On August 20, 2018, U.S. District Judge Algenon L. Marbley of the United States District Court for the Southern District of Ohio granted summary judgment in favor of The Brink’s Company (Brink’s), concluding that Regional Federal Reserve Banks (RFRB) are not “the Government” for purposes of the federal False Claims Act (FCA).

The relator’s qui tam action was premised on an alleged penny-swapping scheme. Brink’s and other armored carriers regularly enter Coin Terminal Agreements (CTA) with RFRBs to transport and store coins. Pursuant to one such CTA, Brink’s received, weighed, tracked and stored the Federal Reserve Bank of Cleveland’s coins and provided similar services to other customers. Although Brink’s maintained electronic records of the coins in its inventory, it did not segregate physical coins by customer.

The relator, a former Brink’s employee, alleged Brink’s violated its contract with the Federal Reserve Bank of Cleveland and defrauded the government by engaging in a penny-swapping scheme with Jackson Metals. In essence, the relator alleged that Brink’s entered into a secret agreement, allowing Jackson Metals to purchase commingled pennies, cull out the pennies minted prior to 1982, and replace them with pennies minted after 1982. Pennies minted prior to 1982 have a higher metallurgical value because of their copper content. The replacement pennies are made from lower-value zinc. The relator argued that this penny-swapping scheme deprived the government of the value of the copper.

In moving for summary judgment, Brink’s argued, in part, that the FCA did not apply because RFRBs are not “the Government” under the FCA. The court agreed. First, Judge Marbley examined the structure of the Federal Reserve. He contrasted the Board of Governors with RFRBs, noting that RFRBs “are ‘private corporations whose stock is owned by the member commercial banks within their district.’” Continue Reading Southern District of Ohio Concludes that Regional Federal Reserve Banks are not “the Government” Under the FCA

On October 1, 2018, the District Court for the Northern District of California dismissed with prejudice a relator’s qui tam suit against Carelink Hospice Services, Inc. (Carelink) for failure to meet the heightened pleading standards mandated by Federal Rule of Civil Procedure 9(b). The court’s decision largely rested on the relator’s inability to specifically plead the existence of identifiable false claims—a strong affirmation that, in the Ninth Circuit, courts continue to hold relators to their pleading burdens.

The relator worked for Carelink, a hospice provider, for a three-month period in 2015. As a hospice provider, Carelink needed to provide certifications of terminal illness to justify admissions to the facility and, in turn, receive reimbursements from Medicare for services rendered. The relator, without identifying particular claims for reimbursement or patients, alleged that Carelink violated the FCA by seeking reimbursement for patients who Carelink knew were not terminally ill. The court seized upon the relator’s inability to point to specific claims in rendering its dismissal of the case.

Relying on Rule 9(b)’s particularity requirement, the court dismissed the relator’s complaint due to her failure to identify, with the required specificity, actual false claims. The court noted that the relator “relies on general allegations that Carelink presented false claims” but failed to “identify any reimbursements from Medicare[.]” The court came to this conclusion despite the relator’s citation to four patients about whom she alleged to have raised eligibility concerns. The court reasoned that these allegations, without “describ[ing] the nature of [her] concerns or her basis for believing the four individuals” were not eligible for Medicare reimbursements, were not enough to satisfy Rule 9(b).

The court concluded that the relator “fail[ed] to identify with particularity what ‘claims’ Caremark submitted” that were false because the allegations “do not provide a reasonable basis for [the court] to infer that claims had been submitted on behalf of any particular patient.” The court specifically dispelled the relator’s argument that, based on her extremely limited tenure with Carelink, the Rule 9(b) requirement should be relaxed in her case.

This decision confirms that, in the Ninth Circuit, a relator must allege the existence of specific, particularized, identifiable false claims submitted to the government. This confirmation serves as a strong defense against relators who do not sufficiently allege the “who, what, when, where, and how” of their FCA claims.

In the latest installment of Health Care Enforcement Quarterly Roundup, we examine key enforcement trends in the health care industry that we have observed over the past few months. In this issue, we report on:

  • Practical applications of recent guidance from the US Department of Justice (DOJ)
  • A recent blow to DOJ’s effort to use the federal False Claims Act (FCA) to attack Medicare Advantage reimbursement
  • Continued enforcement efforts at the state and federal level to combat the opioid crisis
  • Potential changes to the Stark Law and Anti-Kickback Statute
  • Continued reporting on how the lower courts have interpreted the landmark Escobar case

Click here to read the full issue of the Health Care Enforcement Quarterly Roundup.

Join us on for a webinar discussion on Tuesday, October 23. will take a deep dive into the trends and issues covered in this installment of the Health Care Enforcement Quarterly Roundup. Click here to register.

Last month, Insys Therapeutics, Inc. announced that it reached a settlement-in-principle with the U.S. Department of Justice (DOJ) to settle claims that it knowingly offered and paid kickbacks to induce physicians and nurse practitioners to prescribe the drug Subsys and that it knowingly caused Medicare and other federal health care programs to pay for non-covered uses of the drug. The drugmaker agreed to pay at least $150 million and up to $75 million more based on “contingent events.” According to a status report filed by DOJ, the tentative agreement is subject to further approval and resolution of related issues. The settlement does not resolve state civil fraud and consumer protection claims against the company.

The consolidated lawsuits subject to the settlement allege that Insys violated the False Claims Act and Anti-Kickback Statute in connection with its marketing of Subsys, a sub-lingual spray form of the powerful opioid fentanyl. The Food and Drug Administration has approved Subsys for, and only for, the treatment of persistent breakthrough pain in adult cancer patients who are already receiving, and tolerant to, around-the-clock opioid therapy. The government’s complaint alleges that Insys provided kickbacks in the form of arrangements disguised as otherwise permissible activities. Specifically, it alleges that Insys instituted a sham speaker program, paying thousands of dollars in fees to practitioners for speeches “attended only by the prescriber’s own office staff, by close friends who attended multiple presentations, or by people who were not medical professionals and had no legitimate reason for attending.” Many of these speeches were held at restaurants and did not include any substantive presentation. Insys also allegedly provided jobs for prescribers’ friends and relatives, visits to strip clubs, and lavish meals and entertainment. Continue Reading Insys Announces Settlement-in-Principle with DOJ Over Alleged Subsys Kickback Scheme

In the aftermath of the Supreme Court’s 2016 Escobar decision, the majority of litigation regarding that decision’s impact has concerned the issue of materiality. While the materiality predicate to False Claims Act (FCA) liability announced in Escobar has certainly assumed top billing, another aspect of the Supreme Court’s decision is increasingly getting attention: that is, whether the two-part test for applicability of the implied certification theory of FCA liability is mandatory.

In Escobar, the Supreme Court held that the implied certification theory “can be a basis for liability, at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory or contractual provisions makes those representations misleading half-truths.”

Since this pronouncement, lower courts have grappled with whether all implied certification FCA cases must satisfy this two-part test, or whether the Supreme Court simply intended to describe a non-exhaustive set of factors that could give rise to an implied certification claim.  This is important, in part, because not all claims for payment submitted to government payors actually describe or make representations about the goods or services provided, thus failing part one of the test.

In prior cases, such as the one we reported on here, panels of the Ninth Circuit Court of Appeals have held that the two-part test is mandatory. A Ninth Circuit panel reaffirmed this holding on August 24, 2018, albeit with a total lack of enthusiasm. In United States ex rel. Rose v. Stephens Institute, the court stated that “while the [Supreme] Court did not state that its two conditions were the only way to establish liability under an implied false certification theory,” the panel was “bound by [prior] three-judge panels of this court” interpreting Escobar. The Rose court went on to suggest that the Ninth Circuit hearing the case en banc might decide the issue differently. (No petition for rehearing en banc has yet been filed in Rose; any such petition is not due until October 9, because of an extension of time for filing).

The skepticism about the mandatory nature of the Escobar two-part test expressed by the Ninth Circuit panel in Rose is unwarranted. First, the Supreme Court granted certiorari in Escobar for the very purpose of resolving whether the implied certification theory of FCA liability is viable and if so, to what extent. The notion that the Supreme Court would then have laid out two “conditions” for implied certification liability, labeled them “conditions,” but not have actually meant them to be “conditions,” makes little sense.

While some advocates for the contrary view (including the government) have grasped onto the phrase “at least” in the Supreme Court’s opinion to suggest that the “conditions” are instead non-exhaustive “examples” of situations where implied certification claims may proceed, such reasoning is flawed: the use of the term “at least” conveys that the two conditions are the minimum necessary components of a viable implied certification claim. This point is underscored when the phrase “at least” is used in a (somewhat) more conventional sentence. For example, if a person says, “I like skydiving, at least when I’m wearing a parachute,” one would not conclude that there are situations in which the person would entertain skydiving without a parachute.

We will have to wait and see what happens if the Ninth Circuit has occasion to address the Escobar two-part test en banc.

This week, the Sixth Circuit declined the en banc petition of Brookdale Senior Living Communities to revisit a three-judge panel’s two-to-one decision to permit the Relator’s third amended complaint to move forward. We previously analyzed this decision here. The court’s one-page order did not explain the reasoning for declining the petition, although it noted that the dissenting judge voted in favor of re-hearing.

Fortunately, most courts have taken to heart the Supreme Court’s direction that materiality is a “demanding” and “rigorous” test in which “minor or insubstantial” non-compliance would not qualify as material. However, the Sixth Circuit’s decision that noncompliance with a physician signature timing requirement sufficiently alleged materiality under Escobar arguably is inconsistent with Escobar. The better analysis of the Relator’s complaint would conclude that the Relator pled insufficient facts, under the Rule 9(b) particularity standard, to suggest that the untimely physician signature somehow resulted in the government paying for home health services for which it otherwise would not have paid. As the dissenting opinion noted, the Sixth Circuit created the “timing” requirement in a prior opinion in this matter. Given this unusual circumstance, this case may be distinguishable in other cases in which the court is less constrained by their prior ruling.

On August 24, 2018, the Office of Inspector General (OIG), Department of Health and Human Services (HHS) published a request for information, seeking input from the public on potential new safe harbors to the Anti-Kickback Statute and exceptions to the beneficiary inducement prohibition in the Civil Monetary Penalty (CMP) Law to remove impediments to care coordination and value-based care. The broad scope of the laws involved and the wide-ranging nature of OIG’s request underscore the potential significance of anticipated regulatory reforms for virtually every healthcare stakeholder.

The request for information follows a similar request by the Centers for Medicare and Medicaid Services (CMS) published on June 25, 2018, regarding the physician self-referral law, commonly known as the Stark Law. Both of these requests are part of HHS’s “Regulatory Sprint to Coordinated Care,” which is being spearheaded by the Deputy Secretary as an effort to address regulatory obstacles to coordinated care.

The Anti-Kickback Statute prohibits offering, paying, soliciting or receiving anything of value in exchange for or to induce a person to make referrals for items and services that are payable by a federal health care program, or to purchase, lease, order or arrange for or recommend purchasing, leasing or ordering any services or items that may be covered by a federal health care program. The beneficiary inducement prohibition in the CMP Law authorizes the imposition of civil money penalties for paying or offering any remuneration to a Medicare or Medicaid beneficiary that the offeror knows or should know is likely to influence the beneficiary’s selection of a particular provider or supplier of Medicare or Medicaid payable items. Many value-based payment models implicate these statutes, and the OIG acknowledges that they are widely viewed as impediments to arrangements that would advance coordinated care.

While the request for information arises in the context of a concerted focus on care coordination and value-based payment, the request is wide-ranging and effectively invites stakeholders to provide comments on a broad range of potential issues under both the Anti-Kickback Statute and the beneficiary inducement prohibition. The OIG solicits comments across four general categories: (1) promoting care coordination and value-based care; (2) beneficiary engagement, including beneficiary incentives and cost-sharing waivers; (3) other regulatory topics, including feedback on current fraud and abuse waivers, cybersecurity-related items and services, and new exceptions required by the Bipartisan Budget Act of 2018; and (4) the intersection of the Stark Law and the Anti-Kickback Statute.

The OIG encourages individuals and organizations who previously submitted comments to CMS in response to its request for information on the Stark Law to also submit comments directly to OIG, even where those comments may be duplicative, to ensure they are considered by OIG as it exercises its independent authority with respect to the Anti-Kickback Statute and CMP Law.

Comments are due by October 26, 2018.

On August 7, 2018, the 11th Circuit Court of Appeals affirmed a ruling by the United States District Court for the Southern District of Florida dismissing a qui tam suit against the AIDS Healthcare Foundation, Inc. (AHF), finding that the payments made to AHF employees for referring patients to AHF were protected by the employment safe harbor of the federal Anti-Kickback Statute (AKS).

In Jack Carrel, et al. v. AIDS Healthcare Foundation, the relator claimed that AHF, a nonprofit organization that provides medical services to patients with HIV/AIDS, paid kickbacks to employees in exchange for referring HIV-positive patients for health care services billed to federal health care programs in violation of the AKS and both the Florida and federal False Claims Acts (FCA). The relators, each former AHF directors or managers, specifically cited two allegedly representative false claims in which an employee was paid $100 for referring patients to AHF for completing follow up clinical services that were billed to the Ryan White Program. The Department of Justice and the State of Florida declined to intervene.

In response to AHF’s initial motion to dismiss on May 8, 2015, the district court dismissed all but two of the relators’ claims for lack of particularity, but permitted the claims related to payments to employees for referrals to proceed into discovery. In June 2017, after the conclusion of discovery, the district court granted summary judgment to AHF on the remaining two claims based on the applicability of employee safe harbor. Under the AKS employee safe harbor (42 U.S.C. § § 1320a-7b(b)(3)(B); 42 C.F.R. 1001.152(i)), the definition of “remuneration” excludes “any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.”  Continue Reading Circuit Court Affirms Payments for Referrals Made to Employees are Protected by the AKS Safe Harbor

On June 29, 2018, federal district courts in California and Kentucky issued conflicting decisions over the deference owed to prosecutors in seeking to dismiss frivolous False Claims Act (FCA) claims and the effect of the January 2018 Granston Memo, which recognized dismissal as an “important tool” to advance governmental interests, preserve limited resources and avoid adverse precedent.

In United States et al. v. Academy Mortgage Corporation (N.D. Cal.), the relator, an underwriter at Academy Mortgage Corporation (Academy), claimed that a mortgage loan originator violated the FCA by falsely certifying loans for government housing insurance. The government declined to intervene after the relator filed her initial complaint, which limited the alleged misconduct to a one-year period at the specific branch where the relator was employed. The relator next filed an amended complaint that included additional allegations and identified specific employees allegedly complicit in the fraud. This time, the government moved to dismiss the complaint under 31 U.S.C. § 3730(c)(2)(A), which authorizes the government to move to dismiss an FCA action even though it did not intervene in the litigation, as it remains the real party in interest.

In its motion to dismiss, the government argued that allowing the suit to continue would drain government resources and was not justified by a cost-benefit analysis. The government also argued that its conclusion that dismissal was appropriate was subject to deference. Continue Reading Recent District Court Decisions Highlight Conflicting Stances on Dismissal of Frivolous FCA Claims

During a July 17, 2018, hearing before the House Ways and Means Subcommittee on Health, United States Department of Health and Human Services (HHS) Deputy Secretary Eric Hargan testified about HHS’ efforts to review and address obstacles that longstanding fraud and abuse laws pose to shifting the Medicare payment system to a value-based, coordinated care payment system. Deputy Secretary Hargan confirmed that the agency is looking at regulatory reforms to both the physician self-referral law (Stark Law) and the Anti-Kickback Statute (AKS) as part of HHS’ “Regulatory Sprint to Coordinate Care.”

According to Hargan’s testimony, “the goal of the sprint is to remove regulatory barriers to coordinated care while ensuring patient safety. We want to genuinely engage stakeholders in this effort, and solicit feedback at each stage—but this is a sprint, not a jog. These words were chosen specifically because we want to fix, as quickly as possible, the regulatory processes that have increased provider burden.”

As part of this Sprint, in June the Centers for Medicare & Medicaid Services (CMS) issued a broad Stark Law Request for Information (RFI) that solicited public comments on how the Stark Law impedes care coordination and how Stark Law exceptions could be modified or create to promote such coordination as well as on how other exceptions may require regulatory change to reduce regulatory burden. Comments to the Stark Law RFI are due August 24.  We previously reported on the Stark Law RFI here.

In his testimony, Hargan stated that HHS is also looking at the AKS and its intersection with the Stark Law based on feedback from providers who find it “very difficult if not impossible to understand” how to comply with both laws.  Hargan described a four-agency task force that is working together to examine obstacles to coordinate care related to the Stark Law, the AKS, the Health Insurance Portability and Accountability Act of 1996 (HIPAA)  and rules under 42 CFR Part 2 related to opioid and substance abuse disorder treatment.  This task force is composed of CMS, the HHS Office of Inspector General (OIG), the HHS Office of Civil Rights, and the Substance Abuse and Mental Health Services Administration (SAMHSA) to “coordinate amongst themselves to facilitate a coordinated care system” to “reduce duplication, overlap and contradictions” in regulations and “ensure regulatory requirements are aligned.”  As part of this effort, Hargan indicated that HHS would soon issue an RFI on AKS reforms as part of the Sprint.

HHS has already begun exploring changes to the AKS regarding drug pricing.  On July 18, 2018, OIG sent a proposed rule to the Office of Management and Budget entitled “Removal Of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection.”  While the text of the proposed rule is not available at this time, the rule is expected to propose revisions to the AKS discount safe harbor to scale back or exclude rebates from drug manufacturers.