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On February 22, 2022, the US Food and Drug Administration (FDA) hosted a webinar detailing its current transition plans for medical devices marketed pursuant to either Emergency Use Authorization (EUA) or Enforcement Policies during the COVID-19 public health emergency (PHE). The primary purposes of the webinar were to help prepare manufacturers and other stakeholders for the upcoming transition back to normal operations, provide examples illustrating the transition policies, and outline the 180-day transition period timeline. Providers that may be affected are encouraged to be proactive and take steps to understand FDA’s proposed plan and become prepared to handle the upcoming transition.

The FDA’s transition plans and policies are laid out in two recent draft guidance documents, Transition Plan for Medical Devices Issued EUAs During the COVID-10 PHE (EUA Transition Plan) and Transition Plan for Medical Devices That Fall Within Enforcement Policies Issued During the COVID-19 PHE (Enforcement Policy Transition Plan), which are to be implemented with a focus on four key principles:

  • an orderly, transparent transition with consistent FDA-manufacturer interactions,
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Physician referrals for clinical laboratory services are a common focus of federal regulatory and enforcement actions. Numerous statutes and their implementing regulations, including the Stark Law, Anti-Kickback Statute (AKS), and the Eliminating Kickbacks in Recovery Act (EKRA), may be implicated where a physician refers clinical lab services to an entity in which the physician has a financial interest. However, the “in-office ancillary” exception to the Stark Law provides an important exception.

The Physician Self-Referral Law, often referred to as the Stark Law, prohibits “physicians” (generally including MDs, DOs, dentists, optometrists, and chiropractors) from referring patients to receive “designated health services” payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies. Financial relationships include both compensation and ownership or investment interests. Designated health services include clinical laboratory services, PT and OT, DME, some imaging services, and several other services. Some of the most common exceptions to the Stark Law include the in-office ancillary exception, fair market value compensation, and bona fide employment relationships. CMS has also recently implemented exceptions related to value-based arrangements.

“In Office Ancillary” services are an exception to the Stark Law. Generally, under the “in office ancillary” exception, the Stark Law does not apply to services that (1) are performed by the referring physician, another physician in the same group practice, or an individual supervised by the referring physicians or another physician in the same group practice; (2) are performed in the same building as the referring physician or their group practice offers services or in another centralized location; and (3) are billed by the performing physician, the supervising physician, their group practice, or a subsidiary that is wholly owned by the group practice.

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The Department of Health and Human Services (HHS) has again delayed implementation of a rule that would cause it to review many of its regulations and would eliminate regulations that HHS fails to review. The rule had the potential to remove many non-statutory restrictions that HHS has placed on the healthcare industry. This delay likely presages the ultimate repeal of the rule.

The SUNSET Rule, which was finalized in the closing days of the Trump Administration, requires HHS to assess its current rules. First, HHS would determine whether a rule has a significant economic impact on a large number of small entities. If it does, then HHS would consider the complaints against the rule, the original asserted need for the rule, the complexity of the rule, and whether the rule is duplicative of or in conflict with any other rules. HHS would ultimately determine whether the rule is still needed, should be reworked, or should be withdrawn. Any rule that is not reviewed by HHS every ten years would expire. Any rule that was more than ten years old at the time the SUNSET Rule came into effect would expire unless it was reviewed within five years.

Under the Biden Administration, HHS first delayed the implementation of the SUNSET.  Then, in late 2021, HHS proposed to repeal the SUNSET Rule in its entirety. HHS’ rational for the proposed repeal was that it did not have sufficient resources to review all of its regulations within the required timeframes and this would cause some regulations to expire before HHS could complete reviews. While this position may indicate that HHS has engaged in excessive rule-making, HHS’ most recent proposal evinces a likely intent to repeal the SUNSET Rule in its entirety. In March 2022, HHS again delayed the implementation of the SUNSET Rule, including that it was still considering public comments to its proposal to repeal the Rule.

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When a Medicare contractor denies a claim, whether as part of a pre-pay, post-pay, Targeted Probe and Educate, statistically extrapolated, or other type of review or audit, the provider generally has a right to a lengthy appeal process. The process is complex and often relies on strictly enforced deadlines and requirements. In some circumstances claims can take years to fully progress through the appeals process. However, some limited cases may be eligible for settlement.

There are several entities that perform Medicare audits. The federal agency that oversees Medicare, the Centers for Medicare & Medicaid Services (CMS), performs few audits itself, but outsources these duties to a series of independent contractors, such as Medicare Administrative Contractors (MACs), Unified Program Integrity Contractors (UPICs), and the Supplemental Medical Review Contractor (SRMC). The vast majority of audits are performed by these contractors, although they will often use CMS’s name or logo in their correspondence and may answer phone calls by saying that they are “with Medicare.”

A healthcare provider’s options in responding to a Medicare audit are available from the very beginning. Sometimes providers receive Additional Document Requests (ADRs) from the contractor demanding information or documentation on a claim or claims. These requests should be reviewed carefully; however, they often contain boilerplate or generic language and it may be difficult to determine which specific documentation the contractor is requesting. Once the contractor reviews any additional documentation and other information that the provider supplies, the contractor will issue its audit findings and determine whether to deny certain claims. Other times, the contractor will audit claims data or other information and issue audit findings without requesting additional information from the provider.

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The Centers for Medicare & Medicaid Services (CMS) contracts with a Supplemental Medical Review Contractor (SMRC), which performs a variety of Medicare and Medicaid audit and medical review tasks. Noridian Healthcare Solutions, which is also a Medicare Administrative Contractor (MAC), was selected as the SMRC in 2018. The SMRC conducts nationwide medical reviews of Medicare Parts A and B, DMEPOS, and Medicaid claims for compliance with coverage, coding, payment, and billing requirements. The focus of the medical reviews may include areas identified by CMS data analysis, the Comprehensive Error Rate Testing (CERT) program, professional organizations, and federal oversight agencies. At the request of CMS, the SMRC may also carry out other special projects.

SMRC audits are referred to as projects and there are three categories of SMRC project reviews:

  • Healthcare Fraud Prevention Partnership (HFPP) Review: Based on fraud, waste, and abuse trends identified by the HFPP.
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The Eliminating Kickbacks in Recovery Act (“EKRA”) is an incredibly broad and incredibly vague criminal statute that continues to create compliance issues for clinical laboratories. Many arrangements between clinical laboratories and other entities that were previously compliant, or which are currently authorized under other federal statutes, may be unlawful under EKRA.

Congress enacted EKRA in 2018 and, throughout its drafting, it was intended to address patient brokering and kickback schemes in addiction treatment and recovery. For example, EKRA was targeted at individuals who received kickbacks for steering patients into sober living and recovery homes. However, shortly before EKRA was passed and with little consideration of the implications, the words “or laboratory” were inserted into the draft such that EKRA now likely applies to all referrals to clinical laboratories, regardless of payor and regardless of whether the testing relates to addiction treatment or recovery.

EKRA broadly prohibits paying, offering, receiving, or soliciting any remuneration in return for referrals to recovery homes, clinical treatment facilities, or laboratories. Further, EKRA is a criminal statute, the penalties for violation of which, up to 10 years in prison and fines up to $200,000, cannot be taken lightly. Like two other major federal healthcare fraud, waste, and abuse laws, the Anti-Kickback Statute and the Physician Self-Referral Law (commonly known as the Stark Law), EKRA contains a few exceptions. However, they are far fewer in number and often narrower than their counterparts in the older statutes.

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Healthcare companies were once again the leading source of the Department of Justice’s (DOJ) False Claims Act (FCA) settlements and judgments last year. According to a DOJ news release, healthcare companies paid almost 90% of fraud settlement proceeds under the FCA in 2021. The Justice Department obtained more than $5.6 billion in total settlements and judgments under the FCA in the fiscal year ending September 30, 2021, which is the second largest annual total in the FCA’s history. Over $5 billion of that number relates to matters involving the healthcare industry, including hospitals, pharmacies, laboratories, drug and medical device manufacturers, managed care providers, hospice organizations, and physicians.

The largest settlements under the FCA were those reached with prescription drugmakers for their role in the opioid epidemic. A significant number of settlements also related to the Medicare Advantage Program, which pays a capitated amount to private health insurers for each patient enrolled in their plan according to a risk calculation. Other settlements involved claims of illegal kickbacks, claims of providing unnecessary medical services, and lawsuits filed under the FCA’s whistleblower provisions.

The DOJ’s healthcare fraud enforcement is more vigorous compared to other industries, in part due to the unique nature of the business of healthcare. The Department’s enforcement efforts attempt to restore funds to federal programs such as Medicare, Medicaid, and TRICARE, as well as prevent further losses by deterring others from engaging in fraudulent behavior. In many cases, the Department may be motivated to protect patients from medically unnecessary or potentially harmful actions. Providers should be aware that overpayment allegations are common, especially given the substantial effect that widespread healthcare fraud can have on individuals and entities throughout the US. The regulatory and business risks in healthcare are unlike other fields, in large part due to the web of complex and often vague regulatory and statutory restrictions, such as Stark law, the Anti-Kickback Statute (AKS), the Eliminating Kickbacks in Recovery Act (EKRA), and the Corporate Practice of Medicine doctrine (CPOM), among others. Healthcare providers should remain proactive in ensuring operations comply with the many different standards of practice governed by federal and state laws and regulations.

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The Department of Health and Human Services (HHS) recently announced additional audits of certain healthcare providers that received funding from the Provider Relief Fund (PRF). These audits will focus on whether hospitals that received PRF payments have complied with the surprise billing provisions of the PRF terms and conditions. HHS has long promised “significant enforcement” related to the PRF, a promise which is beginning to take effect.

The PRF was created by Congress through the CARES Act and was designed to provide financial relief to healthcare providers during the COVID-19 pandemic. Acceptance of a PRF payment is conditioned on, among other things, the provider agreeing to use the funds only for healthcare related expenses and lost revenue attributable to coronavirus, and to file reports demonstrating compliance with the conditions of the payment.

Providers who received and retained payments through the PRF are required to file reports justifying their use of the funds. Providers must report information on healthcare-related expenses attributable to coronavirus, lost revenue attributable to coronavirus, other pandemic assistance received, and administrative data. Providers who received more than $500,000 in aggregate payments are required to report some data elements in greater detail, including specific information regarding operations, personnel, supplies, equipment, facilities, and several other categories. Some providers will be required to report significant amounts of financial information in significant detail, which may require time to compile or calculate.

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A phenomenon in Medicare audits that is gaining increased visibility is Medicare contractors “double-dipping” from providers by using overlapping audits. Once viewed as isolated aberrations, it is becoming increasingly common for Medicare contractors to audit and deny the same claims twice in different audits. This practice generally leads to overpayment demands for the same claims, meaning contractors are demanding that providers and suppliers repay the same claims twice. Though profoundly unfair and very likely unlawful, providers may face difficulty challenging such an overlap in the complex and lengthy Medicare appeals process.

The Centers for Medicare & Medicaid Services (CMS) authorizes several types of contractors to conduct audits, such as Medicare Administrative Contractors (MACs), Recovery Audit Contractors (RACs), Unified Program Integrity Contractors (UPICs), and the Supplemental Medical Review Contractor (SRMC). Some contractors are paid a percentage of the amounts they collect from the providers they audit, incentivizing them to over-deny claims and over-collect payments. In some instances, one contractor may not communicate with another, leading both to target the same claims. Alternatively, a contractor may fail to communicate internally or document its own audits properly, leading the same contractor to deny and attempt to collect on the same claims multiple times. As the number of Medicare audits has exploded over the last several years, such missteps have become increasingly common.

Any Medicare provider or supplier who has received more than one Medicare audit or overpayment demand should verify whether any of the claims overlap. Overlaps are found most often in statistically extrapolated audits, although they can occur in any type of audit. Where an overlap is found, a provider may raise the issue in the five levels of the Medicare claims appeal process: Redetermination by the MAC, Reconsideration by a Qualified Independent Contractor (QIC), review by an Administrative Law Judge (ALJ) employed by Department of Health and Human Services (HHS), review by the Medicare Appeals Council, also within HHS, and review by a judge in a federal court.

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Late last year, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued a significant Advisory Opinion regarding a proposed joint venture (JV) between a therapy services provider and an owner of various long-term care (LTC) facilities. OIG concluded that it viewed the Proposed Arrangement as presenting a significant risk of fraud and abuse and potentially designed to permit the therapy services provider to pay the LTC owner a share of the profits derived from referrals for therapy services made by the LTC owner’s facilities. The opinion reiterates OIG’s longstanding concern that joint ventures formed between healthcare providers or suppliers and referral sources can present risk under the Anti-Kickback Statute (AKS).

Under the Proposed Arrangement, a therapy services provider would form a JV with an owner of LTC facilities where the JV would provide therapy services to the LTC facilities. The JV would contract out the bulk of operations (all clinical and non-clinical employees, space, and equipment) to the therapy services provider in exchange for a fair market value fee. The LTC owner would hold a 40% interest in the JV and the therapy services provider would hold the remaining 60% interest. The LTC owner’s investment in the JV would be based, at least in part, on the JV’s expected business from the LTC owner’s facilities. The LTC owner’s facilities were not required to contract with the JV or otherwise make or direct referrals to the JV, although the therapy services provider certified that it expected the LTC owner’s facilities to do so, and during the initial phases of the JV all of the JV’s revenues would be generated by services provided to the LTC owner’s facilities.

OIG concluded that the Proposed Arrangement would not satisfy any AKS safe harbors, including the small entity investment safe harbor, because the Arrangement likely violates the investor test, the revenue test, and the investment offer test. Moreover, OIG referred to its landmark 2003 Special Advisory Bulletin on Contractual Joint Ventures, which includes a detailed list of characteristics that OIG considers suspect when present under a contractual JV. Since the JV described in the Proposed Arrangement included several of these previously outlined suspect characteristics, OIG further determined that the proposed JV presents significant risk of fraud and abuse. This Advisory Opinion serves as a useful reminder of the regulatory framework applicable to joint ventures between healthcare providers and entities in a position to refer or generate business for the joint venture. Providers considering joint ventures should ensure that they are structured to comply with AKS and OIG guidance.

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