Most people know him as Frank Margulis, a former home medical equipment provider, now a business consultant and owner of Margin Consultants in Opelika, Ala. But not too long ago, he was known as Inmate 11315.
How did Margulis, who believed he operated an honest HME business, end up convicted of Medicare fraud and incarcerated at the Montgomery (Ala.) Federal Prison Camp?
It wasn't hard, he will tell you frankly. All it took was inattention, a too-relaxed management style and the belief that if you made an honest mistake and corrected it, all would be well.
Now, almost three years after his five months in prison and five months under house arrest ended, Margulis is working through his consulting business to share the lessons he learned in what he terms “the crucible of a federal lawsuit.”
“I want [HME providers] to learn from my mistakes,” says Margulis, who now offers seminars at state association meetings and at forums such as Medtrade. “The people in this business are so hardworking, and yet they can get tripped up by the simplest things.”
Such trip-ups can prove costly. Margulis says statistics show that in 2005, 378,000 lawsuits were filed against businesses, and the average cost for the business to defend itself ranged from $50,000 to $100,000, not including settlements and judgments. As well, he says, states have, over the past decade, been reforming their laws with the intent of increasing the likelihood of a prison sentence.
Providers owe it to themselves, their employees and their families, he says, to “be prepared. Be proactive. Don't behave like I did thinking it'll be OK … My head was in the sand. I was just running a business.”
Margulis' Story
Margulis' life began unraveling on a Thursday afternoon — Oct. 30, 2003, to be exact — when the receptionist at his company, Covenant Medical Supplies in Opelika, said someone from the local newspaper was on the phone and wanted to speak with him.
“Would you care to comment on your indictment?” the person on the line asked.
Stunned, Margulis looked at the caller ID; it was indeed the newspaper. “I don't know what you are talking about. Are you serious?” he recalls saying to the reporter.
The reporter then began to read the contents of a press release from the Department of Justice. The story ran in the paper the next day: “Opelika Company Charged with Fraud.”
The DOJ had charged Margulis and four of his employees with 165 counts of wrongdoing.
“By the time the federal prosecutors met with me face-to-face 16 months later, they knew enough to dismiss 164 of the counts against me,” Margulis says. “The ‘obstruction of a Medicare audit’ charge would stick.”
Looking back, Margulis believes the trouble started in 2001, when he received a request for records on 29 claims from Medicare — which he later realized was a Medicare audit. It was in gathering those records that Margulis and his staff became aware of a flaw in the software that produced the company's CMNs.
The software printed out only the first line in the itemized billing section of the CMN. On a K0011 power wheelchair, for example, it printed out the basic wheelchair code and description but did not include the HCPCS codes and descriptions of the other items that Covenant Medical had supplied, such as anti-tippers and a safety belt.
To make the CMNs agree with the patient record, Margulis made the fateful decision to add items that his company had provided to the beneficiary but that did not appear on the claims. For example, he wrote in the safety belt and the anti-tippers on the K0011 CMN.
“The CMN had already been signed by the doctor. I rationalized that I was being expedient and it could not possibly be a big deal. I could explain if I had to,” Margulis says, amazed now at his naiveté. “But once the doctor has signed the CMN, you can't add on to it because it looks like you're trying to pad it.”
That wasn't enough to explain the 165 counts, however. In the 20 months it took from indictment to sentencing, Margulis delved into thousands of documents in an attempt to understand what had happened.
An HME provider since 1992, Margulis had three branches of Covenant Medical in three counties and another set to open. “We did our billing in-house and serviced six counties,” he says, noting that the 10-employee company was poised to “easily surpass” the $1 million mark in annual revenues by 2005.
Margulis says he sought to be ethical and intelligent in his business. “I requested a site visit from the Medicare ombudsman every year,” he says. “She briefed my staff and me on hot topics and changes. I asked her to perform a ‘pre-audit’ by randomly selecting patient files and assessing them for completeness and correctness. I attended our state HME association meetings regularly. I went to Medtrade annually, and sent my staff, too. Relevant employee training was provided on occasion as I saw fit.”
It wasn't enough. “In retrospect,” Margulis says, “my efforts were disorganized, too haphazard.”
And he would pay for them.
As he reviewed DOJ investigation records and other documents, Margulis learned that “unbeknownst to me (and everyone else in the company), a rogue employee who managed one of my stores 70 miles away had indeed committed fraud [by falsifying CMNs].”
Margulis blames himself for that. “That small store in a sleepy little town accounted for a very small percentage of our business, so I became lax in my oversight of things there, preferring to focus on the growth of the stores in our primary market,” he says. He visited the store about six times a year and trusted the manager to follow the rules.
In the end, Margulis says, “20 CMNs generated all those counts.” He was accused of overbilling by $199,000, which was later reduced to $77,000.
“In some cases, but not all, Medicare recouped money from my company for the sole reason that a doctor failed to supply documentation requested by Medicare,” he notes. “I had the original and substantiating paperwork, but Medicare penalized me anyway.”
Even as he found out all this, however, Margulis says he was in denial.
“I thought, ‘Medicare has made a mistake. If they talk to me, I can explain.’ It never dawned on me I would go to prison. It never occurred to me I would lose my company.”
But the wheels of justice don't always turn the way one expects.
“As president of the company, I was required to bear the responsibility for [the store manager's] actions,” Margulis says, adding that the store manager was charged a $100 fine. “The other three persons charged in the original indictment were eventually released from prosecution.”
In July 2005, he learned the outcome of his mistakes. “I stood before the judge in the federal courthouse in Montgomery, Ala., to hear my sentence: five months in federal prison camp, followed by five months of ‘home confinement,’” he recalls. “In my wildest dreams, I did not imagine I would go to prison. Underestimating the severity of the judicial system, I had also failed to plan for business operations in my absence.”
He had 60 days to get his affairs in order before reporting to federal prison camp in Montgomery, nicknamed “Club Fed” after it became a temporary home to several Nixon-era Watergate figures. Margulis nonetheless calls being imprisoned “a surreal experience.” His company folded three weeks after his incarceration began Sept. 13, 2005. His wife and three children were left without the family's sole breadwinner. And his savings disappeared quickly, he says, adding that it took him three years to make the required restitution.
“Denial, poor planning and carelessness had cost me my business, my reputation and my freedom,” Margulis says.
About the only thing it didn't cost him, he says gratefully, was his family. But it pains him the hurt that his actions have caused. And he knows the responsibility for all of it — the lost business, the loss of reputation and financial security — is his.
“I am responsible for all of it,” he says. “Because I was careless, because I failed to more closely supervise my company, because I didn't take enough interest in my business … I'm completely responsible.”
Lessons Learned
Still, he has learned much in this crucible, Margulis says, not the least of which has been how to run a business better.
“I have since identified three major areas, which, if approached seriously, would have likely prevented my problems,” he says.
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Accountability: Margulis says employee oversight should be organized and structured. It is important, he says, to trust employees, but equally important to verify the quality of work being done.
“Do you know what your billers are doing?” he asks. The answer should be “yes” — in detail. He recommends meeting with employees regularly and reviewing their work, weekly staff meetings, random chart checks and peer reviews, as well as what he calls “MBWA” — management by walking around.
“Get out of your office and find out what's going on,” Margulis advises.
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Evaluate your organization: Companies should have tight job descriptions and a solid policy and procedures manual, Margulis says. In addition, employees' skills, interests and abilities should be assessed and personnel weaknesses addressed by education, reassignment or termination.
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Education, programmed and documentable: Margulis recommends systematically training employees and retaining transcripts in an employee's file. By educating employees, Margulis says, a company can reduce its risk of a “legal minefield.” He also suggests offering incentives for education.
Providers who put these three recommendations into play may discover aspects of their businesses that need addressing, Margulis says.
“One of my greatest mistakes was not taking the time and effort to be more proactive. It was a costly mistake,” he says.
