Articles Posted in Fraud & Abuse

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On July 2, 2015, the U.S. Court of Appeals for the Fourth Circuit upheld a $237 million verdict against Toumey Healthcare System (“Toumey) for violations of the federal Stark law (“Stark”) and, consequently, the federal False Claims Act. The verdict marks the latest decision in the government’s longstanding legal battle against Toumey, a community hospital in South Carolina, and serves as a reminder to healthcare providers of the significant liability that can result from compensation arrangements that fail to comply with Stark’s safe harbor requirements.

In this case, the lower court determined that Toumey entered into part-time employment agreements with physicians that violated Stark. The agreements violated Stark’s limitations on physician compensation arrangements by varying with, or taking into account, the volume or value of the physicians’ referrals to the hospital. Under the False Claims Act, claims submitted for payment arising out of referrals prohibited by Stark constitute false claims, and subject providers to treble damages. In this case, the jury found that Toumey knowingly submitted 21,730 false claims, which amounted to $39.3 million in Medicare payments. The court awarded treble damages as well as other penalties.

The Fourth Circuit’s decision analyzed Toumey’s argument that since Toumey relied upon the advice of lawyers in determining that the compensation arrangements were permissible under Stark, Toumey could not have knowingly violated the False Claims Act. In rejecting this argument, the Fourth Circuit highlighted the fact that Toumey consulted with multiple attorneys, one of which raised serious concerns about the compensation arrangements, and that Toumey effectively lawyer-shopped for legal opinions that approved the employment contracts. Accordingly, the case should provide notice to providers to proceed with caution if they are contemplating obtaining multiple legal opinions in order to determine that an arrangement is compliant with health care fraud and abuse laws because of how the opinions may be scrutinized in hindsight.

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On February 2, 2015, the White House released President Obama’s budget report for fiscal year 2016. A significant portion of the report is dedicated to healthcare issues. The report proposes several reforms to the Medicare program and purports a projected savings of $407.2 billion in the next 10 years. Additionally, the report includes a $403 million multi-year investment towards preventing, detecting, and prosecuting healthcare fraud and abuse. Moreover, the 2016 budget provides for a $201 million investment to continue to fund the full Health Care Fraud and Abuse Control discretionary cap adjustment, increase funding to recovery auditors to take on more corrective actions, and provide more funds to the Medicaid Integrity Program. The President’s budget states an intention to increase such funding to $4.6 billion over the next 10 years.

The budget brief published by the U.S. Department of Health and Human Services (“HHS”), proposes numerous measures in an attempt to curb the Medicare appeals backlog. Suggestions made by the Office of Medicare Hearings and Appeals (“OMHA”) are summarized as follows:

  • Invest new resources at all levels of appeal to increase adjudication capacity and implement new strategies to alleviate the current backlog;
  • Take administrative actions to reduce the number of pending appeals and prevent new cases from entering the system; and
  • Propose legislative reforms that provide additional funding and new authorities to increase efficiency and address the volume of incoming appeals.

The investment increases suggested by OMHA are part of its requested budget of $140 million, a $53 million increase from fiscal year 2015. Aside from bolstered investment, OMHA also proposed several reforms that would impact the Medicare audit process. One such proposal is the implementation of a per-claim filing fee charged to providers at each level of the Medicare appeals process. The proposal allows for a refunding of the fee, but only in such instances where appellants receive a fully favorable appeal decision. OMHA projects that these filing fees will amount to $5 million, which will in turn fund 119 ALJ teams. The increase in ALJ teams is intended to decrease the backlog by improving efficiency and responsiveness.

OMHA also proposed the authorization of sampling and extrapolation techniques throughout the appeals process. This proposal would allow providers to consolidate all of their appeals into a single administrative appeal at all levels of the appeals process. If enacted, the proposal would require parties who are appealing claims included within an extrapolated overpayment, or consolidated previously, to file one appeal request for any such claims in dispute.

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On January 9, 2015, the Federal Bureau of Investigations and Department of Justice, along with several state Medicaid programs, announced that Daiichi Sankyo Inc. (“Daiichi”), a U.S. subsidiary of a Japanese pharmaceutical company, agreed to pay $39 million to settle alleged violations of the Anti-Kickback Statute and False Claims Act (“FCA”).

In March 2010, a qui tam lawsuit was filed in the U.S. District Court for the District of Massachusetts. The allegation contained in the lawsuit related to speaker programs that Daiichi hosted between January 2004 and March 2011. The qui tam plaintiff, a former Daiichi sales representative, asserted that Daiichi inappropriately compensated physicians that participated in the speaker programs. The six primary allegations included:

  • The program honoraria recipient only spoke to member of his or her own staff in his or her own office;
  • Physicians took turns accepting speaker honoraria for duplicative discussions;
  • The audience include the honoraria’s spouse;
  • The honoraria recipient did not speak at all because the event was previously canceled;
  • The program dinners exceeded Daiichi’s internal cost limitation of $140 per person; and
  • Drugs that were promoted at the programs (Azor, Benicar, Tribenzor, and Welchol) were used for off-label purposes.

The Government contended that the meals, honoraria, and other remuneration paid to participating physicians amounted to illegal kickbacks that ultimately induced the physicians to prescribe the drugs for off-label use. Furthermore, this resulted in pharmacies unknowingly submitting false prescription drug claims because prescriptions for off-label uses are typically not eligible for reimbursement.

In addition to paying $39 million, Diiachi agreed to enter into a corporate integrity agreement that obligates it to implement dramatic internal reforms over the next five years. Specifically, the corporate integrity agreement mandates that Diiachi enact compliance programs to prevent similar improper practices from reoccurring. For the qui tam plaintiff’s services, the former employee will receive $6.1 million of the Government’s recovery.

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On December 1, 2014, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule that would postpone penalties against accountable care organizations (ACOs) for three years. The proposed rule is one of the latest measures CMS has taken to encourage ACOs to stay in the Medicare Shared Savings Program. In 2012, as part of the rollout of the Patient Protection and Affordable Care Act, the Medicare Shared Savings Program was initiated in an effort to curb spending, while improving quality of care. Since its enactment, industry stakeholders have pushed for leniency, primarily because the Medicare Shared Savings Program penalizes ACOs after the first three years unless the ACOs voluntarily take on financial risk earlier, in exchange for larger bonuses if they perform well. While policymakers supported the penalties as a means of incentivizing change in the healthcare market, providers, particularly less experienced providers, pushed back–arguing that a more moderate approach would ease the financial risk and foster more growth. Recently, the National Association of ACOs released the results of a survey, which reported that approximately 200 of the 300 ACOs in the program were somewhat or highly unlikely to continue if they were required to accept penalties.

With the issuance of the proposed rule, CMS conveyed that it wants less experienced ACOs to remain in the program. By postponing the penalties, CMS acknowledged that some ACOs might not be ready to accept the financial risks and fear these providers might exit the program in lieu of exposing their entity to liability.

However, ACOs must abide by specific criteria if they want to take advantage of the postponement. Under the proposed rule, ACOs must have reduced their spending in their first two years in the program and be prepared to assume the financial risk of penalties after six years. Additionally, CMS plans to encourage ACOs to exit the safer track and take on more risk by decreasing the safe track bonuses from fifty percent to forty percent. Furthermore, CMS proposed a third track, which would implement new methods to determine which patients are included in the ACO. Specifically, the ACOs would start the year with a list of patients, and manage those patients’ costs and care. This new system should benefit ACOs because CMS will identify the patients at the start of the year, allowing for more focused improvement efforts. Lastly, the third track will also include potential bonuses and penalties.

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On October 17, 2014, the Centers for Medicare and Medicaid Services (CMS) extended its interim final rule regarding fraud and abuse waivers for accountable care organizations (ACOs) that participate in the Medicare Shared Savings Program. The Medicare Shared Savings Program was one of the initial steps taken under the Affordable Care Act to both increase quality and lower costs in the Medicare program. ACOs that participate in the Medicare Shared Savings Program can share in the savings generated to Medicare.

Originally, the interim final rule was published in the November 2, 2011 Federal Register, and had the typical three-year period before becoming a final rule. The continuation of the interim final rule extends the timeline for an additional year, establishing a new deadline of November 2, 2015. The interim final rule offers five waivers to ACOs, which allow healthcare entities to form and operate ACOs without fear of violating federal fraud and abuse laws. The ACO waivers include:

  • An ACO participation waiver;
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    On August 4, 2014, the United States Department of Justice (DOJ) announced that Community Health Systems (CHS) agreed to pay $98.15 million to settle False Claims Act (FCA) allegations that CHS knowingly billed Medicare, Medicaid and TRICARE for inpatient hospital services that should have been billed as outpatient or observation services. Seven actions were filed against CHS by whistleblowers under the qui tam provisions of the FCA, which allows individuals to file suit on behalf of the government and, in turn, obtain a portion of the recovery. These seven actions were filed in six different jurisdictions and alleged that, between 2005 and 2010, CHS engaged in a corporate scheme to increase admissions of Medicare, Medicaid, and TRICARE beneficiaries even though the admissions were not medically necessary at an inpatient level of care. Rather, the United States alleged that the patients could have been cared for in less costly outpatient or observation settings.

    In addition to the $98.15 million settlement payment, CHS agreed to enter into a five-year Corporate Integrity Agreement with the Office of Inspector General (OIG) in which CHS is required to implement significant compliance protocols, including retention of an independent review organization (IRO) to review CHS’s inpatient admission claims. In exchange, CHS will be released from any civil or administrative monetary claims the United States has for the covered conduct under the FCA, Civil Monetary Penalties Law, or Program Fraud Civil Remedies Act.

    According to the DOJ, this settlement agreement is the largest FCA recovery in the Middle District of Tennessee. The DOJ touted the Health Care Fraud Prevention and Enforcement Action Team’s (HEAT) coordinated nationwide effort for exposing the FCA noncompliance. Since the establishment of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) in 2009, the DOJ has recovered over $20.2 billion in FCA cases, of which $14 billion has come from cases involving fraud against government health care programs.

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    On June 25, 2014, the U.S. Department of Health and Human Services Office of Inspector General (OIG) released a Special Fraud Alert (the Alert) regarding two kinds of compensation arrangements between clinical laboratories and referring physicians. The two arrangement types addressed by the Alert involve compensation paid by clinical laboratories to physicians for (1) blood-specimen collection, processing, and packaging and (2) submitting patient data to a registry or database. In the Alert, OIG recognized that these types of arrangements between physicians and labs create a considerable risk of fraud and abuse in violation of the Anti-Kickback Statute.

    The specimen processing arrangements involve laboratories paying physicians to collect, process, and package patients’ blood specimens. The OIG noted that these arrangements are typically made on a per-specimen or per-patient-encounter basis. In the Alert, the OIG discussed that physicians are already allowed to bill Medicare a specimen collection fee and for processing and packaging specimens for transport.

    As noted by the OIG, the Anti-Kickback Statute prohibits a laboratory from knowingly and willfully paying physicians for services if even one purpose of the payment is to induce or reward referrals. Although the Anti-Kickback Statute is intent-based, the OIG stated, “the probability that a payment is for an illegitimate purpose is increased, however, if a payment exceeds fair market value or it is for a service for which the physician is paid by a third party, including Medicare.”

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    On June 11, 2014, the Michigan Supreme Court issued its decision in Michigan ex rel. Gurganus v. CVS Caremark Corp., and ruled that Michigan law requires a pharmacist to pass on the difference in cost between the wholesale cost of a brand-name drug and the wholesale cost of a generic drug to the purchaser when a generic drug is substituted for a brand-name drug (and only then). The case involved two consolidated class actions and a qui tam action against multiple pharmacies alleging that the pharmacies violated MCL 333.17755(2) by failing to pass on the savings to customers when substituting brand-name drugs with generic drugs. The plaintiffs further alleged that the defendant pharmacies necessarily violated the Health Care False Claim Act (HCFCA), MCL 752.1001 et seq, and the Medicaid False Claims Act (MFCA), MCL 400.601 et seq., by violating MCL 333.17755(2) and then submitting claims for reimbursement to the state.

    The trial court granted summary disposition to the defendants because it found that the plaintiffs failed to state a claim upon which relief could be granted. The trial court noted that the plaintiffs did not plead with specificity any transactions involving the defendants that purportedly violated MCL 333.17755(2). The plaintiffs relied on a small set of cost data from a single out-of-state pharmacy during a brief time period to support their allegations of systematic fraudulent activity in Michigan by the defendants. The Court of Appeals reversed the trial court’s decision, finding that the plaintiffs’ general allegations were sufficient to avoid summary disposition. The Court of Appeals then reached several issues related to whether the HCFCA and MFCA created private rights of action. The panel also held that MCL 333.17755(2) applied to all transactions in which a generic drug is dispensed – not just to transactions in which a generic drug is substituted for its brand-name equivalent.

    In a unanimous decision (with one Justice concurring only in the result), the Michigan Supreme Court reversed the Court of Appeals and reinstated the trial court’s ruling. The Court reversed the Court of Appeals’ construction of MCL 333.17755(2) and its holding that the plaintiffs’ pleadings were sufficient to survive summary disposition. It vacated the remainder of the Court of Appeals’ decision as unnecessary to the resolution of the case.

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    On May 28, 2014, the U.S. Department of Justice (DOJ) settled a whistleblower lawsuit against Medtronic, Inc. for $9.9 million. Medtronic, the fourth largest medical device supplier in the world, was accused of violating the Anti-Kickback Statute and False Claims Act by paying kickbacks to physicians for using Medtronic’s defibrillators and pacemakers.

    The allegations came to light after former Medtronic employee-whistleblower notified authorities of the illicit payments, which occurred between 2001 and 2009. In addition to tying kickbacks to the usage of Medtronic products, the complaint details that Medtronic allegedly produced business development and marketing plans for the doctors at no cost, paid doctors to speak at events with the goal of increasing referrals, and gave doctors tickets to sporting events. The complaint further outlines that Medtronic’s sales staff provided doctors with lavish trips and gifts, and even offered cash payments for the utilization of Medtronic devices. Also, business plans were in place in which sales representatives were allegedly instructed to visit doctors’ offices to review patient charts and flag those who they thought should receive an implant despite patients not meeting the criteria for an implantable device.

    This settlement should encourage providers to ensure their physician arrangements do not violate provisions of the Anti-Kickback Statute, False Claims Act, or any other fraud and abuse laws. Wachler & Associates healthcare attorneys regularly counsel providers in proactively addressing potential kickback violations and defending providers against government allegations. If you or your healthcare entity have any questions regarding the Anti-Kickback or Statute Stark Law, or wish to have your arrangement reviewed by our attorneys please contact an experienced health care attorney at Wachler & Associates at 248-544-0888.

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    On May 12, 2014, the U.S. Department of Health and Human Services (HHS) issued a Proposed Rule to increase the Office of Inspector General’s (OIG) authority to combat fraud and abuse under the Civil Monetary Penalty (CMP) Regulations. The Proposed Rule implements changes enacted by the Patient Protection and Affordable Care Act of 2010 (ACA), which expanded OIG’s ability to assess CMP fines against individuals or entities that defraud Federal healthcare programs. Under the proposed rule, OIG may assess CMPs against individuals or entities for:

    1. Failure to grant OIG timely access to documents, as determined on a case-by-case basis;
    2. Ordering or prescribing medicine or services that the person knows or should know may be paid for by a federal health care program while excluded;
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