On October 19, 2017, the United States District Court for the Northern District of Illinois, in the case of MedPro Health Providers, LLC v. Hargan, dismissed a home care agency’s suit — without deciding the merits of the agency’s challenge to a Medicare contractor’s determination to suspend the agency’s Medicare payments.  Noting that the delay in adjudication was “unfortunate,” the District Court nevertheless held that the home care agency had to exhaust its administrative remedies prior to filing suit.  The provider thus had to first let the administrative process play out to conclusion even while its Medicare payments were cut off and the alleged overpayments continued to be recouped.

Regulatory Background.  The Centers for Medicare & Medicaid Services (“CMS”) and its contractors may temporarily suspend Medicare reimbursement payments to providers for up to 180 days if they possess “reliable information that an overpayment exists” — even in the absence of any suspected fraud.  42 C.F.R. § 405.371(a)(1).  A provider has the right to submit to the Medicare contractor, a rebuttal statement explaining why the suspension should be lifted, and the contractor is required to review and consider the statement when determining if the suspension should continue.  Id. at 405.372(b)(2); 405.375(a).  If CMS or its contractor determines to continue the suspension, it must provide written notice to the provider.  Id. at 405.375(b)(2).  The suspension will not be rescinded until CMS or its contractor finally determines whether the provider was overpaid.  The suspended payments would then be released to the provider, less the amount of any overpayment.  Id. at 405.372(c)(1)(ii) and (e).  A provider may then appeal the subsequent overpayment determination through a four-part administrative process, and ultimately to the Medicare Appeals Council.  It is only after the four-step process has been exhausted and the Council had rendered its decision that CMS’ action can be challenged in court.  Id. at 405.904(a)(2); 405.1130.

Factual Background.  MedPro Health Provider (“MedPro”) is a home health agency authorized to provide services to Medicare beneficiaries.  AdvanceMed Corporation is a Zone Program Integrity Contractor (“ZPIC”) that has contracted with CMS to identify suspected cases of Medicare fraud and prevent the mistaken overpayment of Medicare funds to health care providers.  The ZPIC reviewed 32 MedPro patient charts in 2016 and notified MedPro that it was suspending future Medicare payments to the company on the grounds that its review revealed that MedPro had billed Medicare for services that were not medically reasonable or necessary.  MedPro provided the ZPIC with a rebuttal statement and supporting documentation but, as alleged in MedPro’s complaint, ZPIC determined to continue the suspension even though it admitted that it had not reviewed or considered the supporting documentation.

Shortly after the ZPIC’s suspension determination, MedPro filed a lawsuit in U.S. District Court against the Secretary of the U.S. Department of Health and Human Services and the ZPIC, alleging that the ZPIC’s refusal to review the supporting documentation violated regulations and effectively deprived MedPro of its right of administrative review.  For relief, MedPro asked the Court to compel CMS to immediately review its rebuttal statement and supporting documentation, and to declare that the ZPIC had committed fraud by representing that it would, and failing to, review such documentation as required.  The ZPIC moved to dismiss the complaint on the ground that MedPro had failed to exhaust administrative remedies.

After the suit was filed, the ZPIC terminated the payment suspensions and notified MedPro that it determined that MedPro had been overpaid by $6.9 million.

The Court’s Decision.  By decision dated October 19, 2017, the court granted the defendants’ motion to dismiss for lack of subject-matter jurisdiction.  The Court explained that MedPro could have raised the ZPIC’s failure to review the rebuttal submission as a ground for administrative appeal of the ZPIC’s overpayment determination.  The court acknowledged that the delayed review “and the resulting hardship” to MedPro resulting from having to wait until the ZPIC made its overpayment determination was “unfortunate.”  Nevertheless, the court concluded that MedPro was required to exhaust the administrative process before resorting to the courts, and that it lacked authority at that stage to compel the ZPIC to review MedPro’s rebuttal submission.

The court also determined that MedPro’s related fraud claim, premised on the ZPIC’s failure to review MedPro’s rebuttal submission, was “bound up with a claim for benefits under the [Medicare] Act . . . and a challenge to the ultimate overpayment determination.”  Accordingly, the court held that this claim too must be addressed through the administrative process and could not be adjudicated separately from the underlying reimbursement claim.

Implications.  This decision highlights the formidable hurdle that exhaustion of administrative remedies can present for a provider seeking relief from the court when operating under a suspension of Medicare payments.  The exhaustion requirement was enforced in this case even when the provider challenged the Medicare contractor’s compliance with the very procedures prescribed to ensure a meaningful administrative review.  Although a Medicare suspension of payments can cripple a health care provider, the immediacy of such harm does not excuse a provider from first following the prescribed administrative procedures to challenge the underlying overpayment determination.  It may be high time to consider the efficacy and fairness of the backlogged Medicare administrative appeal process that can often leave providers with no meaningful relief.

Last week, President Trump declared the opioid crisis a public health emergency. The President’s opioid Commission has now issued its final report with recommendations on how to combat the country’s drug crisis. While both important, neither have a significant impact on law enforcement efforts to address the crisis. That impact will likely come from public reaction to reports suggesting that a 2016 law stripped the Department of Justice (“DOJ”) and Drug Enforcement Administration (“DEA”) of certain police powers to enforce the nation’s drug laws.

Congress passed the Ensuring Patient Access and Effective Drug Enforcement Act (the “Act”) in the Spring of 2016 with little fanfare, and with unanimous consent in the House and Senate. Over one year later, the Act is the subject of great debate and the source of tension among lawmakers, law enforcement, pharmaceutical manufacturers, distributors and wholesalers, and public health advocates.

Before the Act’s passage, DEA regulations permitted the DEA Administrator to issue an immediate suspension order (“ISO”) of a DEA-registered business or health care provider where there was an “imminent danger to the public health or safety.” However, “imminent danger” was not defined, and was subject to loose and inconsistent interpretation. In seeking ISOs, DEA conducted historical analyses of a registered entity’s sales and would claim that the volume of orders, coupled with a failure to report suspicious orders, constituted the requisite “imminent danger” to the public. This finding, which was not subject to judicial review, would temporarily strip a registered business or health care provider of its license to manufacture, distribute or dispense controlled substances pending a hearing before a DEA administrative law judge. Unhappy that DEA could claim “imminent danger” based on past practices, without regard to remedial measures the registered business might have taken, industry lobbyists urged lawmakers to enact a statute that would more clearly define “imminent danger”[1] and would allow a company to present a remedial action plan prior to the imposition of an immediate suspension order.

Critics, led by a former DEA insider-turned-whistleblower, whose allegations were aired in a recent 60 Minutes-Washington Post report, say that the new Act eviscerated DEA’s ability to stop the illegal flow of addictive opioid medications to the public. They claim that “[t]he new law makes it virtually impossible for the DEA to freeze suspicious narcotic shipments from the companies.[2] Similarly, advocates for increased government crack-downs argue that the Act’s new meaning of “imminent danger” and heightened evidentiary standard requires DEA to pierce through “too many levels between distributors and manufacturers to logically establish any causation of death, serious bodily harm, or abuse to a specific patient down the chain to support” an ISO. [3] The reaction to the whistleblower’s allegations was explosive. Among other things, it led to the withdrawal of President Trump’s nomination of Representative Tom Marino of Pennsylvania, a sponsor of the Act, to be the nation’s next drug czar. There is surely more fallout from the Sixty Minutes-Washington Post piece, and it will likely result in scaling back of the Act.

Meanwhile, the President’s Commission on Combating Drug Addiction and the Opioid Crisis (the “Commission”), which will release its final report tomorrow, recommended numerous enforcement measures to combat the opioid epidemic. For example, the Commission suggests that DEA require prescribers to participate in continuing education to better understand the potential for drug misuse before their registrations to prescribe opioids can be renewed. In addition, the Commission urges the President to endorse the federal Prescription Drug Monitoring Act, which requires states that receive federal grants to track and actively manage controlled substances through a state-wide prescription drug monitoring program (“PDMP”). As an alternate to enforcement, the Commission also calls for drug courts in every federal district nationwide. The Commission expects that drug courts will advance individuals’ treatment and recovery efforts, while saving enforcement efforts for those in the medical supply chain that manufacture, distribute, prescribe and dispense large volumes of opioids in the first instance. Finally, the DOJ has leaned on its Corporate Fraud Strike Force and the Opioid Fraud and Abuse Detection Unit to ferret out opioid-related health care offenses and to hold responsible actors accountable.

As the DOJ and DEA retool and consider new enforcement measures, the following industry participants must remain alert:

Doctors: DOJ and DEA will prioritize identifying doctors who overprescribe opioids or who prescribe them without a legitimate medical purpose. Both agencies are well-equipped to seek out not only doctors who overprescribe opioids by providing weeks’ worth of pills when only a few days are necessary, but also other doctors who operate lucrative “pill mills” that distribute opioids for non-medical reasons.

Pharmacists: Pharmacists are on the front line of providing medical care and have a corresponding responsibility to ensure that prescriptions are legitimate. Accordingly, pharmacists must exercise a high degree of professional judgment when assessing a patient’s condition and that patient’s need to use opioids to treat a condition. Pharmacists should be familiar with PDMP systems and know how to balance patient pain with overprescribing opioids. Concomitantly, chains that employ pharmacists have an obligation to educate and train their pharmacists on the safe use of opioids and the potential for misuse and abuse and will bear responsibility for a pharmacist’s failure to detect illegitimate opioid prescriptions.

Manufacturers and Wholesalers: DOJ and DEA will continue to monitor large pharmaceutical companies’ business practices to identify any drug makers who illegally incent doctors to overprescribe opioids, commit fraud on insurance companies, employ deceptive marketing techniques that deceive patients, or who fail to detect and report suspicious orders.

In sum, the opioid crisis, while largely viewed as a health crisis, has important enforcement impacts that are likely to affect industry in a number of ways.

[1] 21 U.S.C. § 824(d) (2016). Specifically, the Act requires that DEA prove that “there is a substantial likelihood of an immediate threat that death, serious bodily harm, or abuse of a controlled substance will occur in the absence of” an ISO.
[2] Scott Higham & Lenny Bernstein, “The Drug Industry’s Triumph Over the DEA,” The Washington Post (Oct. 15, 2017), https://www.washingtonpost.com/graphics/2017/investigations/dea-drug-industry-congress/?hpid=hp_hp-top-table-low_deanarrative-hed%3Ahomepage%2Fstory&utm_term=.9b6172efd59d.
[3] John J. Mulrooney, II & Katherine E. Legel, Current Navigation Points in Drug Diversion Law: Hidden Rocks in Shallow, Murky, Drug-Infested Waters, 101 Marq. L. Rev. (forthcoming Feb. 2018).

Tom Price is out as Secretary of the U.S. Department of Health and Human Services (“HHS”).  Mr. Price announced his resignation on September 29th as he faced more questions and increasing scrutiny over his use of taxpayer-funded private planes.  While Mr. Price’s departure from HHS will impact some aspects of the Trump Administration’s health care agenda, health care enforcement and compliance issues are bi-partisan in support and therefore less volatile.

Under Inspector General Daniel Levinson, who has led HHS’ Office of Inspector General (“OIG”) for twelve years, HHS remains committed to detecting, preventing, and prosecuting individuals and companies for health care fraud.  Accordingly, all signs point to OIG continuing to focus on detecting fraudulent billing practices and illegal physician referral programs, and using corporate integrity agreements to ensure that health care providers obey Medicare and Medicaid rules and policies.

In addition to fighting fraud in HHS programs, Health Information Portability and Accountability Act (“HIPAA”) security and cyber security are top priorities for HHS’ Office for Civil Rights (“OCR”).  To combat cyber security threats and to mitigate damage caused by cyber security breaches, OCR will likely increase its enforcement of HIPAA privacy rules and regulations and scrutinize providers’ cyber security policies, best practices, and response procedures.  Driving home this point, new OCR Director Roger Severino said, “I’ve gotten up to speed on HIPAA, and as the threats evolve, we have to evolve in how we approach it – and we have to be smart about who we target.  At most I will say the big, juicy case is going to be my priority and the methods for us finding it – stay tuned.”[1]

Under Attorney General Jeff Sessions, the U.S. Department of Justice has maintained a high tempo in its efforts to combat health care fraud.  For example, in July 2017 DOJ announced a partnership between its Health Care Fraud Unit’s Corporate Fraud Strike Force and Foreign Corrupt Practices Act (“FCPA”) prosecutors to ensure that health care companies are held accountable to the standards of the False Claims Act and the FCPA.  And DOJ’s new Opioid Fraud and Abuse Detection Unit will help combat the ongoing opioid crisis, in keeping with Attorney General Sessions’ enforcement priorities.

Tom Price’s departure as HHS Secretary is significant for other important aspects of health care, including the future of the Affordable Care Act and the Medicare and Medicaid bundled payment models.  However, current HHS and DOJ enforcement programs remain a priority under President Trump and Attorney General Sessions.

[1] Marianne K. McGee, Top HIPAA Enforcer Names His Top Enforcement Priority, Data Breach Today (Sept. 5, 2017), https://www.databreachtoday.com/top-hipaa-enforcer-names-his-top-enforcement-priority-a-10258.

In February 2017, we wrote about how the Fourth Circuit sidestepped the question of whether a relator bringing suit under the False Claims Act (“FCA”) may use statistical sampling and extrapolation to establish FCA liability when it held in United States ex rel. Michaels v. Agape Senior Community, Inc. that an appeal on that point had been improvidently granted.  The Fourth Circuit would have been the first appellate court to provide guidance on this hotly contested issue.  We noted at the time that the FCA bar would need to continue to await guidance from the appellate courts and contend with inconsistent decisions emanating from federal district courts.

When Agape returned to the district court—which had held that statistical sampling was not appropriate—the relators found themselves unable to afford to continue prosecuting their case and ultimately did not contest the court’s granting of summary judgment on 99 percent of their claims.  Unsurprisingly, the parties announced late last month that they had settled the remainder of the claims for $275,000.

What is surprising, however, is that the Department of Justice has approved this settlement, despite rejecting a $2.5 million amount just two years ago, after the district court already had ruled that it would not accept statistical sampling as evidence to establish liability, and after arguing in its brief in the appeal to the Fourth Circuit that the court did not need to rule on that issue (which, as noted above, it did not).  The relators thus are left with a considerably smaller sum than what they may have expected in a case where DOJ had previously estimated damages at $25 million.

The amount of the Agape settlement in conjunction with the lack of guidance from appellate courts sends a signal to the relator bar that FCA cases that would require the use of statistical sampling to establish liability simply may not be worth bringing.  Given the patchwork of law on this point, healthcare providers nevertheless must continue to be prepared for statistical sampling arguments and monitor for new developments.

The New York State Office of Medicaid Inspector General (“OMIG”) on August 31, 2017 issued its first Compliance Alert this year: “Mandatory Compliance Programs’ Risk Assessments: Changes in Medicaid Reimbursement Systems.”  While sounding the alarm for providers, the alert is unfortunately a missed opportunity to offer providers more concrete compliance guidance, in that it does not identify the specific risk areas associated with the new and emerging payment models and particular steps providers should be taking to mitigate those risks.  Instead, OMIG leaves it to the providers, along with their compliance counsel, to sort out the issues themselves.

As OMIG notes, New York State’s Medicaid program, much like Medicare and other state Medicaid program initiatives, is moving away from fee-for-service reimbursement to “new payment methodologies, including capitation, risk-sharing arrangements, and value-based payments, among others.”  OMIG continues: “in a fee-for-service environment, a provider’s compliance program should be focused on whether a covered-medically necessary service was: delivered, correctly coded, billed accurately and timely, and met established quality of care standards.”  In light of the sea change in health care delivery and payment systems, OMIG cautions that, to comply with mandatory compliance-program requirements, providers should “closely review reimbursement methodologies so they can identify where they may need to update risk-assessment activities” – beyond billing and payment processes associated with fee-for-service – to include the “processes involved in the delivery of Medicaid reimbursable services.” Continue Reading OMIG Compliance Alert For New Value-Based Provider Reimbursement — Strong On Warning, Short On Guidance

DOJIn July, we reported on Attorney General Sessions dismantling DOJ’s Health Care Corporate Fraud Strike Force.  On July 25, Sandra Moser, acting chief of the DOJ’s Fraud Section, announced a partnership between the Health Care Fraud Unit’s Corporate Fraud Strike Force and Foreign Corrupt Practices Act (“FCPA”) prosecutors.  Together, these moves signal DOJ’s reorganization to ensure health care companies are held accountable to the standards of the False Claims Act and the FCPA, and, at the same time, free-up prosecutors at Main Justice to focus on Sessions’ priorities of cracking down on drugs, violent crime, and illegal immigration.

DOJ’s latest move to coordinate the health care fraud enforcement mission with FCPA efforts is not novel—it simply creates an efficient partnership to encourage U.S. health care companies to adopt and follow anti-corruption best practices.  Speaking at last month’s Global Forum on Anti-Corruption in High Risk Markets in Washington, D.C., Moser highlighted the intersection between the FCPA and the health care industry.  Moser noted that, because most foreign health care systems are government run, health care companies will invariably deal with public officials when engaged in business overseas and must ensure that executives and lower-level employees act appropriately to avoid potential FCPA liability.

Citing the need to draw from all necessary DOJ resources to effectively prosecute global health care fraud, Moser pointed to several recent resolutions that DOJ has reached with major pharmaceutical companies to resolve FCPA and domestic bribery charges.  These resolutions include a December 2016 deal reached with Teva Pharmaceuticals, which paid $519 million dollars to resolve charges over FCPA violations in Ukraine, Mexico and Russia.

Moser announced that FCPA prosecutors and the Health Care Fraud Unit Corporate Strike Force will formalize this cooperation into a unified effort to jointly investigate and prosecute foreign and domestic bribery in the health care industry.  Although there had been some level of cooperation between the two on a case-by-case basis, this new arrangement will likely lead to increased DOJ scrutiny into the foreign business dealings of health care companies.  The Health Care Corporate Fraud Strike Force and FCPA prosecutors’ partnership will streamline government efforts to crack down on FCPA violations and signals to the health care industry that, like all companies conducting substantial overseas business in countries with corruption risk, health care companies should ensure that effective safeguards are in place to prevent their employees, subsidiaries and foreign agents from running afoul of the FCPA.

Both DOJ and HHS-OIG have released resource guides on combating fraud this year.  Corporate executives and compliance departments should refer to DOJ’s Evaluation of Corporate Compliance Programs for baseline standards and questions to consider when developing or re-assessing a corporate compliance program.  Health care companies should also design compliance programs, training, and internal controls to prevent FCPA violations and detect them early enough to stop or mitigate the extent of the violation.

The issue of self-reporting takes on added emphasis with the coordination between health care and FCPA.  During her speech, Moser promoted DOJ’s recently introduced FCPA Pilot Program and much better outcomes for companies who voluntarily disclosed violations (self-reporting companies obtaining either a declination with disgorgement of illicit profits, or a non-prosecution agreement with a 50% reduced fine) compared with those that did not (80% of the cases against these companies were resolved through guilty pleas or deferred prosecution agreements, none received more than a 25% guidelines reduction, and most had a monitor appointed).

Health care companies are now on alert that, even though Sessions has been focused on prosecuting drugs, violent crime, and illegal immigration, DOJ will continue to put energy and resources towards its anti-corruption enforcement efforts, particularly in the health care industry.

After years of defrauding the U.S. government and taxpayers, Mylan, the maker of EpiPen, last week resolved allegations that it profited at the expense of Medicaid.

On August 17, Mylan and its subsidiaries agreed to pay $465 million to resolve claims they violated the False Claims Act (“FCA”) for knowingly misclassifying its lifesaving EpiPen product as a generic drug to avoid paying rebates owed to the U.S. government.  In a press release, the Department of Justice (“DOJ”) stated, “this settlement demonstrates the DOJ’s unwavering commitment to hold pharmaceutical companies accountable for schemes to overbill Medicaid, a taxpayer-funded program whose purpose is to help the poor and disabled.”

The settlement was first announced in October 2016, amidst fierce public criticism of Mylan’s triple-digit price hikes for the EpiPen, but the settlement agreement, and the fact that Sanofi was the whistleblower, was just released last week.  It is rare for one health care company to blow the fraud whistle on another health care company.

Sanofi’s Qui Tam Suit

Inquiries into Mylan’s misconduct started when rival Sanofi-Aventis US LLC (“Sanofi”) filed a qui tam lawsuit against Mylan under seal in 2016, in the District of Massachusetts, under the whistleblower provisions of the FCA.  The government then intervened in the case.

Sanofi, which had been selling a competing product to Mylan’s EpiPen, alleged that Mylan knowingly misclassified EpiPen as a generic drug, or “non-innovator” product, even though it was marketed and priced as a brand-name product.  Under the Medicaid program, manufacturers must pay higher rebates for brand-name drugs, i.e. drugs only available through a single source.  To avoid price gouging, Medicaid receives a 23 percent discount on brand-name drugs but only a 13 percent discount on generics.  The intentional misclassification of the EpiPen as a generic allowed Mylan to underpay hundreds of millions of dollars in rebates to Medicaid sold through its health coverage program from 2010 to 2016.  During that timeframe, the company increased the price of the EpiPen by 400% but paid the lesser rebate for generic drugs.

Mylan’s $465 Million Settlement

Mylan’s August 17 settlement agreement with DOJ and the Office of the Inspector General of Health and Human Services (“OIG-HHS”) resolves Sanofi and the government’s allegations that Mylan knowingly skirted its rebate obligations under the FCA.

Without admitting any wrongdoing, effective retroactive to April 1, 2017 Mylan reclassified EpiPen as a brand-name product for rebate purposes and Mylan entered into a corporate integrity agreement.  The company’s five year corporate integrity agreement with OIG-HHS requires that Mylan fulfill numerous obligations, including: (1) retain an independent review organization to assess annually whether Mylan is complying with the Medicaid program, and (2) hold executives and board members individually accountable for the company’s compliance with the corporate integrity agreement and federal health care programs.

As the whistleblower, Sanofi was awarded $38.7 million as its share of the federal recovery for alerting the government about Mylan’s misconduct.  Sanofi also stands to recover some money state Medicaid programs will receive under the settlement.

Public Outcry – Mylan’s Settlement “Shortchanges” Taxpayers

Both Republican and Democratic Senators have issued statements showing disapproval with Mylan’s settlement with DOJ.  Senator Chuck Grassley (R-IA) spoke out against the settlement, calling it a “disappointment.”  Senator Grassley continued, “the government’s own watchdog said the taxpayers may have overpaid for EpiPen by as much as $1.27 billion over 10 years.  Did the Justice Department consider the inspector general estimate?  If not, why not?”  Senator Richard Blumenthal (D-CT) also issued a fiery response, saying, “quite simply, the Department of Justice is letting this deceptive pharmaceutical behemoth off the hook.  Absolving Mylan from a finding of wrongdoing has cleared the way for the company to pocket the money it embezzled from an American public in desperate need of lifesaving and affordable medications.”

Mylan is not completely off the hook, at least to other private actions – it still faces Sanofi’s separate antitrust suit in New Jersey federal court.  There, Sanofi alleges that Mylan, to preserve its monopoly over EpiPen-like injectors, offered large rebates to insurers that did not cover competing products.

Yes, you read the title of this post correctly.  Under the False Claims Act, a whistleblower is not required to report compliance concerns internally through a company’s internal reporting system before filing a “qui tam” court action.  Indeed, the False Claims Act — with its potential “bounty” of 15 to 30 percent of the government’s recovery — may actually encourage employees to file suit in the first instance, to qualify as an “original source,” and bypass the organization’s reporting system altogether, thereby frustrating a key component of an effective compliance program.  Whistleblower organizations have recently gone so far as to discourage individuals employed by health care providers from bringing compliance concerns directly to their employer so that they can get a share of the government’s recovery.

A provider or other entity participating in the Medicare or Medicaid programs, however, can mitigate that risk through, among other things, employee training and disciplinary policies encouraging good-faith reporting and the promotion of a culture of compliance, including setting the right “tone from the top.”

Internal Reporting System.  The cornerstone of any effective compliance program is developing and implementing a robust internal reporting system that employees can use to raise any compliance concerns on an anonymous basis.  Among other things, when compliance concerns are brought to the attention of the organization’s compliance personnel, the organization can investigate the issue and take appropriate steps to prevent or remediate any continued potential misconduct.  Likewise, having such a system in place may serve as a defense to liability under the False Claims Act.  Even if improper billing is found to have taken place, evidence that the organization has an effective, anonymous internal compliance reporting system may show that the improprieties were not the result of deliberate indifference or reckless disregard for such practices.

False Claims Act.  Plainly, the risk of treble damages and per claim penalties under the False Claims Act is a powerful incentive for a health care organization to implement an effective compliance program.  What is more, the provision for whistleblower awards under the False Claims Act can be an effective tool to aid the government in detecting and preventing overpayments by Medicare and Medicaid to fraudulent operators and other bad actors.  By allowing whistleblowers to file relator actions under seal and potentially share in any of the government’s recovery — as well as to seek damages for any retaliatory employment action — the False Claims incentivizes employees in the health care industry to come forward with information about fraudulent billing, without the fear of reprisal.

The Tension Between The Two.  At the same time, a whistleblower’s potential recovery can operate as a countervailing disincentive for an employee to report compliance concerns internally.  That is because under the False Claims Act, a qui tam relator is entitled to a “bounty” only if the individual is the “original source” of information to the government about the improper billing practices that are the subject of the relator’s action.  On the other hand, if an employee does dutifully report a compliance concern internally through the organization’s reporting system, and the organization itself reports any overpayments to the government or remediates the misconduct itself, the whistleblower may be unable to sue and recover any “bounty.”  As noted earlier, this point is not lost on the relator bar.

Overcoming The Tension.  How does a provider overcome the entreaties of the relator bar, along with the incentives under the False Claims Act whistleblower provisions, to convince employees with compliance concerns to avail themselves of the company’s internal reporting system?  At the outset, the reporting system must be both effective and credible to instill  confidence in the system so that employees will take full advantage of it – that is, the organization must deliver on its promise of anonymity and protection of good-faith reporting and must follow through on a timely basis with a thorough investigation and meaningful corrective action, if indicated.  Further, a robust reporting system, standing alone, will not be effective unless all other elements of an organization’s compliance program are working effectively as well, starting with a “culture of compliance,” reinforced by the executive team and management, and continuing with inservice compliance training, underscoring the importance of timely reporting and the anonymity and other protections afforded to reporting employees.

Likewise, the organization must have personnel and disciplinary policies that reward good-faith reporting and punish compliance lapses, both for engaging in unlawful conduct as well as for failing to report it.  That said, taking any disciplinary action against an employee who files suit as a relator, without ever having reported the compliance concerns in breach of the employee’s duties, is fraught with the risk that the termination or other action will be challenged as retaliation for filing the False Claims Act action, and that the cited ground — failing to report   — is allegedly merely pretextual.

However, with the proper messaging and training, coupled with a robust anonymous reporting system, the company can give its employees good reason to “do the right thing” and report compliance concerns to the company in the first instance, despite the lure of a False Claims Act bounty.

Under the federal Controlled Substances Act, DEA registrants are required to prevent the diversion of controlled substances outside the closed system of distribution that governs and licenses those entities and individuals who can manufacture, distribute, dispense and prescribe controlled substance medications.  One of the hallmarks of the closed system of distribution is the duty of all registrants to detect and prevent suspicious orders.  Beginning in 2007, the DEA began to place great emphasis on wholesale distributors, a relatively small class of DEA registrants, and began imposing on those distributors more real-time responsibility in monitoring and stopping potentially suspicious orders.

Between 2007 and 2016, DEA brought a number of administrative and civil actions against wholesale distribution companies for failing to adequately monitor and prevent suspicious orders of controlled substances, revoking the DEA licenses of various distribution warehouses and collecting hundreds of millions of fines in the ensuing years.  With the increasing public health crisis caused by opioid addiction, DEA and the courts have ramped up its enforcement efforts with increasingly harsh results.

One such example of the increased pressure on distributors is the case of Masters Pharmaceuticals v. DEA, decided June 30, 2017.  In that recent case, the DEA sought to revoke Masters’ registration as a wholesale distributor for its failure to report suspicious orders to DEA.  Masters fought back, trying the case in DEA’s administrative courts, and then appealing the matter to the U.S. Circuit Court of Appeals for the District of Columbia.  In a blow not just to Masters but to DEA-registered wholesale distributors everywhere, the court found in the DEA’s favor.  And, in an opinion unmistakably influenced by the current prescription drug crisis, it announced an interpretation of the regulations regarding suspicious order monitoring that will require almost all wholesale drug distributors, many of which already had robust monitoring systems in place, to change their processes for reporting suspicious orders.

It is doubtful that this increased reporting will actually benefit DEA.  The result of Masters is that while the volume of reports will increase, the quality of those reports will necessarily decrease.  Rather, companies now have to report the results of their automated monitoring processes rather than those that highly experienced regulatory staff evaluated in a qualitative matter.  DEA has neither the time nor resources to evaluate the magnitude of orders that it will receive given Masters.  That helps no one.

 

 

In early July, and with little fanfare, Attorney General Jeff Sessions and the Department of Justice (DOJ) all but gutted the Health Care Corporate Fraud Strike Force – stripping it of several key personnel.  Nevertheless, the investigation and prosecution of health care fraud will likely continue, and the Department will remain vigorous in its pursuit of health care fraud, perhaps with a more individual focus.  In a May 2017 speech at the Annual Institute on Health Care Fraud, Deputy Assistant Attorney General Kenneth Blanco said, “health care fraud is a priority for the Department of Justice.  Attorney General Sessions feels very strongly about this.  I can tell you that he has expressed this to me personally.”

Anonymous sources close to DOJ reported that three of five full-time attorneys had been removed from the Corporate Fraud Strike Force.[1]  Asked for comment on the new-look Corporate Fraud Strike Force, a DOJ spokesperson stated, “the Health Care [Corporate Fraud] Strike Force, as with the entire health care fraud unit, is going strong under steady leadership—continuing to vigorously investigate and hold accountable individuals and companies that engage in fraud, including tackling an opioid epidemic that claimed 60,000 American lives last year.”[2]  Interestingly, AG Sessions did not cut positions within other strike forces, such as the Medicare Fraud Strike Force and the Organized Crime Drug Enforcement Task Forces Program.  In distinction to the Medicare Fraud Strike Force, the DOJ’s Health Care Corporate Fraud Strike Force focuses on complex corporate health care fraud.

Gutting the Corporate Fraud Strike Force Aligns with AG Sessions’ Priorities

On the surface, it may appear that the dismantling of the Corporate Fraud Strike Force comes as the Department of Justice shifts resources to combat new priorities.  AG Sessions has repeatedly announced his commitment to combating health care fraud, as well as cracking down on drugs, violent crime, and illegal immigration.  However, a deeper dive into AG Sessions’ priorities signals a clear shift: corporate health care fraud investigations will take a back seat to the focus of DOJ headquarters on the prescription drug epidemic ravaging America.  Indeed, the appointment of Kenneth Blanco as Deputy Assistant Attorney General fits Sessions’ priority commitment to tackling the opioid crisis—Blanco brings experience from several narcotics-focused roles throughout his career, including Acting Chief of Narcotics in the United States Attorney’s Office for the Southern District of Florida and Chief of the Narcotic and Dangerous Drug Section at DOJ.

While acknowledging extensive health care corruption at the corporate and grass roots levels, the Sessions-led DOJ has put the opioid crisis at the top of its list and will divert resources to components better positioned to tackle drug abuse.  For example, in July 2017 Sessions announced that 412 defendants in over 20 states were charged with orchestrating health care fraud schemes totaling $1.3 billion in false claims.  Importantly, over 120 of the defendants were charged for their roles in the unlawful distribution of opioids and other prescription narcotics.

Caution: Corporate Health Care Fraud Prosecutions Are Not Dead

The DOJ established the Medicare Fraud Strike Force during the George W. Bush administration to coordinate and staff the investigation and prosecution of health care fraud cases in “hot spots” around the country, identified by data analysis.  Those hot spots were originally Miami and Los Angeles.  The Obama Administration expanded the Medicare Fraud Strike Force to seven more “hot spot” cities: Detroit, Houston, Tampa, Baton Rouge, Brooklyn, Dallas, and Chicago.  As DOJ and the Medicare Fraud Strike Force took on more cases – and as complex Medicare fraud cases involving large corporates became even more common – the Department identified a need for dedicated attorneys to oversee the most complicated corporate health care fraud cases.

As a result, in 2015, Attorney General Eric Holder formally established the Health Care Corporate Fraud Strike Force, separate and apart from the Medicare Fraud Strike Force.  With a staff of five experienced trial attorneys, the Corporate Fraud Strike Force had one mission: to detect, investigate, and prosecute complex corporate health care fraud matters.  Notably, in October 2016 the Corporate Fraud Strike Force orchestrated the Justice Department’s $516 million settlement with Tenet Healthcare Corporation to resolve civil and criminal allegations that Tenet received kickbacks in exchange for patient referrals.  John Holland, a former senior vice president at Tenet, was also charged in connection with the fraud.

Even though the Corporate Fraud Strike Force has been effectively dismantled, private and public companies must realize that corporate health care fraud prosecutions are not dead.  Because expertise in complex health care fraud investigations and prosecutions has been developed over the past decade, the need to augment expertise in the field from Main Justice has diminished.  U.S. Attorney’s Offices around the country now have a well-trained, sophisticated staff to continue the Department’s work in combating corporate health care fraud.  While the Department of Justice continues its re-positioning of resources to focus on Sessions’ priorities – drugs, violent crime, and illegal immigration – don’t expect to see a reduction in interest from U.S. Attorney’s Offices, given past successes and the Department’s overall commitment to health care fraud.  Sessions has expressed no soft spot for corporate fraud, saying, “I was taught if [companies] violated a law, you charge them.  If they didn’t violate the law, you don’t charge them.”

Additionally, the President’s proposed FY2018 budget request would increase spending in Health and Human Services’ Health Care Fraud and Abuse Control (HCFAC) program by $70 million, to $751 million.  Money allocated to the HCFAC is shared among the Centers for Medicare and Medicaid Services, DOJ, and Health and Human Services Office of Inspector General.  The takeaway for the health care sector is that the federal focus on health care fraud will continue.  Stay tuned.

[1] Sue Reisinger & Kristen Rasmussen, As Priorities Shift at DOJ, Health Care Corporate Fraud Strike Force Gutted, The National Law Journal (July 10, 2017), http://www.nationallawjournal.com/id=1202792591440/As-Priorities-Shift-at-DOJ-Health-Care-Corporate-Fraud-Strike-Force-Gutted.
[2] Id.