Category: Statutes and Regulations

Department of Justice Announces $42 Million Settlement for Alleged False Claims Act Violations

Recently, the Department of Justice (“DOJ”) announced it had entered into a $42 million settlement (“Settlement”)[1] with the owners of a California acute care hospital (“Parent Company”) to resolve allegations that the Parent Company had violated the False Claims Act by submitting false claims to Medicare and MediCal (California Medicaid) programs. The Parent Company is a fully integrated health care company comprising the Hospital at issue, a managed care organization, two physician practice associations and 50 percent ownership in a health plan specifically for MediCal. Nearly $32 million will be paid to the United States to settle allegations of false claims against Medicare and $10 million will be paid to the state of California to settle the allegations that carried potential damages of over $400 million.

Background

A former manager of the Hospital filed the qui tam (i.e., whistleblower) action under seal in June 2013. The Complaint alleged improper relationships between the Parent Company and physicians and that the Parent Company compensated the physicians in excess of fair market value and took into account the volume or value of referrals to the Hospital by the physicians. In addition, the Complaint alleged that the Hospital violated the Civil Monetary Penalties Law (“CMP”) by inducing federal health care program beneficiaries to choose certain providers. Although both governments declined intervention in the case, the relator moved forward. In its Settlement announcement, the DOJ stated, “This settlement is a warning to health care companies that think they can boost their profits by entering into improper financial arrangements with referring physicians.”

Details Alleged in the Complaint

The relator alleged violations of both the Stark Law and the Anti-Kickback Statute for actions beginning in 2006. The relator alleged the Parent Company violated both statutes by entering into arrangements with physicians that accounted for the volume of the physicians’ patient referrals to the Hospital and intentionally induced referrals. Allegedly problematic arrangements between the hospital and various members of its medical staff included:

  • Sublease Agreements: The Hospital entered into sublease arrangements with various physicians in order to host one-hour monthly meetings with federal health care program beneficiaries in the physicians’ offices. The rental value for these arrangements exceeded fair market value and accounted for the volume or value of referrals from the physicians. Additionally, the rent was paid on a monthly basis regardless of whether or not the Hospital conducted any meetings in the physicians’ offices.
  • Shared Marketing Agreements: The Hospital entered into Shared Marketing Agreements with physicians in order to increase the physicians’ patient base and revenues. These initiatives were paid for by the Hospital matching the costs paid for by the physicians. The marketing services provided under these agreements included the advertisement of free transportation available to potential patients.
  • Vendor Marketing Agreements: The Vendor Marketing Agreements were similar to the Shared Marketing Agreements but without any cost-sharing by the physicians.
  • Medical Directorship Agreements: The Medical Director Agreements were entered into based upon a target number of referrals/admissions to be made to the Hospital by the physicians. The relator purported to hear the Hospital’s Vice President of Business Development tell a physician that he would receive a Medical Director appointment only if the physician referred or admitted 15-20 patients each month.

The relator claimed that the Parent Company paid remuneration directly to MediCal-enrolled expectant mothers as an inducement to receive maternity services from the Hospital but only if she chose to deliver her baby at the Hospital.

Alleged Evidence of Improper Intent

The relator alleged that the Hospital tracked referrals from physicians and threatened to cancel (or does cancel) arrangements if referral targets went unmet. The Hospital’s marketing team also allegedly conducted weekly discussions of physician referrals including physicians failing to meet referral targets.

The relator claimed personal knowledge of key conversations. These included conversations on providing physicians with compensation in exchange for a guaranteed number of referrals and/or inpatient admissions per month. While many of these discussions were verbal, the Complaint provided evidence of written logs from physician integration representatives documenting similar communications with referring physicians. These written communications summarized conversations with physicians regarding compensation in exchange for patient referrals. In some instances, physicians were told they would receive sublease and/or marketing arrangements if they increased the number of patients they referred to the Hospital.

The Hospital allegedly tracked referrals from physicians and calculated an estimated return on investment for the compensation that was paid to the physicians in exchange for the promise of patient referrals. The Hospital’s staff would then categorize referring physicians into separate tiers based upon the actual and goal volumes of patient referrals and the corresponding return on investment.

Practical Takeaways

  • As a part of the Settlement, the Hospital denied most of the allegations and all liability. However, providers can learn from the behavior that led to the qui tam action in order to limit potential liability for similar types of arrangements and programs.
  • While some of the alleged conduct of the Hospital may show evidence of an improper intent on behalf of the parties, not all of the agreements described in the Complaint are per se improper. As such, it is imperative for health care organizations to ensure that they are entering into arrangements for proper purposes (such as community need/benefit, satisfaction of regulatory requirements, population health management, compliance with bundled payment programs, etc.) and that no purpose of any proposed arrangement is to induce or reward referrals from the referring entity.
  • Health care providers should consult with legal counsel regarding the safeguards that should be in place prior to implementing any protocols to monitor referrals. In addition, providers should be careful regarding calculating things like the return on investment or “contribution margin” associated with referrals by physicians.
  • When engaging in new physician arrangements, particularly those that are intended to market hospital and physician services and/or provide community outreach to federal health care program beneficiaries, health care organizations should consult with legal counsel in order to ensure that the proposed arrangement is appropriate and legally compliant.
  • Health care organizations that believe they may have identified arrangements that may be potentially problematic should consult legal counsel as soon as possible in order to review the arrangements and begin any necessary remedial steps.

If you have any questions or would like more information about this topic, please contact:

[1] For a copy of the DOJ press release, click here.


Federal District Court Opines on Revised Stark Law Writing Requirement

On March 15, 2017, the U.S. District Court for the Western District of Pennsylvania provided the first federal court interpretation of the writing requirements affecting several regulatory exceptions in the federal physician self-referral statute (“Stark Law”) and its implementing regulations since the Centers for Medicare & Medicaid Services (“CMS”) provided sweeping revisions and clarifications to the Stark Law in 2016.1 This court opinion provides an in-depth interpretation of the recently implemented changes to the Stark Law writing requirements and how they relate to cases brought pursuant to the False Claims Act (“FCA”).

Background

Dating back to 1998, a private cardiology and internal medicine group practice (“Practice”) provided exclusive cardiology services to an Ohio-based medical center (“Medical Center”). In the early 2000s, the two parties joined to form a heart institute, which involved entering into six agreements for the Practice physicians to provide medical director services (“Medical Director Agreements”). These Medical Director Agreements automatically terminated on December 31, 2006. However, the two parties continued their relationship with no change and did not formally renew the agreements until November 29, 2007 via addendums that were backdated to January 1, 2007. This scenario played out again in 2008 and in 2009, with the addenda expiring and the parties later entering into backdated addenda until the agreements were eliminated altogether in March 31, 2010 due to a restructuring plan. Further, in 2008, one of the Practice’s physicians began performing administrative duties and receiving pay as a Chairman for the Medical Center’s Department of Cardiovascular Medicine and Surgery (“CV Chair Arrangement”). However, this position was never documented in a formal arrangement.

A cardiologist who was formerly employed by the Practice (“Relator”) filed a qui tam complaint against the Practice, the Medical Center and four individual physicians (collectively “defendants”). The Relator alleged that the defendants violated the FCA by submitting false claims for payment to the United States Government under the expired and missing agreements in violation of the Stark Law and the Anti-Kickback Statute. The defendants countered the allegations by arguing that the agreements were protected by three exceptions to the Stark Law: the personal services arrangements;2 the fair market value;3 and the isolated transaction4 exceptions. Although the government declined to intervene, the Relator continued to pursue the action.

The opinion from March 15, 2017 deals with cross-motions for summary judgment and specifically addresses whether the Stark Law writing requirements were satisfied for the above discussed agreements during the periods of time when the agreements lapsed. The court evaluates these issues under the clarified and modified view of the requirements promulgated by CMS.

CMS Revisions and Clarification

In the CY 2016 Medicare Physician Fee Schedule Final Rule (for a summary of the Final Rule, click here), CMS clarified that the Stark Law writing requirement does not require an arrangement to be documented in a single, formal contract and that a collection of documents could satisfy the writing requirement as long as they are contemporaneous and one of those documents bears the signatures of the parties to the arrangement. CMS provided a non-exhaustive list of the types of documents that could on their own or together constitute satisfactory contemporaneous documents:

Board meeting minutes;Hard copy and electronic communications;
Fee schedules for services;
Check requests or invoices containing details of items or services along with relevant dates and rates;
Timesheets with details regarding services performed;
Call coverage schedules;
Accounts payable or receivable; and
Checks issued.

Relator’s Motion – The Writing Requirement

As to the plaintiff’s first claim that the Medical Director Agreements when lapsed did not meet the “in writing” requirement of the various Stark exceptions, the court began by outlining the requirements for the fair market value and personal service arrangement exceptions, stating the writing requirement is not a “mere technicality,” but instead is essential to the transparency demanded by the Stark Law. The court then acknowledged that the writing requirement must be satisfied at all times by a “document or collection of documents that ‘permit a reasonable person to verify that the arrangement complied with an applicable exception at the time a referral is made.'”5 With these considerations in mind, the court determined the critical question of “whether sufficient documentation ‘evidencing the course of conduct of the parties’ exists for the periods of time in between the expiration of the agreements and the execution of the addenda.”6

In applying the standards to the facts at hand, the court determined the Medical Director Agreements and addenda, when coupled with a collection of documents detailing the ongoing relationship, could persuade a reasonable jury that the necessary evidence was presented to show a course of conduct consistent with the writing requirement of the exceptions. The collection of documents the court found evidencing the Practice and the Medical Center’s course of conduct included invoices and corresponding checks that coincided with the services, timeframe and compensation described in the Medical Director Agreements and subsequent addenda. Thus, with respect to the Medical Director Agreements, the Relator’s motion for summary judgment was denied.

The court ruled differently in regards to the CV Chair Arrangement that was not formalized in any signed document. Instead, the defendants attempted to meet the collection of documents requirement with “undated, unsigned memoranda,” a letter with a passing reference to the position, meeting minutes and bylaws, none of which described the positions in any specific details or contained the signatures of any involved parties. The court found that at minimum to satisfy the writing requirement, the document or collection of documents must describe identifiable services, a timeframe and a rate of compensation. The court also reiterated the signature requirement and made clear that regardless of the sufficiency of the “collection of documents,” at least one contemporaneous document must contain the signatures of the parties. The defendants attempted to bring the CV Chair Arrangement under the isolated transaction exception, but the court found that exception typically only applies to “uniquely singular transactions” and does not apply in this instance where the payments were not singular, but instead the first in a series of payments. Thus, because the CV Chair Arrangement failed to meet each of the Stark exceptions, the Relator’s motion for summary judgment was granted.

Defendants’ Motion – FCA: Scienter and Materiality

The defendants’ motion for summary judgment also argued that the Relator failed to establish the scienter and materiality requirements of the FCA. The court rejected both arguments and denied the defendants’ motion.

Scienter. Under the FCA’s scienter requirement, the Relator was required to show that the defendants: (i) had actual knowledge of the information; (ii) acted in deliberate ignorance of the truth or falsity of the information; or (iii) acted in reckless disregard of the truth or falsity of the information. In analyzing the scienter requirement, the court noted that there was ample evidence that the physicians of the Practice and the Medical Center believed all of the agreements to be in compliance with the Stark Law. However, the court opined that there was also ample evidence in the record to suggest that the Practice and the Medical Center may have knowingly violated the Stark Law in at least one manner by submitting claims for payment arising from medical directorships that were not covered by a written agreement. The court noted that a Senior VP and Medical Director of the Medical Center issued a memorandum expressly acknowledging that the parties continued to operate under expired contracts. There was also additional evidence, including solicited legal advice, engagement of a Stark consultant and retroactive addenda to cover the lapse of time that showed the Practice and the Medical Center were aware the documents relating to the agreements were not at all times in compliance with Stark and yet they continued to act upon those agreements. This evidence, the court determined, could lead a reasonable jury to conclude that the Practice and the Medical Center continued to submit claims for payment despite knowing that the underlying arrangements may not have been properly documented for purposes of Stark compliance.

Materiality. In order to be actionable, the FCA also requires a misrepresentation or false claim to be “material to the Government’s payment decision,” and the defendants argued that even if they were found to have violated the Stark Law, those violations would not hold up under the materiality requirement of the FCA. Relying upon the 2016 standard outlined in United States ex rel. Escobar v. Universal Health Services, Inc., the court considered the following factors: whether compliance with a statute is a condition of payment; whether the violation goes to “the essence of the bargain” or is “minor or insubstantial”; and whether the government consistently pays or refuses to pay claims when it has knowledge of similar violations.

In applying these factors, the court determined that the alleged violations at issue were material because the Stark Law “expressly prohibits Medicare from paying claims that do not satisfy each of its requirements, including every element of any applicable exception.” Because compliance with each element is required, the writing requirement is not “minor or insubstantial.” Rather, it is crucial to the transparency demanded by the Stark Law and goes to the very “essence of the bargain.” The court also acknowledged that there was a lack of evidence suggesting the government refuses to pay or pays when they have actual knowledge of these violations but recognizes that providers who do violate these provisions are required to pay penalties when those violations are brought to light. Balancing all of these factors, the court determined summary judgment was not appropriate because the writing requirements contained in several Stark exceptions “are important, mandatory, and material to the government’s payment decisions.”

Practical Takeaways

Even in light of the clarified Stark Law writing requirements, providers must exercise caution in documenting physician arrangements. As noted by the court in this case, any “collection of documents” relied upon must contain at least one contemporaneous writing, signed by the parties. The collection of documents must also describe: 1) identifiable services; 2) a timeframe; and 3) a rate of compensation. Therefore, mere checks alone will not be sufficient to satisfy the writing requirement. Providers should attempt to document all physician arrangements and obtain signatures wherever possible. This case also illustrates that a failure to satisfy the writing requirements may subject a provider to increased liability under the FCA. Further, the holding in this case demonstrates that awareness that some claims may not be covered by a written agreement may be enough to satisfy the scienter requirement under the FCA.

If you have any questions about this case, or related issues, please contact:

Allison Emhardt at (317) 429-3649 or aemhardt@hallrender.com;

Brad Taormina at (248) 457-7895 or btaormina@hallrender.com; or

Your regular Hall Render attorney.

Special thanks to Megan Culp, law clerk, for her assistance with the preparation of this article.

1 U.S. ex rel. Tullio Emanuele v. Medicor Associates

2 42 C.F.R. § 411.357(d)(1).

3 42 C.F.R. § 411.357(l).

4 42 C.F.R. § 411.357(f).

5 U.S. ex rel. Emanuele v. Medicor Associates (citing 80 Fed. Reg. 70886, 71316).

6 Id.


Massive Penalty Spike Darkens the FCA Landscape

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In November 2015, the Bipartisan Budget Act of 2015 went into effect. One aspect of that act was the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The new law required that the Program Fraud Civil Remedies Act and the False Claims Act (“FCA”) penalties be “corrected” to adjust for inflation since their last adjustment and then that the penalties be adjusted for inflation each following year.

In May, the Railroad Retirement Board was the first agency to issue its inflation “corrections,” shocking the FCA world. This week, the Department of Justice (“DOJ”) followed suit, expanding the spike to the entire FCA world.

In 1986, the FCA was completely rewritten and included a minimum penalty of $5,000 per claim and a maximum penalty of $10,000 per claim.

In 1996, under the Debt Collection Improvement Act of 1996 (“1996 Act”), the minimum and maximum penalties were increased to $5,500 and $11,000, respectively. Practitioners expected the correction to run from that date, leading to an increase of approximately 140% with a maximum penalty of about $15,000.

Instead, the government disregarded that correction because it was subject to the 10% cap set forth in the 1996 Act. The government went all the way back to 1986, leading to a massive 216% penalty increase.

The new DOJ minimum penalty per claim under the FCA is $10,781 and the maximum is $21,563. These will have an immediate effect on health care providers submitting Medicare and Medicaid claims.

To government contractors, this is a foreboding change. The FCA was always onerous, to the point that the Eighth Amendment Excessive Fines Clause was often considered, though no case ever turned on that issue. This massive increase may well put that defense back in play, particularly for claims that are microscopic in comparison to the penalties, e.g., a $5.00 laboratory service. While penalties are often not paid as part of negotiated settlements, they are mandated for any case decided by a court. It is that threat that often makes settlement discussions feel like coercion or even extortion to contractors.

For contractors, and particularly health care providers, this suggests new measures should be considered to insulate from these heightened penalties. One such suggestion is the batching of individual services to include as many as possible on a single “claim” to the government. The FCA applies to “claims for payment,” not individually itemized services found within each claim. There is no case law yet to guide providers on whether services for multiple recipients found on a single claim for payment would be one or many claims. However, that is the best prophylactic action available and provides the sort of argument courts will welcome to avoid having to resolve issues on Eighth Amendment constitutional grounds.

The FCA’s treble damages penalty was not changed as part of this adjustment.

The maximum civil monetary penalty was increased to $10,781.

All of these changes are effective for penalties assessed after August 1, 2016. This includes any failure to identify a prior overpayment after more than 60 days under the FCA’s 60-Day Overpayment Rule.  Notably, the DOJ stated that penalties associated with violations that occurred prior to November 2, 2015, the date the Bipartisan Budget Act went into effect, will still be subject to the old penalties.

Health Care Takeaway

The FCA’s already oppressive penalties have become draconian. Providers best avoid these new penalties with strong compliance programs and by working closely with their health care counsel to evaluate their programs, particularly in the billing and coding departments, as this terrifying specter looms over the entire industry. Providers can protect themselves somewhat from these changes by adjusting their billing practices to include as many individual services on as few claims for payment as possible.

If you have any questions, please contact:


Massive Spike in FCA Penalties

In November 2015, the Bipartisan Budget Act of 2015 went into effect. One aspect of that act was the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The new law required that the Program Fraud Civil Remedies Act and the False Claims Act (“FCA”) penalties be “corrected” to adjust for inflation since their last adjustment and then that the penalties be adjusted for inflation each following year.

This week, the Railroad Retirement Board was first to issue its inflation “corrections,” and they shocked the FCA world.

In 1986, the False Claims Act was completely rewritten and that new rewrite included a minimum penalty of $5,000 per claim and a maximum penalty of $10,000 per claim.

In 1996, pursuant to the Debt Collection Improvement Act of 1996, the penalties were increased to $5,500 and $11,000. Practitioners expected the correction to run from that date, leading to an increase of approximately 140 percent with a maximum penalty of about $15,000.

Instead, the Board disregarded that correction because it was subject to the ten percent cap of the 1996 act. The Board went all the way back to 1986, leading to a massive 216 percent penalty increase.

The new minimum penalty per claim under the FCA for railroad claims is $10,781.40 and the maximum is $21,562.80. These will have an immediate effect on health care providers as Railroad Medicare claims make up a significant percentage of all Medicare claims. Railroad workers’ retirement is administered through the Railroad Retirement Board, rather than the Social Security Administration. Providers are not likely to even notice the difference between Social Security and Railroad Medicare cards as they look quite similar. Both are red, white and blue. The Railroad Medicare card says “Medicare Health Insurance provided by the Railroad Retirement Board” on it, and the patient’s alphanumeric identifier starts, rather than ends, with a letter. Railroad Medicare is administered by Palmetto GBA.

More significantly, the Railroad Retirement Board is only the first agency to make its adjustments. There is no reason to believe other agencies won’t do exactly the same thing. In fact, it is a near certainty as consistency in the FCA is an important governmental interest. Additionally, receipt of Medicaid money is contingent upon the states significantly mirroring the federal FCA, so expect similar changes in state penalties.

To government contractors, this is a foreboding change. The FCA was always onerous, to the point that the Eighth Amendment Excessive Fines Clause was often considered, though no case ever turned on that issue. This massive increase may well put that matter back in play, particularly for claims that are microscopic in comparison to the penalties, e.g. a $5.00 laboratory service. While penalties are often not paid as part of negotiated settlements, they are mandated for any case decided by a court. It is that threat that often makes settlement discussions feel like coercion or even extortion to contractors.

For contractors, and particularly health care providers, this suggests new measures should be considered to insulate from these new penalties. One such suggestion is the batching of individual services to include as many as possible on a single “claim” to the government. The FCA applies to “claims for payment,” not individually itemized services found within each claim. There is no case law yet to guide providers on whether services for multiple recipients found on a single claim for payment would be one or many claims. However, that is the best prophylactic action available and provides the sort of argument courts will welcome to avoid having to resolve issues on Eighth Amendment constitutional grounds.

The FCA’s treble damages penalty was not changed as part of this adjustment.

The maximum civil monetary penalty was increased to $10,781.

All of these changes are effective for claims or statements made after August 1, 2016. This includes any failure to identify a prior overpayment after more than 60 days under the FCA’s 60-Day Overpayment Rule.

Health Care Takeaway

The FCA’s already onerous penalties have become draconian for Railroad Medicare claims and are likely to do so for all claims in the coming months. Providers best avoid these new penalties with strong compliance programs and by working closely with their health care counsel to evaluate their programs, particularly in the billing and coding departments, as this terrifying specter looms over the entire industry. Providers can insulate themselves somewhat from these changes by adjusting their billing practices to include as many individual services on as few claims for payment as possible.

If you have any questions, please contact David B. Honig at dhonig@hallrender.com or (317) 977-1447 or your regular Hall Render attorney.

Assisting with this story were:

Lori A. Wink (lwink@hallrender.com or  (414) 721-0456) in our Milwaukee office;

Amy O. Garrigues (agarrigues@hallrender.com or (317) 447-4962) in our Raleigh office; and

Steven H. Pratt (spratt@hallrender.com or (317) 977-1442) in our Indianapolis office.


60-Day Overpayment Rule Released

CMS has released its final 60-Day Overpayment Rule, providing clarity to the 2010 Affordable Care Act (“ACA”) amendment to the False Claims Act (“FCA”) that created FCA liability for failure to repay identified overpayment within 60 days. This is a long-awaited rule that provides essential clarity to an amendment that, until now, has vastly expanded FCA liability without any guidance.

The 2009 Fraud Enforcement Recovery Act amended the False Claims Act to create a new type of false claim known as the “retained overpayment false claim.” A retained overpayment false claim occurs when a government contractor identifies an overpayment from the government even if innocent at the time received. In 2010, the ACA added a 60-day time limit for repayment once an overpayment has been identified. This has been discussed extensively, both in terms of what it means and what doubts surround the application of the new rules.

Continue Reading →


“I refute it thus.” The FCA and “Valueless” Damages Claims

Some court decisions are so marvelous, so great at cutting through all the legal argument and theoretical absurdity, that they deserve to be quoted at length. On February 4, 2016, the Hon. Raymond M. Kethledge of the Sixth Circuit Court of Appeals wrote just such an opinion. What follows is the first paragraph of that opinion in its entirety.

Continue Reading →


CMS Proposal to Limit Incident to Billing

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This week, CMS released the proposed Medicare Physician Fee Schedule Rule for CY 2016 (“Proposed Rule”).  In an effort to ensure that billing physicians/practitioners have a “personal role in, and responsibility for, furnishing services for which they are billing and receiving payment as an incident to their own professional services,” CMS proposed to remove the language from the “incident to” regulation that specifies that the physician/practitioner supervising the auxiliary personnel need not be the same physician/practitioner upon whose professional service the incident to service is based.  Currently, any physician/practitioner present in the office can provide the direct supervision for the incident to services of another physician/practitioner.  If finalized, this change would eliminate the ability of a physician group to bill for incident to services unless the physician/practitioner who originally saw the Medicare beneficiary is also in the office providing the supervision for each incident to service.  This proposal represents a substantial departure from current practices and will create additional administrative burdens for scheduling and billing compliance issues.

The Proposed Rule is scheduled to be published in the Federal Register on July 15 and is available here.  Comments to the Proposed Rule are due by 5:00 PM EDT on September 8, 2015.

If you have questions about the Proposed Rule, the impact of this proposal or how to submit comments, please contact David Honig at dhonig@hallrender.com or Regan Tankersley at rtankersley@hallrender.com.


CMS proposes new “incident to” rule

“Incident to” billing is a significant False Claims Act risk for Medicare and Medicaid providers. A new proposed rule will change how physicians and physician practices are supposed to bill for services provided in their offices.

CMS Proposal to Limit Incident to Billing This week CMS released the proposed Medicare Physician Fee Schedule Rule for CY 2016 (“Proposed Rule”). In an effort to ensure that billing physicians/practitioners have a “personal role in, and responsibility for, furnishing services for which they are billing and receiving payment as an incident to their own professional services,” CMS proposed to remove the language from the “incident to” regulation that specifies that the physician/practitioner supervising the auxiliary personnel need not be the same physician/practitioner upon whose professional service the incident to service this based. Currently, any physician/practitioner present in the office can provide the direct supervision for the incident to services of another physician/practitioner. If finalized, this change would eliminate the ability of a physician group to bill for incident to services unless the physician/practitioner who originally saw the Medicare beneficiary is also in the office providing the supervision for each incident to service. This proposal represents a substantial departure from current practices and will create additional administrative burdens for scheduling and billing compliance issues. The Proposed Rule is scheduled to be published in the Federal Register on July 15th and is available HERE. Comments to the Proposed Rule are due by 5:00 pm EST on September 8, 2015. If you have questions about the Proposed Rule, the impact of this proposal, or how to submit comments please contact David Honig at dhonig@hallrender.com or Regan Tankersley at rtankersley@hallrender.com.


The FCA, Advice of Counsel Defense and CMS Commentary Meets the Jury

A recent court decision had highlighted two issues on the cutting edge of health care and False Claims Act (“FCA”) law. Both address what happens in the transition from health care advice to health care litigation. The first is the application of the attorney client privilege and the advice of counsel defense. The second is the application of CMS advisory opinions beyond the regulatory sphere and in the courtroom. Continue Reading →


Up the Creek Without a Regulation

by David B. Honig and Brian C. Betner

CMS Announces Further Delay of Repayment Rule

To be published in the February 17, 2015 Federal Register, CMS has extended its deadline for finalizing the Affordable Care Act’s (“ACA”) 60-day payback rule. This is the rule that requires a Medicare or Medicaid provider to return an identified overpayment within 60 days of its identification. On day 61, the overpayment becomes a violation of the False Claims Act (“FCA”).

The 60-day rule, found in the ACA[1], as well as amendments to the FCA, are the fund-raising and enforcement tools of the new law. Together, they create an entirely new type of false claim, one that is not knowingly false when submitted but only becomes “knowingly false” once identified and not repaid within a specified time. The ramifications of this change are enormous.

CMS has yet to provide a final rule giving guidance to contractors. Significant questions remain, including basic issues such as “what qualifies as an overpayment?” and “when does a provider know of an overpayment?”

Under the proposed rule[2], a provider needing time beyond the 60 days to complete a repayment may use the Extended Repayment Schedule process found in CMS’s Financial Management Manual[3]. Until the rule is final, though, providers may rely only upon the plain language of the statute, which offers no opportunity for an extension, even using the protocol established by CMS.

Specific types of providers await a final rule to explain how the new 60-day payback requirement applies to them. Disproportionate Share Hospitals get some clarification in the proposed rule about when they must perform reconciliation, but there is no such clarification in the statute. The same section of the proposed rule provides clarification for outlier reconciliation, though there is nothing about it in the statute.

Another significant question, which remains unanswered absent of a final rule, is the applicable look-back period. The statute states that an identified overpayment becomes an FCA violation if not repaid within 60 days. It does not, though, identify a limit to the look-back period beyond which a provider has a repayment obligation. As written, the statute would require an institutional provider identifying an overpayment from decades past to research it and repay it within 60 days. If a provider fails to do so, on the 61st day it becomes a FCA violation, triggering the FCA’s statute of limitations, which can stretch back as much as 10 years. Every claim, whether found on a hospital’s new computer system or in a moldering carton in the back of a physician’s rented storage space, could be a potential false claim. The proposed rule would limit the look-back period to 10 years, extending the FCA’s effective statute of limitations back more than 20 years[4].

While the government is granting itself another year to finalize the rules for the application of the new statute, there is no similar relief to providers. The government is already intervening in and actively prosecuting retained overpayment cases. The statute, the government argues, is sufficiently clear that providers can be held liable for its violation, often to the tune of millions of dollars. But the government does concede that additional time is appropriate due to “the complexity of the rule.”

This must be of significant concern to providers. The government has already intervened in retained overpayment cases, including US v. Continuum Health Partners in the Southern District of New York. Whistleblowers are bringing these actions, comforted with the knowledge that providers are crippled by CMS’s own failure to finalize rules that clarify their duties and define their rights and obligations. One court even allowed a case to go forward on a retained overpayment claim where no overpayment was identified because the provider’s actions in changing its auditing processes were sufficient to raise a factual issue whether it did so to remain willfully ignorant of prior billing errors[5].

In 2014, the government recovered almost $6 billion in FCA litigation, $1 billion more than any previous year, and announced a record 700 whistleblower filings – most of which remain under seal in federal courts. Just a few months ago, the government announced that all whistleblower cases under the FCA will be reviewed by the Criminal Division of the Department of Justice (“DOJ”). And just this month, the government asked to almost double its health care fraud litigation budget, stating that additional staff was needed to handle “the increasing number of whistleblower cases” weighing down the DOJ’s enforcement efforts. Every indication is that the whistleblower FCA actions that have been unsealed are merely the tip of the iceberg. Many more likely remain under seal awaiting first criminal then civil review. A large percentage of these are likely retained overpayment claims, which are accusations of fraud against health care providers for failing to follow rules not yet written by the government.

Until the rule is finalized, providers will be bound by the very broad and unforgiving language of the statute.

Health Care Takeaway

The retained overpayment false claim is the newest and biggest tool that the government wields in its effort to rein in the costs of its health care programs. Yet there remain no rules or guidance on how, when or where that hammer can be used. A broad statute, increased government enforcement through both the civil and the criminal divisions of the DOJ and an army of avaricious whistleblowers and their attorneys creates a daunting environment for health care providers.

When attempting to traverse this challenging landscape, providers should carefully consider the following:

  • First, normal compliance activities must be undertaken with additional care and with full appreciation that any errors discovered must be handled quickly with repayment in every case, no matter how small or inconsequential it may seem.
  • Conversely, normal compliance activities must continue, lest the government or a whistleblower allege a change indicates a willful refusal to identify overpayments, another violation of the FCA, after 60 days.
  • Third, providers may not simply rely upon their usual channels and procedure if those have not fully integrated all aspects of the retained overpayment FCA liability.
  • Finally, the assistance of qualified health care counsel is more important than ever. The penalties of the FCA can reach $11,000 per retained overpayment, treble damages and even program exclusion. These risks warrant guidance in matters that might previously have been treated as day-to-day internal matters. Involving health care counsel to advise the provider at the initial stages of tackling potential overpayments is the single most important step to ensuring an effective and efficient review.

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