Blowing the Whistle : Ethics: Using a federal statute, a doctor took the unusual step of informing on a colleague's Medicare billing practices. But opponents question the broadened application of the False Claims Act.

By PAUL DEAN

July 31, 1990 12 AM PT

TIMES STAFF WRITER

Dr. Paul Michelson considers himself more realist than idealist, a man who chooses to stay clear of absolutist stands.

But he says he will not compromise his profession.

Nor can he tolerate its apparent betrayal by a fellow physician.

So in 1986, Michelson informed on a colleague.

In a unique federal lawsuit filed under the False Claims Act--a law more popularly associated with defense companies and multimillion-dollar padding on government contracts--Michelson accused La Jolla eye surgeon Dr. Raymond Chan of administering unnecessary office laser treatments and billing Medicare for complex, more expensive hospital surgeries.

Friday, in U.S. federal court in San Diego, the suit was settled when Chan agreed to pay the government $250,000. He also agreed to perform 400 hours of community service and make payment of $75,000 in attorney fees.

Chan declined to comment on the settlement. But Michael Lipman, his San Diego attorney, said the settlement is “not an admission of wrongdoing, there is no proof of wrongdoing, there is a denial of wrongdoing.

“There have been no criminal charges filed. There is simply a settlement of a dispute . . . in the legal system, people frequently settle disputes because it is too expensive, financially, emotionally and time-wise . . . (to) fight them any longer.”

In an interview prior to the agreement, Michelson discussed the uneasy past and final import of his decision to become what remains almost a pejorative: whistle-blower.

“For all our situational, relativistic ethics, you just sooner or later do come down to certain principles that can’t be abridged,” he said. Then he quoted Edmund Burke. “The only thing necessary for the triumph of evil is for good men to do nothing.”

In doing something, said Michelson, he has suffered none of the penalties that physicians and other professionals might fear from becoming a federal informant--or performing what some might consider the ultimate betrayal: pointing a finger at one of your own.

There were no poison pen letters to his La Jolla practice, no anonymous telephone calls to his home. Nobody taunted his two sons, David, a premed senior at Yale, and Jon, a high school junior. No social backs were turned on his wife, Shelley.

Although Michelson has now left the Scripps Clinic Medical Group where he and Chan were associates, the move into private practice was of his choosing and “there was no risk of my being blacklisted from staff privileges in a hospital.”

In truth, Michelson received “numerous letters from colleagues throughout the country who have said, ‘Right on . . . we support you,’ that sort of thing.”

There was even a bounty to Michelson’s action.

Under the terms of modern whistle-blower suits, Michelson will receive 20% of the settlement--or $50,000. He plans to donate the money to medical schools and charities.

“But that (money) had nothing to do with my motivation,” Michelson continued. “The last thing I want to be thought of . . . is someone who snitched for money.

“The real motivation was, No. 1, first and foremost, to stop the practice (of Chan’s treatments and billings) which I viewed as seriously wrong and unconscionable.”

The second objective, added Michelson, was to establish a deterrent to other physicians. Every government dollar lost to medical fraud, he knows, is money that isn’t spent on patient care.

In 1989, according to federal estimates, Medicare fraud cost the American taxpayer annually close to $10 billion--or approximately 10% of Medicare’s annual spending.

“No matter how we like to cut the cake at this point, no matter what the politicians want to tell us, we’re really at a stage where we are about to start rationing (medical) care,” Michelson said.

“So if you magnify (losses to fraud) by the number of practitioners who might be tempted to do it--not the ones who I believe are doing it, because I think that still is rather a small number--it can quickly grow into something significant.”

So Michelson stands fully by his act of turning in a fellow surgeon. He said he would do it again as “a staunch supporter of a profession that is a staunch supporter of its patients.”

Yet he remains weary from “many, many sleepless nights” while the case was in process--and wary of some legal counterattack by Chan, even as the case closes.

“Anybody can sue about anything, regardless of how frivolous or unfounded,” Michelson said. “And any lawsuit represents an abusive threat because of a need to defend oneself at the very least, and the cost of doing so.”

So Michelson, 48, declined to be photographed for this article--because, he said, it might be interpreted as some form of self-promotion. (However, a file photo of Michelson was available to accompany this article.)

In the two-hour interview he did give, Michelson would not detail his early suspicions and personal observations of Chan’s medical work--suggesting, instead, that references to those months be extracted from the suit, and his Washington testimony to a House subcommittee that in April reviewed the effectiveness of the False Claims Act.

(Although Michelson, his lawyer, and others who support the False Claims Act appeared at the hearing, Lipman, attorney for Chan, was not invited to testify: “That’s one of my problems,” Lipman said. “Nobody asked me to testify about the effectiveness of the False Claims Act.”)

Chan is not named in Michelson’s testimony. Nor is the clinic where he worked with Chan--part of the Scripps Clinic and Research Foundation, which receives a 50% portion of Medicare payments paid to its doctors.

But Michelson does tell how, in 1977, he left his practice and affiliation with Harvard Medical School for a new career in California. By the mid-1980s, he said, he began suspecting “a fellow ophthalmologist” of “a number of irregular medical practices.

“As a junior member of the group, this particular colleague saw fewer patients yet generated more income and performed more complicated, typically infrequent procedures with dramatically unusual frequency,” he said.

“My suspicions were confirmed when I reviewed some of his medical charts and when his secretary suggested to me that I, too, could make more money if I, like my colleague, billed simple laser procedures as invasive surgeries and billed a variety of other minor office procedures as major operations.”

Michelson examined the office files and concentrated on 37 cases he later described as “indisputable issues, the black and white.”

In some, laser procedures for glaucoma had been performed on elderly patients before the glaucoma had been diagnosed, he said. And between 1984 and 1986, Michelson alleged, Chan overcharged Medicare by $300,000.

In his congressional testimony, Michelson stated: “One of the most disturbing discoveries that compelled me to act, however, was the realization that this doctor had subjected patients to potentially dangerous, expensive laser treatments for glaucoma without having first attempted to treat them with simple, safe eyedrops.”

Because of known and potential risks, he said, lasers are only used to reopen ducting within the eye (thus releasing the fluid pressure of glaucoma) after medication has failed. It is a standard recognized by the American Academy of Ophthalmology.

Michelson said his sampling of patient records “proved that my colleague had repeatedly violated” this guideline and performed laser surgery on patients “who had not been appropriately treated with medications, and in many instances on patients who did not even have glaucoma.”

Attorney Lipman, in a Friday interview, said that other ophthalmologists do not consider academy guidelines to be sacrosanct. He also disputed Michelson’s analysis of Chan’s diagnoses. “We have experts who have looked at every case that Michelson has complained about,” he asserted. “And we have experts, ophthalmologists, prepared to say that Chan’s treatment is appropriate.”

Lipman also described as “nonsense,” Michelson’s suggestion that violation of academy guidelines constitutes improper medical treatment. “They are nothing more than guidelines . . .they move from month to month as (medical) things change,” he added.

Chan, went Michelson’s subcommittee testimony, also used lasers on patients with secondary cataracts. The cost of such an office procedure is $344. But Chan’s bill to Medicare, Michelson testified, “was in excess of $1,000 . . . for invasive surgical treatments that would require more time and care, an operating room and staff and anesthesia services.”

Attorney Lipman denied intentional overbilling. He said Chan simply was a victim of a complex, changing Medicare paper work that continues to create “widespread confusion among doctors as to what was the appropriate (government billing) code.

Initially, Michelson said, he did not want to believe what he was seeing in patient records. He re-examined the charts. He cross-examined himself.

“Perhaps I was misreading the charts,” he said in the interview. “Perhaps I didn’t understand exactly what was truly going on. Perhaps another individual (Chan) had a different understanding.

“But once all that had been thrashed through, it became apparent that really wasn’t the case. Then it was simply a matter of deciding: Can I live with this?”

Michelson said he sought the counsel of colleagues. He discussed the matter with his wife. “There was this dialectic that went on all through this . . . about not doing it, about not putting the family through all this rigmarole and let’s just get on with our lives.”

Further, Michelson said he agonized over a possibility that has become a standard of taxpayer protest--accusation followed by government inaction until “the party that was bringing the problem to light seemed to suffer more . . . that an offense quickly became a defense and the offending party really didn’t suffer much at all.”

He knew there could be little help from the American Medical Assn. or the American Academy of Ophthalmology. “They can (only) wave their finger at you,” Michelson explained.

(An AMA spokesman in Chicago agreed: “We’re not a regulatory agency. It is beyond our ability to police doctors.”)

Michelson considered one group that does have authority over physician licensing: the California Board of Medical Quality Assurance, now the Medical Board of California.

“Unfortunately, the under-funded and under-staffed (Medical Board) was widely regarded as often ineffective and notoriously slow,” Michelson said.

(Spokeswoman Linda McCready confirmed that the board has a 500-complaint backlog. The agency will investigate doctors accused of fraud “but it does not get as high priority as cases involving death or injury . . . your Medicare fraud cases are back of the line.”)

Michelson thought about taking his complaint directly to the federal government and the Department of Health and Human Services which oversees Medicare.

“But there are articles in abundance in our professional literature indicting that that (DHHS resolution) simply didn’t happen,” he said. “Medicare, like so many of our organizations, is . . . somewhat less than completely sophisticated in pursuing these (fraud) issues.”

(Dr. Peter Budetti, a professor of health care law at George Washington University, is working with the Inspector General of DHHS on a program of tighter screening of Medicare billings. Investigators, he said, are unable to “stay one step ahead of people ripping off the system. If they get a $10,000 or $20,000 bill, even if it’s good, they will review it . . . instead of looking at the 10 $1,000 bills that might be terribly fraudulent.”)

Then, through a newspaper article, Michelson read of swindles against all branches of government, a federal law, a Los Angeles lawyer and a public-interest group in West Los Angeles:

* Taxpayers Against Fraud is a nonprofit group formed to assist citizen and lawyers who have potential cases under the False Claims Act, the new but effective law for those willing to blow whistles on fraud against the federal government.

* The lawyer is John Phillips, a public-interest attorney who has involved himself in citizen suits touching everything from the price-fixing of blue jeans through exposing illegal campaign contributions by aerospace companies. He also helped establish Taxpayers Against Fraud.

* And as pivotal to that beginning, Phillips, 47, pioneered 1986 revisions that brought new life to the old False Claims Act, originally drawn in 1863 by Abraham Lincoln.

Unable to stem massive frauds against the Union Army--including sawdust in the gunpowder and cavalry horses that were sold but not delivered--Lincoln introduced provisions that established rewards, based on percentages of the government’s financial recovery, for anyone turning in crooked contractors.

But time and special interest revisions bowdlerized the act. Until the ‘80s when Phillips drafted amendments that strengthened incentives for whistle blowing.

The changes allow citizens to file civil suits in the name of the Justice Department, placing taxpayers in the role of acting attorneys-general. The whistle-blower may be awarded up to a maximum of 25% of any funds recovered by the government as the result of a verdict or settlement--and in a defense case where estimated actual damages approach $100 million (as in one Los Angeles case pending against Litton Systems Inc.) that reward could be considerable.

A part of the settlement goes to lawyer fees--Phillips said he returns his to finance Taxpayers Against Fraud--and legal action costs the whistle-blower nothing beyond his own time.

Damages against the contractor can be set as high as three times the amount of the proven fraud, with penalties of up to $10,000 for each false claim.

The new False Claims Act has not been without its critics and challengers. Defense industry lobbies have argued in federal court that the law violates separation-of-powers and other constitutional clauses.

One lawyer said there is something basically wrong in any legislation allowing citizens to operate as “their own off-the-shelf Justice Departments.” Another said it created a greedy population of bounty hunters feeding from “a treasure chest for unthinking scourges of the defense industry.”

To date, however, the act remains constitutionally watertight.

But as a result of such protests, Phillips said, the public perception is that the False Claims Act exists only as a protection against defense contract fraud. When in fact, “it is broad in its application and to anywhere the government spends money.”

And the potential for fraud is immense, Phillips added, wherever the government spends money on health care.

“Take ophthalmology,” he said. “It is mostly elderly people who have problems with their eyes . . . and something like 80% (of ophthalmic patients) are Medicare patients.

“There are certain things you can do to the eye that Medicare will reimburse you for and certain things that you can’t. So many of them (ophthalmologists) look at the eye like a profit center.”

And so it was to this promise of firm, rapid, certainly inexpensive and relatively quick legal recourse that Michelson turned.

“I was intrigued by the law,” he said. “More important, here was a public-interest lawyer (Phillips) who wasn’t going to charge me a fortune to lay out my case.”

In April, 1988, half of the issue was settled.

A settlement was signed in federal court whereby Scripps Clinic and Research Foundation agreed to pay the government $355,000 for its part of the suit; another $100,000 payment would go to legal fees.

Said a Scripps spokesman at the time: “Basically, we are pleased with the settlement and it shows we have no culpability.” But as part of the settlement, Scripps also agreed to create a new billing review committee for Medicare claims and hire an internal billing auditor.

Now the second half of the suit is done.

And the benefits, attorney Phillips said, extend beyond the emotional relief of one individual and a financial return to the Treasury.

“Following (announcement of) the Michelson case, I had calls from nurses, from hospital administrators, from people . . . who are just outraged at what their own doctor has done,” he said. One caller told of a physician who had “in his patient files roughly 350 or so senior Medicare patients . . . and he would have them routinely called every three months to say: ‘It is time to come in for your exam.’ ”

In trust, in anxiety, they invariably responded.

“Then he would do what they (informants) call Procedure of the Month. He (physician) would give all of them the same procedure. ‘OK, this month we’re going to give them laser. Next month, we’re going to do this treatment or that treatment . . . “

All complaints, he said, have been examined. Some have been referred to authorities in other states. Others were “concluded as too problematic and related more to the medical judgment of a doctor which is very difficult (to challenge).”

But a few remain under investigation.

Michelson, meanwhile, is planning to disburse his share of the settlement. Some of the money will go to John Hopkins University, his alma mater, eye research programs and low vision service. Another portion will be donated to the UCSD Medical School.

“Interestingly enough,” Michelson said, “to support programs of medical ethics.”