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.

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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.

 

On June 11, 2018, the United States Court of Appeals for the Sixth Circuit sustained a complaint against a home health care agency alleging that the agency had violated the False Claims Act (FCA) by submitting numerous claims to the Medicare program, even though the agency had not timely received the requisite physician certifications of the need for the services billed‑for. United States ex rel. Prather v. Brookdale Senior Communities, Inc., 892 F.3d 822 (6th Cir. 2018).

The Sixth Circuit concluded that the agency’s former employee, who filed the FCA action, had sufficiently alleged that (i) the timely submission of physician certifications was “material to the Government’s decision to make the payment,” and (ii) the defendants had knowledge—or at least acted with “reckless disregard”—that the Medicare claims may not comply with the applicable Medicare regulations governing payment. The FCA action was allowed to go forward on that basis alone, even though there was no allegation that the home care services were not medically necessary or were not provided, or that the home health agency had backdated certifications, submitted claims with unsigned certifications, or withheld any information from Medicare.

This case highlights the need for providers to implement robust compliance policies and procedures to ensure that mere technical violations of the regulations do not mature into full-blown FCA violations.

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Earlier this month, the federal District Court for the Northern District of Illinois, in U.S. ex rel. Derrick v. Roche Diagnostics Corp., sustained a whistleblower, or qui tam, complaint under the False Claims Act filed by a discharged employee of a manufacturer of glucose-testing products, and brought against the manufacturer and a Medicare Advantage (managed care) plan, asserting violations of the anti-kickback statute. The whistleblower alleged that the manufacturer (Roche Diagnostics) had compromised an earlier claimed debt owed to it by the Medicare Advantage plan (Humana)  – the so-called “remuneration” or kickback – in exchange for being restored to the plan’s formularies for glucose-testing products covered by Medicare.

Significantly, Medicare paid the managed care plan a fixed, or capitated, monthly amount for all covered health and medical services provided or arranged for each plan enrollee, and no allegation was made that the alleged kickback arrangement with the manufacturer had increased costs to the Medicare program or resulted in the over-utilization of the blood-testing products at the expense of the program.  Rather, the whistleblower, or “relator,” essentially alleged that the claims for monthly capitation payments submitted by the Medicare Advantage plan “were tainted by the alleged fraud” associated with the arrangement.

Key Takeaways

  1. The court’s decision is a stark reminder that health care transactions in managed care programs under Medicare or Medicaid can present risks under the anti-kickback statute and False Claims Act, and the risks are not limited to alleged upcoding of risk-adjustment scores to secure higher capitation payments for the managed care plan.  Nor does an alleged kickback arrangement have to result in overutilization of services or increased costs to the Medicare or Medicaid programs – a scenario more typical in the traditional fee-for-service environment.  Rather, the alleged fraud can be premised on the allegation that the “kickback” unduly influenced or steered the managed care plan to select a particular manufacturer’s products or provider’s services covered by the plan’s capitation payments.  That same risk could arise in  the context of other “all-inclusive” pricing or bundled payment models, where the selection of a particular vendor or participating provider might be similarly tainted by an improper inducement.
  2. The managed care “safe harbor” under the anti-kickback statute, the court held, did not immunize the alleged kickback arrangement to secure the manufacturer’s products on the plan’s formularies. Extending the logic of that holding, the managed care safe harbor would not protect any other improper remuneration or kickbacks offered by providers seeking to participate in a managed care plan’s network, or by suppliers wishing to secure contracts to sell their products, utilized by plan enrollees.
  3. The forgiveness of debt from an earlier or unrelated transaction may be deemed a form of “remuneration”, as broadly defined under the anti-kickback statute to include anything of value. In this case, the managed care plan had actually disputed the manufacturer’s claim, and the manufacturer and the plan then engaged in negotiations to resolve the dispute – what the manufacturer characterized as “simply a routine, arms-length compromise involving a disputed  contractual obligation.”  Nevertheless, the court found the whistleblower’s allegation – that the manufacturer’s willingness to compromise the claimed debt was intended to induce the managed care plan to restore the manufacturer’s products on the plan’s formularies – was sufficient, as a matter of law, to allow the False Claims Act case to go forward into the discovery phase.
  4. The former employee’s claim of retaliatory discharge  under the False Claims Act, asserted against the manufacturer employer, was also sustained based on the asserted nexus – in this case, the coincidence of timing – between the employee’s raising concerns to her supervisors about a potential anti-kickback violation and her termination shortly afterwards.

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.

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.

On June 22, 2017, the United States Court of Appeals for the Fifth Circuit, in Maxmed Healthcare, Inc. v. Price, upheld an administrative determination by a Medicare Administrative Contractor (MAC) based on an audit of a sample of 40 home care claims. From its sample findings, the MAC extrapolated to a universe of 130 claims and determined that the home care agency under audit had been overpaid almost $800,000 on the grounds that the sampled patients were not homebound or the services provided were not “medically necessary.” The Maxmed Court’s endorsement of sampling and extrapolation involving medical-necessity reviews may have broader implications for the use of that tool in False Claims Act (FCA) investigations and lawsuits.

Among other arguments, Maxmed Healthcare, the home care agency under audit, maintained that any overpayment based on lack of medical necessity “should only be determined after a review of each beneficiary’s specific claims, and it is fundamentally at odds with extrapolation concerning home health care claims.” Citing to the federal Centers for Medicare and Medicaid Services (CMS) Medicare Benefit Policy Manual and the Medicare Act, the Fifth Circuit held, to the contrary, that Congress and CMS contemplated the use of sampling and extrapolation in post-payment audits, where “there is a sustained or high level of payment error.”  Citing 42 U.S.C. § 1395ddd(f)(3)(A).

In defending against FCA actions premised on the alleged lack of medical necessity of services, providers have argued that disputes over medical necessity involve essentially subjective differences in medical opinion as opposed to the “objective falsity” of Medicare or Medicaid claims, and that a medical-necessity determination requires a particularized claim-by-claim review, specific to each patient, that does not allow for extrapolation to a universe of hundreds or thousands of other claims.  Those arguments may be more difficult to sustain under the Eleventh Circuit’s holding in Maxmed. To avoid the reach of Medmax, providers in FCA cases will likely try to distinguish the “garden variety” audit liability involved in Medmax from the liability imposed under the False Claims Act – with its per claim penalties and treble damages – premised as it is on a finding of falsity among other rigorous elements.

Combating health care fraud will continue to be a priority for the Jeff Sessions-led Department of Justice (DOJ).

DOJ Criminal Division’s Acting Assistant Attorney General Kenneth Blanco, in a May 18 speech at the ABA’s Institute on Health Care Fraud, said that Attorney General Jeff Sessions “feels very strongly” that “health care fraud is a priority for the Department of Justice.”  Mr. Blanco called health care fraud “despicable” and said, “the investigation and prosecution of health care fraud will continue; the department will be vigorous in its pursuit of those who violate the law in this area.”  Mr. Blanco continued, “I can tell you that [Attorney General Sessions] has expressed this to me personally.”

Mr. Blanco sent a strong and clear message to the audience of health care attorneys, defense counsel, compliance professionals, and relators counsel that the Justice Department’s longstanding commitment to combating health care fraud will continue. His speech appeared to be designed to address concerns that changes in emphasis in the DOJ Criminal Division towards  immigration and violent crime would come at the expense of health care fraud investigations.  Attorney General Sessions is committed to investigating and prosecuting health care fraud because, Mr. Blanco said, health care fraud hurts vulnerable people seeking medical care and costs the government and tax payers almost $100 billion annually. Continue Reading DOJ’s Focus on Health Care Fraud Continues