In the second blog post of our series on healthcare chief compliance officers and lawyers accused of “going bad,” we discuss Texas attorney Peter J. Bennett (licensed since 2007) who was charged in the Eastern District of Texas in February 2022 (and in a December 2022 superseding indictment) with conspiracy to commit money laundering, conspiracy to operate an unlicensed money transmitting business, and two counts of perjury in relation to an illegal kickback-for-referral scheme. Bennett was convicted of all counts after a five-day jury trial on July 14, 2023 and is now awaiting sentencing.
In a July 22, 2023 press release first announcing the case as part of DOJ’s annual national coordinated healthcare fraud enforcement action, the US Attorney’s Office for the Eastern District of Texas described the scheme as a conspiracy (1) through which physicians were incentivized to make referrals to critical access hospitals and an affiliated clinical laboratory in exchange for kickbacks disguised as investment returns and (2) in which marketers were incentivized to arrange for the ordering of the services from the hospitals and the affiliated lab.
More specifically, the hospitals paid a fee to the affiliated lab to bill their blood tests to insurers as purported hospital outpatient services for which they would receive higher reimbursement than would the lab. The hospitals used a network of marketers that operated management services organizations (MSOs) that offered investment opportunities to physicians to arrange for the lab services.
The government alleged that in reality the MSOs were a means by which to facilitate payments to physicians in return for the physicians’ lab orders/referrals. The hospitals paid a portion of their lab revenues to the marketers, who in turned kicked back part of the payments to the referring physicians.
Bennett was indicted for his role in the conspiracy of creating sham trusts and shell corporations through which he laundered kickback proceeds for the benefit of two co-conspirators, Robert O’Neal and Stephen Kash. O’Neal was alleged to have arranged for physician referrals and recommended the ordering of services to one of the hospitals and the affiliated lab. He was indicted for obtaining proceeds from the kickback conspiracy and having the proceeds laundered on his behalf. Kash was also indicted for obtaining proceeds from the kickback conspiracy and having the proceeds laundered on his behalf.
Bennett created Water Buffalo Irrevocable Trust, Tigerlily Irrevocable Trust, and Tree Pool, LLC through which to shuffle and obfuscate the kickback proceeds. Bennett was identified as a beneficiary in the trust agreements, but the trusts were in fact created for the benefit of his clients, O’Neal and Kash. Attorney Bennett opened and controlled bank accounts under fictitious pretenses to perpetuate his transactions and exchanged false and fraudulent invoices to facilitate and conceal the nature of the laundering. Bennett even used his law firm operating account and a personal bank account to launder the money.
In total, Bennett engaged in approximately 60 illegal financial transactions that involved more than $2.7 million in healthcare kickback proceeds. What’s more, in 2019, in response to a civil investigative demand issued by DOJ in a related False Claims Act investigation, Bennett lied under oath to federal officials in written responses to interrogatories regarding the relationship and services provided between certain entities involved in the scheme.
It’s certainly unusual to see an attorney caught up in a healthcare fraud conspiracy, and for good reason—Bennett now faces up to 35 years in prison after being found guilty on all four counts, and the government is seeking to recover $2.7 million in monies subject to forfeiture. O’Neal pleaded guilty in January 2022 (Case No. 6:22-cr-00001, E.D. Tex.) and Kash is set to be tried in February 2024 (Case No. 6:22-cr-00094, E.D. Tex.).
Prosecutions of attorneys are infrequent as they often require approval of senior DOJ officials and implicate special concerns regarding the invasion of the attorney-client privilege. Federal prosecutors must secure approval from the Director of Enforcement Operations, Criminal Division, whenever they intend to pursue an indictment against an attorney where charges are based on actions or omissions during the attorney’s representation of a client, the client is likely to be a witness against the attorney, or the client will likely testify pursuant to a nonprosecution or cooperation agreement. See Justice Manual 9-2.032; see also Justice Manual 9-13.410A.
While the DOJ in the past has been somewhat hesitant to charge attorneys, the Bennett conviction serves as a ready reminder that entities and individuals in the healthcare space must be mindful of the rules and regulations governing their industry, including the prohibition on improper referral payments and kickbacks. Attorneys who have little familiarity or expertise with the Anti-Kickback Law will not be excused when their complex legal work results in and furthers noncompliance.
We noted in our June 2023 post that criminal prosecutions of healthcare industry compliance officers—and in this case outside counsel providing services to healthcare industry clients—remain rare, and two such cases in close proximity likely do not make for a developing trend given the egregiousness of the conduct.
Nevertheless, DOJ did have a clear message to share: “Let this case serve as a cautionary tale to those who think they can hide criminal conduct behind professional licenses,” and Bennett “knowingly enabled theft from Medicare and Medicaid, putting personal profit before legitimate patient needs.” Once again, compliance officers who preside over sham compliance programs and attorneys who establish the mechanisms for their clients to commit healthcare fraud will not be immune from prosecution.
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