-firm-and-repeatedly-sued-the-poor-until-we-called-them

[12] Isaac Arnsdorf, “Overwhelmed Hospitals Face a New Crisis: Staffing Firms Are Cutting Their Doctors’ Hours and Pay,” ProPublica, April 3, 2020. https://www.propublica.org/article/overwhelmed-hospitals-face-a-new-crisis-staffing-firms-are-cutting-their-doctors-hours-and-pay

[13] Isaac Arnsdorf, “How Rich Investors, Not Doctors, Profit From Marking Up ER Bills,” ProPublica, June 12, 2020. https://www.propublica.org/article/how-rich-investors-not-doctors-profit-from-marking-up-er-bills

[14] Elizabeth Dexheimer, “Blackstone-KKR Hidden Hand in Ad Blitz Unleashes Washington Fury,: Bloomberg, January 8, 2020. https://www.bloomberg.com/news/articles/2020-01-08/blackstone-kkr-hidden-hand-in-ad-blitz-unleashes-washington-fury#xj4y7vzkg

^[15] “Acting Manhattan U.S. Attorney Announces $40.5 Million Settlement With Durable Medical Equipment Provider Apria Healthcare For Fraudulent Billing Practices,” United States Department of Justice, December 21, 2020, https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-attorney-announces-405-million-settlement-durable-medical-equipment.

^[16] UNITED STATES OF AMERICA, et al. ex rel. MARTINEZ, v APRIA HEALTHCARE GROUP, INC. and APRIA HEALTHCARE LLC., No. 17 Civ. 1059 (ER). https://www.justice.gov/usao-sdny/press-release/file/1347286/download pg. 14-15.

[17] United States of America ex rel. Shanna Woyak vs Vanguard Health Systems Inc.’ Abrazo Healthcare. CV 12-1356-PHX-ROS.

[18]https://www.financierworldwide.com/tenet-healthcare-acquires-vanguard-health-systems#.YEEvYXdKhZo

[19] Alana Semuels, “Over 100 Kids Were Illegally Employed in Dangerous Meat-Packing Plant Jobs,” Time, February 17, 2023. https://time.com/6256728/meatpacking-child-labor/