DOJ Settlement with Home Health Providers Underscores Strategic Considerations for Self-Disclosure

Eventually, any health care organization with an effective compliance program is very likely to discover an issue that raises potential liability and requires disclosure to a government entity. While we largely discuss False Claims Act (FCA) litigation and defense issues on this blog, a complementary issue is how to address matters that raise potential liability risks for an organization proactively.

On August 11, 2017, a group of affiliated home health providers in Tennessee (referred to collectively as “Home Health Providers”) entered into an FCA settlement agreement with the US Department of Justice (DOJ) and the US Department of Health and Human Services Office of Inspector General (OIG) for $1.8 million to resolve self-disclosed, potential violations of the Stark Law, the Federal Anti-Kickback Statute, and a failure to meet certain Medicare coverage and payment requirements for home health services. This settlement agreement underscores the strategic considerations that providers must weigh as they face self-disclosing potential violations to the US government. Continue Reading

Breaking Down the 2017 DOJ and OIG Compliance Guides

Earlier this year, DOJ and OIG independently issued guides focused on evaluating compliance program effectiveness. The guides approach the topic from different perspectives but cover overlapping themes and work well in tandem. We reviewed the guides and compiled the reference tool to aid organization executives and boards of directors to measure compliance program effectiveness and, in turn, wisely invest resources.

Read the full article “Breaking Down the 2017 DOJ and OIG Compliance Guides.”

Tenth Circuit Expands First-to-File Rule, Dismissing Complaint after Substitution of Parties

On September 18, 2017, the Tenth Circuit reversed a decision of the US District Court for the District of Utah in United States ex rel. Little v. Triumph Gear Sys., Inc. In doing so, the Tenth Circuit concluded that the False Claims Act’s first-to-file bar extends to situations where relators’ counsel substitute parties prior to the initial complaint even being unsealed.

In this case, relator Joe Blyn brought a qui tam action against a government contractor, alleging that he witnessed instances of fraud. The initial complaint named Blyn and three John Does as relators. The following year, Blyn and the John Does “vanished” from the action with Blyn’s counsel, David Little, instead naming himself, and Kurosh Motaghed as the sole relators.  After the court unsealed the action, Triumph moved to dismiss the amended complaint, arguing that the substitution of parties triggered the “first-to-file” bar, which prevents private parties from intervening in existing actions or filing related actions based on the facts of the underlying action. The district court denied Triumph’s motion to dismiss, ruling that replacing the relator in this manner did not contemplate an “intervention” for purposes of 31 U.S.C. § 3730(b)(5).

The Tenth Circuit reversed. The court noted that had Little merely added himself and Motgahed as relators and maintained Blyn as a third relator, such an addition would have merely been an amendment permissible under Federal Rule of Civil Procedure 15, which would not have triggered the first-to-file bar.  As it happened, however, Blyn did not amend the complaint – Little and Motaghed did.  And because amendments under Rule 15 may only be made by parties, the Tenth Circuit concluded that Little’s and Motaghed’s actions constituted an “intervention.”

Once Blyn was removed from the complaint, the court determined, the district court lacked jurisdiction over the case. Consequently, Little’s subsequent reinstatement of Blyn as a relator was ineffective. This case thus demonstrates the power and breadth of the first-to-file bar, and how defendants can use it effectively to address follow-on complaints.

Recent Developments on the Fair Market Value Front – Part 1

Over the last several months, a handful of federal court decisions—including two rulings this summer on challenges to the admissibility of proposed expert testimony—serve as reminders of the importance of (and parameters around) fair market value (FMV) issues in the context of the Anti-Kickback Statute (AKS) and the False Claims Act (FCA).

First, a quick level-set.  The AKS, codified at 42 U.S.C. § 1320a-7b(b), is a criminal statute that has long formed the basis of FCA litigation—a connection Congress made explicit in 2010 by adding to the AKS language that renders any claim for federal health care program reimbursement resulting from an AKS violation automatically false/fraudulent for purposes of the FCA.  42 U.S.C. § 1320a-7b(g).  Broadly, the AKS prohibits the knowing and willful offer/payment/solicitation/receipt of “remuneration” in return for, or to induce, the referral of federal health care program-reimbursed business.  Remuneration can be anything of value and can be direct or indirect.  In interpreting the “in return for/to induce” element, a number of federal courts across the country have adopted the “One Purpose Test,” in which an AKS violation can be found if even just one purpose (among many) of a payment or other transfer of value to a potential referral source is to induce or reward referrals—even if that clearly was not the primary purpose of the remuneration. Continue Reading

Par Pharmaceutical Beats FCA Prescription-Switch Allegations

In the fourth of a related set of qui tam False Claims Act (FCA) suits, the United States District Court for the Northern District of Illinois granted summary judgment in favor of generics manufacturer Par Pharmaceutical Companies (Par). The court’s August 17, 2017, opinion in U.S. ex rel. Lisitza et al v. Par Pharmaceutical Co, Inc. held that the relator had not presented sufficient evidence to support an implied certification theory of FCA liability.

Like its sister cases, the relator in Par Pharmaceutical alleged that the defendant caused the submission of false claims to the Medicaid program via an unlawful prescription-switching scheme. The alleged scheme involved manufacturing generic drugs in forms and dosage strengths that were atypical and not covered by existing Medicaid reimbursement limits, then marketing the drugs to pharmacies based on their higher reimbursement potential. The pharmacies would then fill the scripts with the more expensive forms and dosages manufactured by Par. The relators also alleged that the drugs were dispensed without physician approval and without meeting the medical necessity and economic requirements of governing state and federal Medicaid regulations, in violation of the FCA.

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Sixth Circuit Hits Federal Government with $450,000+ in Legal Fees to be Paid to FCA Defendant Under the Equal Access to Justice Act

In an unusual ruling on August 18, 2017, the US Court of Appeals for the Sixth Circuit reversed the Middle District of Tennessee’s denial of the defendant’s motion for attorneys’ fees, and remanded the case for an award of legal fees and expenses related to defending against the government’s “excessive” damages demand, as well as fees incurred during the appeal and remand process.  The case is United States ex rel. Wall v. Circle C Construction, LLC, and as we have previously reported, last year the government suffered a major loss when the Sixth Circuit dramatically reduced the damage award in this False Claims Act (FCA) litigation by over 95 percent (from $762,894.54 to $14,748), which resulted in damages of less than 1 percent of the $1.66 million originally claimed by the government.  At the time, the Sixth Circuit called the government’s so-called “tainted goods” damage calculation “fairyland rather than actual.” Continue Reading

Government Backs Down in Landmark Agape Case

In US ex rel. Michaels v. Agape Senior Community, the Department of Justice has assented to a $275,000 settlement after having rejected a $2.5 million settlement two years ago (despite declining to intervene in the case). This case garnered substantial attention because the relators sought to employ statistical sampling to establish liability on hundreds of millions of dollars of allegedly false claims to Medicare and Medicaid.

Previously, the Fourth Circuit heard–on interlocutory appeal–argument as to (1) whether statistical sampling could be used to establish liability in a False Claims Act case; and (2) whether the government could veto a False Claims Act settlement in a case in which the government declines to intervene. The Fourth Circuit ruled that the government did possess the authority to veto a settlement in a non-intervened case, and refused to address whether sampling could be used to establish liability. We discussed the Fourth Circuit’s decision here.

Although the Fourth Circuit declined to reach the question of whether False Claims Act plaintiffs can establish liability by using statistical sampling, the presiding district court judge had already concluded that plaintiffs could not do so. Having represented to the court that they could not marshal the resources to establish liability on a claim-by-claim basis, the court granted partial summary judgment on the vast majority of claims at issue. The relators subsequently settled for the value of the claims originally at issue: approximately one percent of the claims at issue in this case and 11 percent of what the relators and defendants previously agreed to.

The Fourth Circuit was to be the first appellate court to address the sampling issue, and this case demonstrates the importance of this issue. Where plaintiffs in this arena may lack sufficient resources to prove their cases on a claim-by-claim basis, the use of statistical sampling makes it far more cost-effective to prosecute their cases. If appellate courts rule on this issue in the future, and in favor of defendants, such rulings will deprive plaintiffs of this potential shortcut. This would appropriately limit plaintiffs’ recovery to claims plaintiffs actually prove are false by a preponderance of the evidence.

Latest District Court Decision Confirms Escobar Two-Part Implied Certification Test

One of the most litigated issues following the Supreme Court’s Escobar decision is whether the Court created a limited, two-part test to define the implied certification theory under the False Claims Act. In the US Court of Appeals for the Second Circuit, the prevailing view confirms that the proper interpretation of Escobar is that the implied certification theory can only proceed when the defendant made specific representations about the goods or services provided and that those representations were rendered misleading due to its failure to disclose noncompliance with material statutory, regulatory or contractual requirements. On August 10, 2017, federal district judge Deborah Batts in the Southern District of New York joined the majority view of her colleagues in U.S. ex. rel. Forcier v. Computer Sciences Corporation and the City of New York in dismissing part of the government’s complaint.

In this case, the US Department of Justice (DOJ) filed a complaint in intervention alleging the City of New York (City) and its billing contractor, Computer Sciences Corporation (CSC), submitted false claims to the Medicaid program in two ways.

First, DOJ argued that the defendants failed to adhere to Medicaid secondary payor requirements concerning the state’s Early Intervention Program (EIP), which pays for services to children with developmental delays. These requirements obligate municipalities to take “reasonable measures” to determine whether third party insurance coverage was available for the EIP services and seek reimbursement from such available payors. DOJ alleged that CSC and the City did not comply with these requirements by submitting incorrect policy numbers to third party insurers knowing that such claims would be denied and by incorrectly informing Medicaid that no third party coverage existed or such coverage had been rejected. Continue Reading

First Monthly OIG Work Plan Update Shows Increasing Use of Data-Mining to Find Audit Targets

Following on the Department of Health and Human Services Office of Inspector General’s (OIG) June announcement that it would begin updating its public-facing Work Plan on a monthly basis, OIG released its first update to add 14 new topics to the Work Plan on July 17. As the health care industry knows, OIG Work Plan sets forth various projects that the OIG’s Office of Audit Services (OAS) and Office of Evaluation and Inspections (OEI) are currently undertaking or planning to undertake in the future. Previously, OIG updated its Work Plan to reflect adjustments once or twice each year. In a stated effort to increase transparency in its audit and inspection work, OIG changed its practices to begin issuing monthly updates.

The 14 topics all describe new OAS audit work, much of which is focused on Medicare and Medicaid issues. Several areas appear to lend themselves to data-mining, such cross-checking claims between Medicare Parts A and B or providers of concurrent services. For example, the OIG aims to:

  1. Evaluate whether certain Medicare Part B payments for ambulance services are subject to Medicare Part A skilled nursing facility (SNF) consolidated billing requirements (i.e. the SNF received payment for the ambulance transport as part of the Part A payment, and thus was responsible for paying the ambulance provider);
  2. Compare Medicare Part B and Part A claims to check for overlapping claims between home health agencies and/or hospices and outside providers;
  3. Investigate the validity of Medicare payments for telehealth services provided at distant sites that do not have corresponding originating site claims; and
  4. Examine Medicare payments to hospital outpatient providers for non-physician outpatient services provided under the inpatient prospective payment system.

OIG also proposed two more wide-ranging programmatic reviews. First, OIG plans to conduct a study to identify “common characteristics” of “at risk” home health agency providers in an effort to target pre-and post-payment claim reviews. This OAS study appears to be a follow-up to an OEI study issued in June 2016 of “selected characteristics commonly found in OIG-investigated cases of home health fraud.” Second, OIG plans to review hospital electronic medical record incentive payments for compliance with Medicare’s meaningful use requirements. OIG’s continued examination of EMR incentive payments follows on OAS’ June 2017 report estimating that between May 2011 and June 2014, over $729 million was paid to hospitals and physicians who did not comply with the incentive program requirements.

For a full list of the 14 additional inquiries, visit the OIG’s Work Plan website.

Ninth Circuit Remands False Claims Act Case against Tribal College for Determination of Sovereign Status

On July 10, 2017, US Circuit Court of Appeals for the Ninth Circuit reversed a December 3, 2014, district court dismissal of False Claims Act (FCA) claims against Salish Kootenai College (College), a tribal college of the Salish Kootenai Tribes (Tribe).  United States ex rel. Cain v. Salish Kootenai College, Inc. (July 10, 2017). The 9th Circuit directed the district court to reconsider whether the College is subject to liability under the FCA under a different standard than used by the district court.

The district court had entered its order dismissing claims by the qui tam relators that the College filed false progress reports to the US Department of Health and Human Services and the Indian Health Service in order to retain grant funding from the agencies, holding that the College was an arm of the Tribe and shared the Tribe’s sovereign immunity, which had not been waived by the Tribe or Congress. (The district court also dismissed claims against the members of the College board of directors and the College foundation. Relators, however, only appealed the dismissal of claims against the College.)

The court of appeals disagreed with the district court’s framing of the question. The central question is not, as the district court found, whether the College enjoyed tribal immunity and whether such immunity had been waived. Rather, the central issue in a FCA case is whether the College is a “person” within the meaning of the FCA, and, thus subject to liability under the FCA. Accordingly, the court undertook a two-part analysis to decide the question: (1) whether the Tribe is a person under the FCA or a sovereign not subject to the FCA, and, if the latter; (2) whether the College is an arm of the Tribe that shares the Tribe’s sovereign status for purposes of the FCA. Continue Reading

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