Corporate Integrity Agreements

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

A hospital system in Missouri recently agreed to settle with the US Department of Justice (DOJ) for $34 million to resolve claims related to alleged violations of the Stark Law. On May 18, 2017, DOJ announced a settlement agreement with Mercy Hospital Springfield (Hospital) and its affiliate, Mercy Clinic Springfield Communities (Clinic). The Hospital and Clinic are both located in Springfield, Missouri. The relator’s complaint was filed in the Western District of Missouri’s Southern Division on June 30, 2015.

The complaint’s allegations center on compensation arrangements with physicians who provided services in an infusion center. According to the complaint, until 2009 the infusion center was operated as part of the Clinic, and the physicians who practiced at the infusion center shared in its profits under a collection compensation model. In 2009, ownership of the infusion center was transferred to Mercy Hospital so that it could participate in the 340B drug pricing program, substantially reducing the cost of chemotherapy drugs. The complaint alleges that the physicians “expressed concern about losing a substantial portion of the income they had received under the collection compensation model as a result of the loss of ownership of the Infusion Center.” In response, the Hospital allegedly assured them that they would be “made whole” for any such losses. While it doesn’t provide precise details, the complaint alleges that the Hospital addressed the shortfall by establishing a new work Relative Value Unit (wRVU) for drug administration in the infusion center, which now operated as part of the Hospital. The value of this new wRVU was allegedly calculated by “solving for” the amount of the physician’s loss and “working backwards from a desired level of overall compensation.” Physicians were able to earn the wRVU for the patients they referred to the infusion center. The complaint alleges that the drug administration wRVU rate was 500 percent of the comparable wRVU for in-clinic work. In its announcement of the settlement agreement, DOJ characterized the compensation arrangement as being “based in part on a formula that improperly took into account the value of [the physicians’] referrals of patients to the infusion center operated by [the Hospital].” Continue Reading Physician Compensation Scrutiny Continues in Recent FCA Settlement

On May 31, 2017, the US Department of Justice announced a Settlement Agreement under which eClinicalWorks, a vendor of electronic health record software, agreed to pay $155 million and enter into a five-year Corporate Integrity Agreement to resolve allegations that it caused its customers to submit false claims for Medicare and Medicaid meaningful use payments in violation of the False Claims Act.

Read the full article.

The Department of Justice (DOJ) doubled-down on emphasizing corporate compliance programs with new guidance from the Criminal Division Fraud Section with the “Evaluation of Corporate Compliance Programs” (Criteria).  This document, released February 8 without much fanfare, contains a long list of benchmarks that DOJ says it will use to evaluate the effectiveness of an organization’s compliance program.  The Criteria may publicize the factors Hui Chen, the Criminal Division’s 2015 compliance counsel hire, uses to evaluate compliance programs.  The Criteria also provides practical guidance on how organizations can evaluate their compliance programs.  This document operationalizes DOJ’s Principles of Federal Prosecution of Business Organizations (knows as the “Filip Factors”), which stated that the existence and effectiveness of a corporation’s preexisting compliance program is a factor that the DOJ will review in considering prosecution decisions.

The Guidance contains 11 topics that shift the analysis among examining how the alleged misconduct could have occurred, the organization’s response to the alleged misconduct, and the current state of the compliance program.  One entire category, titled “Analysis and Remediation of Underlying Misconduct,” has an obvious focus.  But, the other categories contain questions that touch on each of the three themes.  For example, the “Policies and Procedures” category asks questions about the process for implementing and designing new policies, whether existing policies addressed the alleged misconduct, what policies or processes could have prevented the alleged misconduct, and whether the policies/processes of the company have improved today.  Other categories examine the company’s historic and current risk assessment process and internal auditing, training and communications, internal reporting and investigations, and employee incentives and discipline.  DOJ also discusses management of third parties acting on behalf of the company and, in the case of a successor owner, the due diligence process and on-boarding of the new company into the broader organization. Continue Reading DOJ Releases Detailed Criteria for Evaluating Compliance Programs

RehabCare, the nation’s largest provider of nursing home rehabilitation services, agreed to pay $125 million on January 12 to settle claims under the False Claims Act (FCA) in connection with allegations that it caused its skilled nursing facility customers to submit false claims to Medicare for therapy services. In connection with the settlement, RehabCare entered into a corporate integrity agreement (CIA) with the Office of Inspector General (OIG). The provider’s companies, RehabCare Group, Inc. and RehabCare Group East, Inc. (RehabCare), have been subsidiaries of Kindred Healthcare, Inc. (Kindred) since their merger in 2011 with a Kindred subsidiary. In a press release, Kindred stated that it agreed to the settlement without any admission of wrongdoing in order to provide clarity for contract customers, shareholders and government oversight entities.

The government’s unsealed Complaint in Intervention alleged that RehabCare manipulated the amount and type of patient therapy to achieve a higher Medicare reimbursement level than was warranted for the patient. Skilled nursing facilities are reimbursed by Medicare by resource utility groups (RUGs), which reflect the anticipated costs associated with providing nursing and rehabilitation services to beneficiaries with similar characteristics or resource needs. A patient’s RUG is assigned based upon the time and type of therapy provided to the patient during a seven-day reference period, and the amount of reimbursement is tied to the RUG level that is determined during that reference period.

The CIA, which applies to both RehabCare and Kindred, has a five-year term and, among other requirements, provides for the development of staff training regarding the accurate use of RUGs, documentation of therapy services, coordination of care and other requirements for the provision of therapy. In addition, Kindred must engage an independent review organization to conduct annual medical necessity and appropriateness reviews related to contracted rehabilitation services. The CIA also requires the submission of annual reports that include certifications as to compliance with applicable federal health care program requirements and with the CIA from several executives of RehabCare and with executives of Kindred who have direct oversight responsibilities for RehabCare, including the compliance officer, CEO and CFO of Kindred.

The case was originally brought via a qui tam lawsuit filed by two former employees of RehabCare.  These individuals will receive approximately $24 million as their share of the recovery.

A copy of the DOJ press release is available here.

In U.S. ex rel. Boise v. Cephalon, Inc. (July 21, 2015), the U.S. District Court for the Eastern District of Pennsylvania held that relators stated a claim under the 31 U.S.C. 3729(a)(1)(G)—otherwise known as the “reverse false claims” provision of the False Claims Act (FCA)—based on alleged violations of a Corporate Integrity Agreement (CIA).

Cephalon’s CIA provided that failure to comply with its obligations “may” lead to monetary penalties, and that the Office of the Inspector General (OIG) could demand penalties (which were stipulated at various dollar amounts in the CIA) after determining that penalties were appropriate. The relators alleged that Cephalon promoted medications off-label and paid unlawful kickbacks in violation of the CIA, entitling the OIG to stipulated penalties. They further claimed that by failing to report the violations and making false certifications of compliance, Cephalon improperly avoided its obligation to pay penalties in violation of § 3729(a)(1)(G).

The court denied Cephalon’s motion to dismiss, in which it argued that the penalty obligations in the CIA were contingent, inasmuch as the OIG could choose whether or not to demand payment of penalties. As such, Cephalon argued they could not give rise to reverse false claims because, absent a demand from OIG, there was no “obligation” to avoid within the statute’s meaning. After comparing other district courts’ treatment of this issue, the court concluded that Cephalon’s obligation to pay stipulated penalties was not contingent, and instead existed regardless of OIG’s payment demand. In reaching this conclusion, the court emphasized that in stipulating penalties, “Cephalon and the government have already negotiated and contracted for the remedies that arise upon a breach of the CIA.”

The result in this case is unsound, as it sets up a potentially endless cycle of FCA liability. Defendants often must enter into CIAs with the OIG in connection with settling FCA claims.  CIAs impose onerous and expensive obligations, typically for five years, as part of the price of resolution and avoiding exclusion.  Under the reasoning of Cephalon, a CIA serves not just as a compliance mechanism but is itself a potential source of new FCA allegations by enterprising relators. Thus, a defendant may close one FCA door while at the same time opening another.

Moreover, in Cephalon, the alleged off-label promotion and kickbacks that the relators say give rise to the CIA violations are, according to the relators’ complaint, also a basis for “non-reverse” false claims under other provisions under the FCA (e.g., presentment, false records, conspiracy). In these circumstances, expanding the scope of potential FCA liability based on the same underlying conduct through a CIA-based reverse false claims theory is unduly expansive and at the same time unnecessarily duplicative. Indeed, to prevail on whether Cephalon failed to properly report or certify compliance under the CIA, the relator still needs to prevail on whether the off-label promotion or kickbacks occurred in the first place.

Cephalon is by no means the only, or the last, word on this issue. In U.S. ex rel. Booker v. Pfizer, Inc., 9 F. Supp. 3d 34 (D. Mass. 2014), the U.S. District Court for the District of Massachusetts came to the opposite conclusion in a case involving similar allegations and a similarly worded CIA. The Booker court focused on the discretionary nature of the language in the CIA—i.e., the fact that violations “may” lead to penalties if the OIG demands them—and held that the CIA did not give rise to an obligation under the FCA’s reverse false claims provision. The court concluded that “[t]he discretion retained by the OIG here is thus the discretion whether to impose a penalty and thereby create an obligation to pay, rather than the discretion whether to enforce and existing obligation to pay.”

The result in Booker prevents CIAs from creating a new set of FCA landmines for providers who are seeking to resolve FCA claims. But as Cephalon demonstrates, the issue is far from settled.