The city of Spokane may be violating a federal “anti-kickback” law by taking $300,000 a year from a company that has a contract for exclusive ambulance service, some legal experts say.
American Medical Response pays the city $25,000 a month, which goes to the Fire Department under “management services” requirements of the city’s contract.
But a state auditor’s report, formally released Friday, concludes the city has not been adequately monitoring the contract with AMR, resulting in overbilling of customers – including the federal government, which pays Medicare bills.
City officials promised changes after being called on the irregularities by state Auditor Brian Sonntag.
A Fire Department battalion chief makes monthly spot audits of AMR’s bills to its customers living in Spokane, but the city has not kept complete records of those random checks of the ambulance company’s contract, the auditor’s report says.
“The city performed monthly reviews of ambulance billings, but retained documentation only for one month of each year until 2005 when the city retained documentation for August, September, October and November,” the audit report says.
The city’s improved record-keeping of ambulance billings came about the same time in 2005 that a City Council subcommittee began asking questions about the ambulance contract.
Issues raised by the subcommittee included ambulance response times to 911 calls, overbilling of patients and a practice of Fire Department paramedics giving medical supplies – purchased by city taxpayers – to AMR crews, who frequently then billed patients for the same supplies.
AMR’s current five-year contract, drafted by the city attorney’s office, is expected to produce $27.5 million in revenue for the nation’s largest private ambulance company, according to the state auditor’s report.
The fine print in the city contract, drafted by an assistant city attorney, requires the $25,000-a-month payment from AMR to cover the city’s costs of monitoring the contract.
But one of those listed “management services” – ambulance dispatching – is handled by AMR, not the city.
Under a previous contract, the city required AMR to pay $5,000 a month. City documents don’t give a reason for the 400 percent increase in the current contract.
The federal “anti-kickback” law prohibits any “knowing or willful solicitation or receipt of any remuneration” in return for referrals of services reimbursable by any federal health care program.
Many city residents brought to area hospitals by AMR ambulances have their bills paid by private insurance or the federal government through Medicare.
“Both parties to an impermissible kickback transaction may be liable – the party offering or paying the kickback, as well as the party soliciting or receiving it,” according to Kenneth Nolan, a Florida attorney who is a nationally recognized expert on the federal anti-kickback law.
City Attorney Jim Craven said Friday he couldn’t make “any informed comment” about the contract that was approved long before he took the job last summer.
“What you’re telling me is interesting,” he said when asked about the federal anti-kickback law. “But nobody has asked me to look into the issues you’re describing.”
Marlene Feist, a spokeswoman for the city, said AMR has “similar provisions” for cash payments in its contracts in Seattle and Clark County, in southwestern Washington.
Feist and other city officials couldn’t identify any other of the city’s approximately 740 contract vendors who make payments to the city as a condition of their contracts.
Doug Wolfberg, an attorney and expert on ambulance contracts with municipalities, said it’s his opinion that the payments the city of Spokane is getting from AMR – required by the contract – appear to violate the anti-kickback law.
“Technically and strictly speaking, yes, the statute is written broadly enough to prohibit payments by an ambulance service to a municipality when the municipality is in the position to act as a referral source and select the services of an exclusive ambulance provider,” said Wolfberg, of Mechanicsburg, Pa.
Paul Dayton, a Seattle attorney who represents AMR, said it’s his opinion that neither the city of Spokane nor his client is violating the federal law.
“Cities and other EMS sponsors may charge ambulance suppliers amounts to cover the costs of supplying services such as dispatch, monitoring, and administration,” Dayton said Friday.
“This is a common practice in the ambulance industry and consistent with applicable legal guidance,” he said.
Dayton currently is defending the ambulance company in a state Consumer Protection Act lawsuit brought in Spokane County Superior Court by patients who allege they were overbilled.
Spokane attorney Roger Reed, a former assistant state attorney general who filed the class-action suit, said he has found serious discrepancies in 114 of the city’s spot audits – the so-called “contract monitoring” – between Jan. 1, 2003, and last April.
“The city has failed to produce 65 percent of the ‘medical incident reports’ relating to AMR billing incidents reviewed as part of the contract monitoring for the years 2003 through 2006,” Reed said.
“The best we can say is, ‘It’s a mystery,’ ” Reed said when asked why the spot audits can’t be found. “It doesn’t make sense.”
Reed said it would be tough to successfully prosecute the city or AMR under the federal anti-kickback law because proving criminal intent would be part of such a case.
“Yes, it looks bad in the particular case because there doesn’t appear to be any solid rationale for it,” he said.
The contract says AMR is paying the city in part for ambulance dispatching when, in fact, the company handles its own dispatch services, Reed said.
“Here you’ve got a city contract, drafted by an assistant city attorney, that gives them a lot of legal cover for this kind of conduct,” Reed said.
“It may be an ‘empty head, pure heart’ defense that may give them an escape route,” he said. “It’s bad public policy to have a deal like this, but I don’t think it rises to the level of a criminal violation.”
The city of Spokane and about 14 other fire districts, including Spokane Valley, are drafting a plan for a countywide ambulance contract that currently doesn’t contain any payments to the municipalities. The Spokane City Council hasn’t decided if the city will cancel its current contract and join the countywide system.
Regulations promulgated by the U.S. Department of Health and Human Services under the anti-kickback law provide certain “safe harbor” provisions that essentially legalize contract trade-offs for such things as space and equipment rentals and discounts for certain patients.
“There are no ‘safe harbor’ regulations that protect this type of arrangement or immunize it under the federal law,” Wolfberg said when asked about kickback provisions of the Spokane contract.
Wolfberg said he is unaware of any federal prosecutions under the law when those involved are a local government and a private ambulance company.
“The inspector general for the Department of Health and Human Services seems to have taken a largely hands-off stance when it comes to the enforcement of the anti-kickback statute in the context of payments by an ambulance company to municipal referral sources,” he said.
Contracts in the Arizona cities of Scottsdale and Chandler recently came under legal scrutiny by the state because they contained municipal costs required to be paid by the ambulance companies, ultimately increasing patients’ bills.
“In one of those cases, the Arizona Department of Health disapproved one of the arrangements where large payments were required by the private ambulance company,” Wolfberg said.
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