NY Downtown Hospital Paid Illegal Kickbacks For Referrals To Unlicensed Drug And Alcohol Treatment Program, Billed Medicaid For Unnecessary Services

NEW YORK— Attorney General Eric T. Schneiderman today announced that his office secured a $13.4 million settlement with New York Downtown Hospital to resolve a Medicaid fraud case involving illegal payments the hospital received on claims for unlicensed inpatient drug and alcohol treatment services and rendered to patients who were unlawfully referred there. The settlement also resolves charges that NY Downtown Hospital conspired with a for-profit out-of-state vendor of purported administrative services to submit false claims to Medicaid. Under the terms of the settlement, more than $12,600,000 will be returned to the Medicaid program, and $800,000 to the federal Medicare program.

“Drug and alcohol treatment programs are designed to help people struggling with addiction. By exploiting this need in order to maximize revenue, New York Downtown Hospital wasted Medicaid resources and illegally billed taxpayers for unlicensed and medically unnecessary treatment services,” said Attorney General Schneiderman. “This settlement holds New York Downtown Hospital accountable for this scheme, and will make providers think twice before defrauding the Medicaid system. Together with our federal partners, we will leave no stone unturned in the fight to recover misappropriated money on behalf of New York’s taxpayers.”

The Attorney General charged that NY Downtown Hospital entered into an illegal patient referral scheme with an out-of-state vendor, SpecialCare Hospital Management Corp., disguised as an “administrative services agreement,” under which the hospital agreed to pay the vendor a monthly fee of $38,500 in exchange for the referral of Medicaid patients to its unlicensed inpatient detoxification unit. Referral of Medicaid patients for a fee violates federal and state anti-kickback laws and Medicaid regulations. Furthermore, state law requires a hospital to obtain an operating certificate from the New York Office of Alcohol and Substance Abuse Services before it operates a discrete unit providing chemical dependency treatment or services, or holds itself out to the public in a manner that indicates the availability of chemical dependency programs, treatment or services.

The Attorney General’s complaint charged that NY Downtown Hospital marketed and provided the inpatient detoxification services even though it did not have an operating certificate to do so, and that NY Downtown Hospital and SpecialCare Hospital Management Corp. violated federal and state anti-kickback laws through SpecialCare’s referral of patients to the hospital for its New Vision program, in exchange for a fee paid by the hospital. The complaint also charged that the inpatient detoxification services provided by NY Downtown were not medically necessary, and failed to meet the professionally recognized standards of care.

The settlement followed a joint investigation by the Attorney General’s Medicaid Fraud Control Unit and the United States Attorney’s Office of False Claims Act after allegations were made by whistleblowers Mathew I. Gelfand, M.D. and Enrico Montaperto. Following their joint investigation, the Attorney General’s Office and the United States Attorney’s Office filed Complaints-In-Intervention against seven New York hospitals, SpecialCare Hospital Management Corp. and SpecialCare Chief Executive Officer Robert McNutt for making false claims to Medicaid and Medicare.

The whistleblowers originally filed complaints that alleged claims under New York’s False Claims Act, which authorizes persons who have uncovered fraud against the State to file claims on its behalf.