First, Do No Fraud: The Unworthy Pardoning of John Davis

John Davis, who ran Comprehensive Pain Specialists from 2011 to 2017. Photo by Heidi De Marco from a Kaiser Health profile.

Among the long list of pardons and commutations released on Trump’s last day, mingling with the more notorious names such as Lil’ Wayne, Steve Bannon and Kwame Kilpatrick, was a name you probably have not heard before: John Davis. The description of the crime for which he was pardoned sounds like a silly technicality in the press release: “serving as Chief Executive Officer of a healthcare company with a financial conflict of interest.” The blurb goes on to state that “no one was financially harmed” by his crime.

This is both a rather simplistic statement and a rather arguable one.

A quick word about the crimes he was convicted of, which were conspiracy to defraud the US government and 7 counts of violating anti-kickback laws. Federal law has strict rules about business arrangements among health care companies. The anti-kickback statute, or Stark law, prohibits providers who participate in federal health care programs (e.g., Medicare, Medicaid, Tricare) from referring patients to certain health care services in which the provider has a financial interest. There is a specific list of the services covered by the law. Among them are imaging centers, physical therapy, clinical laboratory services and durable medical equipment companies. The reason for the restriction is to ensure that the services are actually needed by the patient and remove any financial incentive for a physician to refer a patient for unnecessary services.

John Davis was the CEO of Comprehensive Pain Specialists (CPS), a chain of pain clinics based in Tennessee. The government alleged that Davis entered into an arrangement with his co-conspirator, Brenda Montgomery, in which he agreed to refer patients to her durable medical equipment company, CCC Medical. In return, Montgomery would pay Davis a percentage of the profits from services provided. To facilitate this, Davis opened a shell company in his wife’s name, to which Montgomery sent the payments. Davis paid bonuses to health care providers who referred patients to CCC. In total, Davis and Montgomery received nearly $3 million from Medicaid for payment of claims for payments that were illegally made under federal law.

DME is rife with fraud. Have you ever received a phone call asking whether you think you could benefit from a back brace or knee brace? If so, it was likely part of a fraudulent scheme. You answer “yes” to a few questions, such as “does your back ever hurt?” and the company gets a physician to write you a “prescription” for an expensive back brace, which is billed to your insurance (though the targets of these calls are almost always Medicare beneficiaries – lists of names of these beneficiaries are another lucrative commodity.) But while Davis’s conviction is related to DME, his company has been the target of investigation in other, much larger scams.

Pain clinics like CPS largely specialize in opioid therapy and have been under much scrutiny in recent years due to the opioid epidemic. Because opioid pain killers are truly necessary for some chronic pain patients, reputable pain clinics have tried to devise ways to ensure safe usage of the drugs by their patients. One of the main ways they do this is by requiring patients to agree to regular and random urine screens. Ostensibly, the point of the screens is to make sure that the patient is using his or her medication (rather than selling it), not over-using it, and not using it in combination with other drugs that might indicate abuse.

What fraud investigators have found is that these drug tests have become a windfall for unscrupulous providers. Urinalysis can be very expensive, depending on the type of testing used. There are two basic categories of urine drug testing (UDT): qualitative and quantitative. Qualitative is a simple positive/negative; quantitative is more complicated and breaks down the amount of a substance present in the sample. Qualitative is markedly less expensive than quantitative. Moreover, qualitative testing performed in the doctor’s office, so-called “point of care” (POC) testing, is reimbursed at a much lower rate than qualitative tests performed offsite. Most practices perform the simple point of care test, then decide whether or not it is necessary to send the sample away for quantitative testing.

CPS realized quickly the money to be made from UDT. An email from Davis to its billing company instructed that for every patient given a qualitative test, the billing company should submit claims for 12 units. The reason? One test cup tests for 12 different drugs. One cup-type test might be worth $11; multiply that by 12 (all for the same cup) and it starts adding up. Especially when the same standing order was issued to drug test every patient across the board, which was the practice at CPS.

CPS did not perform the inexpensive on-site POC testing, determining POC testing was “not conducive to the current model” of business. Instead, the company opened its own lab and began sending the samples there so that they could seek a higher reimbursement. CPS began ordering both types of testing at the same time on a sample, meaning all qualitative tests were also resubmitted for the more expensive quantitative testing, even if the results were negative. Because every service billed to a federal healthcare payer must be medically necessary, the decision of whether even a positive test warrants quantitative testing requires a physician to make that determination on a case by case basis.

The federal government and the state of Tennessee have a pending civil suit against CPS, its owners (which include a Tennessee state senator), and newly pardoned CEO John Davis for the UDT scheme. The defendants maintain that the drug screenings were necessary to ensure the safety of their patients and to prevent medication abuse or misuse. However, the government alleges that in many cases, the results were not even retrieved by the providers, nor did they wait for the results before prescribing opiates to a patient. (Notably, if CPS would have performed POC testing, they could have near-instant results before giving their patients more pills.) According to the lawsuit, state and federal health care programs paid CPS nearly $80 million for urine drug screens between 2011 and 2018. In case there was any doubt that this company knew what it was doing, the lawsuit alleges the company referred to urine as “liquid gold” due to its revenue generating capabilities.

As if they had not helped themselves to enough of the health care dollar cookie jar, the lawsuit further details other schemes perpetrated by CPS and Davis, including over $2 million in unnecessary genetic testing, which is only reimbursable under specific medial circumstances not present in the claims submitted by CPS; submitting reimbursement claims for unwarranted or unallowable psychological testing for which Medicare paid $2.4 million; billing over $136,000 for a non-covered acupunctural procedure using a code for a different, allowable procedure; and providing financial incentives to clinic providers to encourage the ordering of more and more testing, from a $5 iPad-based psych evaluation to a $150 spinal cord stimulation test.

The civil complaint, which is available on PACER if you have an account, runs 104 pages and details many more specific instances of CPS principals behaving badly. So far, only Davis has been convicted criminally, but the US and the state of Tennessee are seeking damages in triple the amount of fraudulent claims, plus penalties in the ongoing civil case.

I am not privy to the charging decisions of the DOJ or why none of the other principals involved in the CPS schemes besides John Davis have been indicted. It could have to do with how far removed they are from the daily operations of the clinic and its providers, though the complaint seems to put them right into the thick of the decision making. Perhaps it doesn’t matter, since they, too, may have simply been pardoned by the former president, rendering it all for naught.

The press release about the pardons says nobody was financially harmed by John Davis’s crimes. I disagree. He defrauded all of us, the taxpayers, of money meant for the health care needs of the poor, disabled, and elderly. When the high cost of health care is debated and lamented, remember folks like John and the owners of CPS who essentially stole tens of millions of dollars from Medicaid and Medicare under the guise of helping those who suffer from chronic pain.

How did CPS operate for 7 years undetected? They didn’t. The feds began scrutinizing CPS as early as 2014, with audit findings that resulted in demands for repayment. The company fought for years while the investigators built a case, culminating in Davis’s indictment and the civil case against the others.

How, you may wonder, does this much money flow out to one business without catching someone’s attention? It does not speak well for the ability of the government to be in charge of health care payments. There are a few reasons. One problem is that there are companies like CPS all over the country, new ones popping up every day. Ferreting them out is not always easy. It is not enough to look at the billings and sound the alarm on the dollar amount alone.

Health care fraud investigations are very complex and take a long time. Making determinations of whether or not something is medically necessary is subjective; for every doctor who reviews a file and finds no medical necessity for a procedure, there is a doctor willing to disagree. Then, there is the burden of proving knowledge – specific knowledge for a criminal case, not merely implied – and that can be difficult when you have multiple clinicians, billing staff, management, etc. There is a paper trail to be followed and money to be traced. These are not, generally speaking, dumb criminals, but smart, sophisticated criminals with very good lawyers.

Another issue is that federal health care programs largely use a “pay and chase” model. Claims systems are largely automated. No human reviews a claim and approves the payment; that would be impossible due to the millions of claims processed every day. Instead, they use a system of “edits”, computer programs that scan the claims for the presence or absence of certain conditions required for payment of a particular service. If all the right boxes are checked on the claim form, the system will kick out a payment. Potential fraud and wrongdoing is only caught later, be it through a whistle blower, anonymous tipper, or audit.

In recent years, state and federal authorities have increasingly tried to get ahead of the game and root out bad actors before they make themselves unjustly rich through fraud. Health care fraud investigators have begun to employ data mining techniques to identify anomalies early on, such as providers with an abnormally high utilization of a particular service. It is not always fraud, but it can be a place to start looking more closely.

John Davis’s pardon is easily overlooked, with the more noteworthy names like Bannon making the headlines. Hopefully, knowing more about the depth and breadth of what he was actually doing sparks a little more umbrage.