DOJHealth care providers will often try to negotiate and receive fair, commercially reasonable business terms with vendors and suppliers, to both better serve their patients and improve their “bottom line.” Yet when it comes to services reimbursed by the government — be it Medicare, Medicaid, or TRICARE — what exactly those terms are and how they are structured could affect whether a provider and vendor negotiate themselves into liability under the False Claims Act.

Last week, the U.S. Department of Justice (U.S. Attorney, Northern District of Texas) and Reliant Rehabilitation Holdings settled a False Claims Act lawsuit brought by a whistleblower, a former Reliant employee, for $6.1 million, over improper inducements allegedly offered by Reliant to nursing homes in order to secure the nursing homes’ therapy business. That business included providing rehabilitation therapy services to nursing home residents covered by the Medicare Part A program, which reimburses nursing homes for among other things rehabilitation therapy provided to those residents. To secure that business, according to the U.S. Attorney, Reliant allegedly assigned a nurse practitioner to the nursing homes “without charge or for a minimal, below market fee, in order to induce or reward nursing homes for contracting with Reliant to provide rehabilitation therapy for their residents.” In addition, Reliant allegedly paid nursing facility physicians “above fair market compensation for supervising and collaborating with Reliant nurse practitioners in exchange for the facilities’ therapy business.” Those arrangements, characterized as “kickbacks,”  allegedly “caused” the submission of “false” Medicare Part A claims by the nursing homes in violation of the Anti-Kickback Statute and the False Claims Act.  (The nursing homes were not named as defendants in the lawsuit.)

Significantly, there was no allegation made that Reliant had rendered, or that the nursing homes were reimbursed for, excessive or medically unnecessary therapy to the facilities’ Part A residents.  Nor was there a claim that Reliant or the nursing homes had “upcoded” residents’ “RUG” scores or overstated residents’ medical acuity in order to increase Medicare reimbursement.  Rather, it was alleged that the inducements had unduly influenced the selection of Reliant over rival therapy vendors and thus “tainted” all of the nursing homes’ Part A therapy claims.

The U.S. Attorney explained that the alleged FCA liability resulting from these arrangements is based not on excessive reimbursement dollars paid by Medicare but on their subordinating the best interests of Medicare residents to the vendor’s financial interests:

Companies that work to secure patient referrals by providing kickbacks inject improper financial considerations into our healthcare system. . . .  Today’s settlement demonstrates our determination to thwart such improper inducements whether they take the form of cash payments or free services.

Paying illegal remuneration to nursing homes and doctors to increase the bottom line . . . too often sacrifices the best interests of patients to profit-making schemes. . . .  Patients and taxpayers deserve better.

*          *          *

Providers can continue to evaluate and select vendors on such terms as the quality and reliability, as well as the price, of services being offered by prospective vendors and suppliers.  However, entertaining offers from prospective vendors or suppliers for free or discounted services, or conversely compensation for nominal services or above-market compensation for services other than those being contracted for, could be problematic; such offers could have the intent if not effect of skewing the contracting process and steering the selection toward one vendor over another, rival vendor better suited to meet the needs of the Medicare or Medicaid beneficiaries being served the provider.  Indeed, as the DOJ’s settlement with Reliant illustrates, those forms of remuneration can present a serious risk of FCA liability – for both the provider and vendor.

 

In an important break with the majority of case precedents, the United States Court of Appeals for the Fifth Circuit, reversing the District Court below, held that a Medicare provider, facing a $7.6 million recoupment for alleged overpayments, can file suit in federal court and seek an injunction against ongoing recoupments, even though the provider had not yet fully exhausted its administrative remedies. Family Rehabilitation, Inc. v. Azar, U.S.C.A., 5th Cir. March 27, 2018. (“Family Rehab”).

The “exhaustion of administrative remedies” requirement — that a person or entity aggrieved by a governmental action cannot file a lawsuit challenging the action before completing all avenues for appeal before the governmental agency — is a bedrock principle of administrative law and a formidable barrier to accessing the courts. Last year, we posted an article about a federal district court’s decision in MedPro Health Providers, LLC v. Hargan (“MedPro”),  filed in the Northern District of Illinois, that addressed this principle in the context of a Medicare audit and recoupment.  In that case, like the Family Rehab case, a home care agency challenged the recoupment of alleged Medicare overpayments determined by an audit contractor for the federal Centers for Medicare and Medicaid Services (CMS), known as a “Zone Integrity Program Contractor” or ZPIC.  The Court in MedPro turned aside the home care agency’s lawsuit and request for injunctive relief, holding that the Court lacked jurisdiction until the provider had gone through and completed the prescribed four-step administrative-appeal process.

The home care agency in Family Rehab was also audited by a ZPIC and mired in the same, “byzantine” four-step administrative appeal process.  The “colossal backlog” of “thousands” of administrative appeals pending before CMS, and the associated delay, did not go unnoticed.  The Fifth Circuit observed that it would take, by the federal government’s own estimate, “at least another three to five years” before the appeals process would be completed.  (Emphasis in original.)  In the meantime, CMS had begun recouping the $7.6 million in alleged Medicare overpayments from the home care agency. The provider argued that absent a court-ordered stay, it might be forced to shut down its operations and file for bankruptcy.

The Fifth Circuit addressed three discrete exceptions recognized by the courts to the exhaustion of administrative remedies, or “channeling,” requirement, and determined that one of them, the “collateral claim” exception, applied in this case. Under the collateral-claim exception, a court can exercise jurisdiction before all administrative appeals have been exhausted if (i) the claims being raised in the lawsuit are “entirely collateral” to the underlying bases for the government agency’s action, and (ii) “full relief cannot be obtained at a post-deprivation hearing.” With regard to the first element, the Fifth Circuit noted that a court would not need to “immerse itself” in, or “wade through,” the patient eligibility certifications completed by the home care agency found deficient by the ZPIC, in order to resolve the home care agency’s legal claims of “procedural due process” and “ultra vires.” As the Fifth Circuit noted, “those claims only require the court to determine how much process is required under the Constitution and federal law before recoupment.” The appellate court further explained that “Family Rehab does not seek a determination that the recoupments are unlawful under the Medicare Act” and thus “raises claims unrelated to the merits of the recoupment.”

With regard to the second “irreparable injury” element to the collateral-claims exception, the Fifth Circuit pointed to the home care agency’s contention that it would be forced to go out of business and file for bankruptcy, which would “have detrimental effects on its employees and patients.” On those bases, the Fifth Circuit held that the court could exercise jurisdiction over the home care agency’s “collateral” procedural due process and ultra vires claims and, if warranted, grant an injunction against ongoing recoupments.

The Court of Appeals, however, rejected the other two exceptions to the exhaustion requirement advanced by the home care agency: (a) the alleged futility of the administrative appeals process; and (b) the court’s exercise of “mandamus” jurisdiction, premised on a request to compel a government officer to perform a non-discretionary duty.  Regarding “futility,” the Fifth Circuit noted that this exception is “narrow” and that delay alone, however substantial or prejudicial, is insufficient without also showing that administrative review was a “legal impossibility.” The Circuit Court also held that the home care agency had not specifically requested mandamus relief in its court complaint and, accordingly, rejected that alternative basis for court jurisdiction.

Key Takeaway:  At bottom, a Medicare or Medicaid provider — faced with a substantial recoupment and delay in CMS’ administrative appeals process — may be able to petition a court to stop ongoing recoupments if it can fashion credible, “collateral” claims, such as procedural due process and ultra vires, that do not call upon the court to assess the merits of the underlying overpayment findings still being addressed at the administrative level.

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