Kickbacks ruined Pinellas lab, doctors

CCL was one of Florida's largest private medical labs. But that was before prosecutors uncovered illegal payments to some of its clients.

By ROBERT FARLEY and ED QUIOCO
© St. Petersburg Times
published December 24, 2001

Clearwater was a small town when James McKeown Sr. opened his blood lab in 1957. He threw himself into the business, working 14-hour days and driving his Jeep to doctors' offices, nursing homes and patients' houses to pick up blood samples.

Before his son, James Jr., was old enough to drive, he helped his father by making runs on his bicycle. As the years clipped by, the McKeowns' work paid off. They became rich.

Their business, Clearwater Clinical Laboratory, grew into one of Florida's largest privately owned medical labs.

By the late 1990s, 1,250 doctors in Pinellas, Pasco and Hernando counties were sending blood and urine samples to CCL for evaluation.

James Jr. was in charge by then and earning up to $800,000 per year. He had a large home in Seminole and a 46-foot Sea Ray yacht, The Marlintini.

"You think life's going to go on like that forever," he said.

Today, CCL is in ruins. So are the careers of several doctors who sent blood and urine specimens there.

Both were targets of an aggressive federal prosecution styled to safeguard Medicare. The crackdown, part of a larger effort called Operation Takeback, went after doctors who, prosecutors said, took money from CCL in exchange for sending their elderly patients' blood work there. The lab, in turn, billed Medicare for the cost of running the tests.

Such payments to doctors are illegal kickbacks.

Now, as the 2 1/2-year prosecution winds down, at least five doctors charged in Operation Takeback have shut their practices, forcing their patients to find new physicians. The high-profile case, one of the largest such prosecutions in the country, also reined in the culture of freebies many doctors enjoyed. And while the crackdown achieved remarkable success, it also is bitterly criticized.

Eleven doctors, both McKeowns and the lab's general manager have been convicted. Most of the doctors received fines and probation, and all were banned from treating Medicare patients for five years. For a few with an elderly patient base, that meant shuttering their practice. One doctor's patients packed the courtroom for his sentencing to show their support.

As doctors were indicted, shock waves rippled through the medical community. That's precisely what the government wanted. Hundreds of local doctors reconsidered their relationships with diagnostic labs. "They have scared everyone straight," said one doctor.

The prosecution's strategy of making examples of some doctors remains hotly controversial. Critics say prosecutors cut deals with the lab's owners and manager but ignored allegations CCL had overbilled Medicare. Also, some doctors were prosecuted criminally while others were allowed to pay civil fines. But lead prosecutor Gary Montilla defends his approach. He compares it to setting up a speed trap: Catch a few speeders, and everyone else slows down.

For Montilla, 50, whose work in this case has emerged as a national model, Operation Takeback became a stepping stone. He has left the U.S. Attorney's office in Tampa and has been recommended to be U.S. Attorney in Puerto Rico.

It was 'free money'

The kickbacks never were so crude as a wad of bills stuffed in an envelope.

Here's how one arrangement went down, according to court testimony and investigative records:

CCL salesman Dick Holt visited Dr. Ira Harvey Liss at his Pasco County office. Holt wanted Liss to send patients' blood samples to CCL. Liss said another lab paid him for his business, so CCL should, too.

"Do you see that boy in the picture?" Liss told Holt, pointing to a photo on the wall. "It's my son. I want $2,000 per month to send him to college."

CCL paid $1,000 a month. When it came to signing up doctors, Holt later said, the company's motto was, "We'll do whatever it takes."

To give the arrangement the gloss of propriety, Holt had Liss sign a contract making him a "test review officer." From 1995 to 1998, CCL paid Liss $27,000. In exchange, Liss sent the lab blood tests for which CCL billed Medicare nearly $184,000.

And what did he do as a test review officer?

When asked that question at his trial, Liss said he couldn't find his records showing his work for the lab. He did say he thought the payments were legal.

"I asked (Holt) on at least two occasions . . . whether or not this document was completely legal," Liss told jurors. "And he had answered that this document was reviewed by the laboratory's attorney, in depth, and was found to be legal."

CCL salesmen showed doctors letters from attorneys vouching for the legality of the payments. One letter said the lab could hire one medical review officer per county. Another said the lab could rent space in their offices if CCL needed the space and paid "reasonable" rent.

CCL's most common kickbacks were for do-nothing jobs as technical consultants or for overly generous rents for space and equipment in doctors' offices.

James McKeown Jr. said he thought the payments were legal. He relied, he said, on a written opinion from CCL attorney Leslie Conklin, against whom he later filed a complaint with the Florida Bar Association. The Bar closed the complaint after Conklin agreed to attend a four-hour ethics course. Even so, Conklin said nothing in his letter was wrong.

Conklin said -- and Montilla confirmed -- anti-kickback laws include legal exceptions for technical consultants. But, they said, those payments are legal only if doctors perform the work as set out on paper. They didn't, Montilla said.

Liss acted in good faith, his attorney said.

"What the government wants you to believe is that (Liss) sold his soul . . . for a measly $27,000," attorney Ronald Cacciatore told jurors. "A man, who has been practicing for 25 years, he is going to knowingly risk all those years of training, his reputation in the community, for $27,000."

The only other doctor to take his chances at trial was Dr. Michael Spuza of St. Petersburg. CCL paid him $12,000 from 1996 to 1998, prosecutors charged. In exchange, he sent the lab blood tests for which it billed Medicare $269,000.

One witness, a salesman for a competing lab, testified Spuza would switch labs for a trip to a strip club and a couple shots of Sambuca.

Spuza's trial attorney, Thomas Wadley, said Spuza thought the agreements were legal. It would be "ludicrous" for him to risk his career for "a few hundred bucks a month," he said.

But Montilla said it was "free money" for no work. Both doctors should have known better, he said.

Liss and Spuza were convicted. And both have stopped practicing. Liss was sentenced to 15 months in prison. Spuza received 18 months. Each appealed. But the cost has been devastating.

"I don't know how I can financially recover from something like this," Spuza said. He estimates he spent about $300,000 defending himself. Even worse he is banned from accepting Medicare payments, basically making him "unemployable," he said.

After Spuza and Liss were convicted, other doctors suddenly started pleading guilty.

One was Dr. Robert Hartzell of Spring Hill. He was charged with taking $5,000 for a hunting lodge membership for the business he sent to CCL. But his patients still packed the courtroom for his sentencing. Several wept when he got probation.

Another was Dr. Mark Varidin of St. Petersburg, who got a one-year probation after pleading guilty.

"I could not financially afford to go to trial," Varidin wrote in response to an interview request from the Times. "I do not have $500,000. Even if I won at trial I would have lost. I would have suffered such a tremendous loss, financially and emotionally."

Dr. Kosmas Sarantis of Tarpon Springs closed his practice because his patients were mostly elderly, said his attorney, Jo-Anne Wolfson.

Sarantis, placed on probation for two years, never ordered any medically unnecessary or unsound tests, she said. But he started a "downward spin because of all of this. Being a doctor was the most important thing to him."

'They wanted . . . heads on sticks'

Several doctors charged in the CCL conspiracy never met each other until the day they were put in the same holding cell. The humiliation was indescribable, one said.

It also was what prosecutors wanted. Every time another doctor was indicted or pleaded guilty, prosecutors sent their message.

"The law says thou shalt not pay or receive kickbacks," Montilla said.

Soon after the indictments, the Pinellas County Medical Society held a meeting on Medicare kickback laws at the Harborview Center in Clearwater. More than 350 doctors attended.

"Has the case had an impact on the physicians in this county and elsewhere?" said Caryn Caldwell, executive director of the Pinellas County Medical Society. "Without question."

Many doctors thought CCL's offers were "probably dancing on the fine line, but we all thought it was close enough to being legitimate that it was okay to do it," said Dr. David Becker, a Clearwater gastroenterologist who watched the CCL case from the outside.

"We know now that the government does not interpret that to be legitimate," he said. "They have scared everyone straight."

That was the plan, Montilla said. "I see 25 cars going 95 mph, I can only stop one or two of them," he says.

Fearing more doctors might be indicted, the Pinellas County Osteopathic Medical Society wanted an attorney of its own to review the government's case. It wanted to thwart further prosecutions. It wanted a big gun, and it got one: Washington, D.C., attorney Breckinridge Willcox.

Willcox was U.S. Attorney in Maryland from 1986 to 1991. He specializes in health care law. And he said Montilla "has done a severe miscarriage of justice."

The government went "after the minnows and let the sharks get away," Willcox said.

To get the doctors, Montilla cut deals with the McKeowns and the lab's general manager, Vincent Gepp. All three had been named in a 68-count indictment. All three agreed to plead guilty and cooperate with prosecutors in exchange for leniency.

Gepp got three years probation, McKeown Sr. four years. Both pleaded guilty to paying doctors illegal kickbacks, as did McKeown Jr. But the younger McKeown received a stronger sentence -- six months in a halfway house -- because he also had pleaded guilty to mail fraud months earlier for paying someone to sink his yacht, The Marlintini. McKeown Jr. admitted paying a man $5,000 to take The Marlintini out to sea and to sink it by shooting holes in the hull with a handgun and shotgun. He later reported it stolen.

The McKeowns sold CCL in 1998, and while the lab operated under new owners, the once-booming family business was gone. The lab's new buyers sold it. It operates as Med Services of America out of the same building in Clearwater that once was home to CCL, employing some of the staff that once worked under the CCL banner.

McKeown Jr. says prosecutors overreacted, and he denies his lab defrauded Medicare.

"The bottom line here is that Medicare was not defrauded out of a single dime," McKeown Jr. said. "The lab work was needed and was done. That's what's sad about this case."

Willcox notes the government suspected CCL was involved in a larger, more traditional Medicare fraud. He points to a government presentence report for Spuza.

Investigators thought CCL bilked Medicare with two fraudulent billing systems, the report said. One system ordered more tests for patients than were requested by doctors. The other system involved unnecessary tests for cholesterol or iron.

"The case agents indicated that although this fraudulent practice occurred, they never investigated its frequency," according to Spuza's presentence investigation. "Accordingly, the amount of fraudulent overbilling cannot be quantified."

Willcox is not alone in thinking CCL systematically defrauded Medicare. After he was indicted, Gepp said he told prosecutors the lab illegally overbilled Medicare by more than $1-million per year. They weren't interested, he said.

"They wanted doctors' heads on sticks," he said.

Dr. Liss wants his sentence set aside because, his attorney argues, prosecutors hid the overbilling allegations.

"It is undisputed that CCL was engaged in a large-scale billing fraud," prosecutors said in court pleadings filed this month. But they add no one established the involvement of Gepp or McKeown.

The overbilling allegations were not investigated, Montilla said in an affidavit, for three reasons.

Agents and prosecutors had a "strong consensus" not to divert their resources to anything but kickbacks. Also, the U.S. Department of Health and Human Services had frozen hundreds of thousands of dollars owed to CCL to recover overpayments. And given the lab's financial status, that's all the government could get back. Overbilling is not the only sore spot for critics. There's also the way some doctors were treated. Fourteen were indicted. Prosecutors turned over the names of 350 other suspected kickback recipients to the U.S. Department of Health and Human Services.

This summer, four doctors who took kickbacks from CCL agreed to pay civil fines ranging from $16,200 to $150,000. Only one received exclusion from Medicare.

So why were some doctors prosecuted criminally and others handled as civil matters?

"Lots of reasons," Montilla said. Investigators had "strong, compelling evidence" of crimes for some, he said. Some took kickbacks from more than one source. Some were just the worst offenders.

"We had hundreds of cases of kickbacks," he said. "A minimal amount were done criminally."

A pioneering prosecution

The CCL prosecution is distinguished by its simplicity. Instead of wading into the complexities of overbilling, and whether tests were medically necessary, Montilla focused simply on whether anyone took money in exchange for sending business to CCL.

It was a pioneering approach. At the time of the CCL indictments, Montilla's work represented 10 percent of Medicare kickback cases prosecuted nationwide. In an article he wrote for the American Bar Association, he called his method "a blue-collar approach to white-collar crime."

Facing 18 months in prison, Dr. Spuza sees it differently.

"It was not about finding out the truth," he said. "The only thing Montilla was interested in was convictions at any cost to promote himself."

Montilla did come up for a promotion, as U.S. Attorney in Puerto Rico.

Now the appointment appears to have hit a snag. A Puerto Rican legislator charged with money laundering, witness intimidation and extortion reportedly said on a wiretap he'd like to see Montilla get the top prosecutor's job. Montilla told reporters in Puerto Rico he doesn't even know the guy.

Meantime, Montilla says he's comfortable with what his prosecutions accomplished.

"I've often said, not all of these doctors are bad people," he said. "A lot of them are very good doctors.

"Hopefully," he said, "in the middle district of Florida, they now know better."

-- Times researchers Caryn Baird, Kitty Bennett, John Martin and Cathy Wos contributed to this report.

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