While medical practices are generally aware that relators and the government pursue allegations of false or duplicative claims to federal health care programs, a recent settlement reflects a growing trend of False Claims Act (FCA) allegations concerning the failure to report and return identified overpayments. On October 13, 2017, the US Department of Justice (DOJ) announced that it had reached a $450,000 settlement with First Coast Cardiovascular Institute, P.A. (FCCI) of Jacksonville, Florida in a qui tam lawsuit alleging that FCCI failed to promptly return identified overpayments from federal health care programs after the overpayments came to the attention of the practice’s leadership. Continue Reading DOJ Settlement with Florida Medical Practice Serves as a Reminder: Delayed Repayment to Federal Programs Can Have Significant Consequences

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

On February 27, 2017, the US District Court for the Southern District of Mississippi granted a defense motion to dismiss False Claims Act (FCA) claims in United States ex rel. Dale v. Lincare Holdings, Inc., on the grounds that the claims were precluded by the FCA’s first-to-file bar.

The defendant, Lincare Holdings, Inc., is a national respiratory care provider that serves Medicare Part B patients via the sale and rental of medical oxygen supplies. The relator, a former salesperson for a Lincare subsidiary, filed his complaint on February 23, 2015, under seal, alleging that Lincare implemented a scheme to falsify and manipulate medical necessity testing in order to generate false reports that would allow it to sell oxygen and other Medicare-covered services to patients who were not medically qualified for coverage. The relator alleged that an office manager and nurse instructed employees to direct patients to take a variety of steps, such as raising their arms while attached to an oxygen sensor, in order to generate falsely low arterial oxygen saturation levels. The relator further claimed retaliatory discharge under the FCA. The United States declined to intervene on August 17, 2015, and the complaint was unsealed on August 24, 2015.

Granting a nearly year-old motion to dismiss, the court held that the relator’s FCA claims were precluded by the FCA’s first-to-file bar, finding that the “fraudulent scheme depicted in Relator’s complaint is largely based on the same underlying facts as the [United States ex rel. Robins v. Lincare, Inc.] scheme.”  The first-to-file bar prohibits plaintiffs from being a “related action based on the facts underlying [a] pending action.” 31 U.S.C. § 3730(b)(5).  The Robins suit was filed first in the US District Court for the District of Massachusetts and the court found that there was a “substantial overlap in material facts” underlying the schemes alleged in each case such that the complaints are sufficiently related for purposes of the first-to-file bar. Continue Reading Medicare Part B Provider Secures Dismissal of FCA Claims Under First-to-File Bar

Last week, a 2-1 split panel on the US Court of Appeals for the Sixth Circuit affirmed the lower court’s dismissal of U.S. ex rel. Harper, et al. v. Muskingum Watershed Conservancy District, Case No. 15-4406 (6th Cir. Nov. 21, 2016). The Sixth Circuit’s decision comes nearly eleven months after the US District Court, Northern District of Ohio dismissed the relators’ False Claims Act (FCA) complaint, which alleged reverse false claims arising from hydraulic fracturing (“fracking”) leases executed by the Muskingum Watershed Conservancy District (MWCD). In this case, the Sixth Circuit became the first appellate court to address the requisite mental state for the so-called “reverse false claims” theory of liability, 31 U.S.C. § 3729(a)(1)(G), under which a defendant is liable if it “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”

The case involves a 1949 land grant from the United States to MWCD, a political subdivision of the state of Ohio responsible for developing reservoirs and dams to control flooding. The 1949 deed included a provision reverting the land to the United States if MWCD “alienated or attempted to alienate it, or if MWCD stopped using the land for recreation, conservation, or reservoir-development purposes.” Starting in 2011, MWCD began selling rights to conduct fracking on the land. Opposed to fracking, the three relators filed this FCA action based on a theory that the 1949 deed’s reversion clause was triggered by MWCD’s sale of fracking rights, thereby resulting in reverse false claims and conversion when MWCD “knowingly withholding United States property from the federal government.” The United States declined to intervene in the case.

The Sixth Circuit concluded that “knowingly” in the context of § 3729(a)(1)(G) applies “both the existence of a relevant obligation and the defendant’s own avoidance of that obligation.” In other words, to be liable, the defendant must have known it had (or have acted in deliberate ignorance or reckless disregard of) an obligation to the United States and known that it was avoiding (or have acted in deliberate ignorance or reckless disregard of) that obligation. Continue Reading Split Sixth Circuit Panel Affirms Dismissal of Reverse False Claims Case Involving Fracking Leases

While there are a number of executive policies that will be affected by the presidential election, there are several reasons to expect modest change in the government’s approach to False Claims Act (FCA) actions. The most significant reason for this expectation is that the vast majority of FCA cases are filed by relators on behalf of the government and the Department of Justice (DOJ) has historically viewed itself as obligated to conduct an investigation into those cases. There is little reason to suspect the financial motivations that encourage relators and relators’ counsel to continue to bring cases under the FCA will diminish. That said, the possibility of repeal of the Affordable Care Act (ACA) could remove or change some of the ACA’s FCA amendments that enhanced the ability of certain individuals to qualify as a relator. The composition of the Supreme Court may have the most significant impact on the FCA given the Court’s increasing interest in this area.

Continue Reading Predictions on False Claims Act Enforcement in the Trump Administration

On October 5, 2016, the Court of Appeals for the Third Circuit remanded a “reverse” False Claims Act (FCA) case to the District Court for the Eastern District of Pennsylvania for further proceedings. The court’s decision in United States ex rel. Custom Fraud Investigations, LLC v. Victaulic Company, Case No. 15-2169 (3d Cir., Oct. 5, 2016), breathes new life into a case that was previously dismissed by the district court in September 2014, and provides extensive discussion about how reverse claims operate in the era of the 2009 Fraud Enforcement and Recovery Act (FERA) amendments.

The case involves nondiscretionary import regulations—set forth in the Tariff Act of 1930—that apply to the pipe fitting industry. These regulations mandate that pipe fittings manufactured outside the United States must be marked with the country of origin; in contrast, pipe fittings manufactured in the United States are typically unmarked. Failure to properly mark foreign-manufactured pipe fittings results in a 10 percent ad valorem that accrues from the time of importation. Furthermore, if improperly marked goods are discovered by customs officials, the importer has three options: (1) re-export the goods; (2) destroy the goods; or (3) mark them properly to be released for sale in the United States. Since customs officials largely rely on importers to self-report any duties that are owed at the time of import, it is possible for improperly marked pipe fittings to enter the United States’ stream of commerce. To the extent that improperly marked pipe fittings are discovered after they have entered the market, the 10 percent ad valorem is due immediately, retroactive to the date of importation.

Continue Reading Third Circuit Revives Reverse False Claims Act Case but Acknowledges Burden on Defendants

As part of a settlement agreement reached on August 23, three hospitals and their former parent system agreed to pay $2.95 million to resolve state and federal False Claims Act (FCA) allegations that they failed to investigate and repay overpayments from the New York Medicaid program in a timely manner under the so-called “60 Day Rule.” The allegations were originally made by a former employee via a 2011 qui tam suit, United States of America ex rel. Kane v. Continuum Health Partners, Inc.

Under the 60 Day Rule, enacted as part of the Affordable Care Act in 2010, providers are required to report and return overpayments within 60 days of identification. When “identification” happens has been the subject of much debate, and was one of the main issues in the decision issued by the US District Court in the Southern District of New York last year, which denied Continuum’s motion to dismiss the government’s complaint. Despite repaying all of the improper claims, the government alleged in Kane that Continuum and the hospitals “fraudulently delay[ed] repayments” for up to two years after it had identified them. As has become the custom in the Southern District of New York, the settlement agreement contains certain admissions by Continuum concerning the covered conduct, including that beginning in 2009, a software compatibility issue caused them to mistakenly submit improper claims to the New York Medicaid program, the billing errors were brought to their attention over the course of late 2010 and early 2011, and that Continuum began to reimburse Medicaid for the 444 improper claims in February 2011 and concluded repayment in March 2013.

While Kane was the first court to directly grapple with the issue of when a provider had “identified” an overpayment, the Kane court’s interpretation of “identify” has been essentially supplanted by the final rule released by Medicare in February 2016. The final rule makes clear that a provider can conduct “reasonable diligence” into whether it has received an overpayment and can quantify the amount of such overpayment without triggering the 60-day clock. Even with the final rule, there continue to be significant questions about what constitutes “reasonable diligence” and how the rule intersects with the FCA’s reverse false claims cause of action, which only is triggered by knowingly concealing or knowingly and improperly avoiding or decreasing an overpayment retained in violation of the rule.

The Kane case and settlement confirm the interest of the government and relators in examining overpayment and 60 Day Rule issues under the FCA. The potential ramifications can be significant — the settlement amount is more than triple the $844,000 in overpayments Continuum originally received from (and repaid to) Medicaid. It may be advisable for providers to review their policies and procedures for addressing and resolving potential overpayment issues and maintaining documentation of those efforts to defend their actions if questioned by the government.

In a decision issued August 8th, the Eighth Circuit affirmed the dismissal of a whistleblower’s False Claims Act (FCA) suit alleging the University of Minnesota Medical Center-Fairview (UMMC) wrongly claimed a “children’s hospital” exemption to Medicaid cuts based on a reasonable interpretation of an unclear state law.

In 2011, Minnesota passed an amendment that cut Medicaid reimbursement levels for inpatient services by 10 percent, but exempted “children’s hospitals.” The law did not define the term “children’s hospital,” instead the statute exempted “children’s hospitals whose inpatients are predominantly under 18 years of age” from the rate cut. UMMC believed that the University of Minnesota Children’s Hospital should qualify for this exemption and contacted the Minnesota Department of Human Services (MDHS) to obtain confirmation. In 2012, MDHS issued the exemption and a retroactive refund.

The relator, an MDHS official who claimed to be the drafter of the exemption language, complained within MDHS that UMMC’s children’s hospital did not qualify based on the intended meaning of the term “children’s hospital.” After further review prompted by the relator, MDHS reversed its position, finding a “lack of clarity in the statutory definition of what constitutes a children’s hospital” but that the UMMC exemption was not “consistent with the law or how other similarly situated children’s facilities are treated” and sought return of the retroactive refund. The Minnesota Legislature later amended the law in May 2014 to retroactively exempt all UMMC Medicaid patients aged under 18 from the rate reduction.

The relator’s suit, filed in September 2013, alleged that UMMC knew that University of Minnesota Children’s Hospital (which is a unit inside a larger hospital) did not legally qualify as a “children’s hospital” under the state law. The relator attempted to characterize UMMC’s efforts to obtain an exemption as making false claims or false statements to MDHS as well as support for a “reverse false claims” theory because, according to relator’s logic, UMMC had an obligation to refund the money received after obtaining the exemption because UMMC knew it was not entitled to the exemption in the first place.

The district court and the Eighth Circuit disagreed with the relator. Both courts found that the state law was unclear and “in the absence of a statutory definition of ‘children’s hospital,’ it was reasonable for UMMC to inquire about the proper classification of its children’s unit … A reasonable interpretation of ambiguous statutory language does not give rise to a FCA claim.”  The relator relied heavily on his role as drafter of the relevant amendment and the legislature’s historical treatment of children’s hospitals in making his arguments. The court found “this reliance cripples his argument. Legislative history is properly consulted only in light of a textual ambiguity.”

Whether a reasonable interpretation of an ambiguous law can state a claim under the FCA has been the subject of several recent decisions in favor of defendants, many of which we have covered on this blog, such as:

Eight Circuit Affirms Summary Judgment Grant Based on Reasonable Interpretation of Ambiguous Regulation

D.C. Circuit Finds for FCA Defendant Where Liability Premised on Interpretation of Undefined, Ambiguous Term

and Court Holds Defendant’s Interpretation of Ambiguous Regulation Need Not Be ‘Most Reasonable’ Interpretation

An unusual aspect of UMMC’s litigation battle with the relator was the initial approval of UMMC’s interpretation by the state, as well as what effectively was a subsequent ratification of that position by the state legislature. In any event, this latest decision confirms that we can anticipate more judicial skepticism of FCA claims involving conflicting, but reasonable, interpretations of ambiguous laws. This growing line of cases is important where the Supreme Court has now recognized implied certification as a theory of liability, pursuant to which FCA claims are based on alleged violations of underlying regulations, statutes or contract provisions. Purported violations of ambiguous laws will not support such implied certification claims.

On February 11, 2016, the Center for Medicare and Medicaid Services (CMS) issued the much-anticipated final rule concerning Section 6402(a) of the Affordable Care Act, the so-called “60 Day Rule.” This section requires Medicare and Medicaid providers, suppliers and managed care contractors to report and return an overpayment by the later of “60 days after the date upon which the overpayment was identified or the date any corresponding cost report was due, if applicable.” CMS delayed adopting the rule to address public comments concerning, among other things, (1) the meaning of “identify” (i.e., what starts the 60-day clock); and (2) the length of the “lookback period.” This rule is of critical importance to healthcare providers seeking to avoid liability for reverse false claims under the False Claims Act (FCA).

Under the new regulation, 42 C.F.R. § 401.305, the 60-day clock starts when a provider has identified an overpayment, which is defined as “when the person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment. A person should have determined that the person received an overpayment and quantified the amount of the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.” Backing off from the proposed 10-year lookback period, CMS finalized a six-year lookback period.

The key element of the final rule clarifies that the 60-day clock does not start to tick while the provider is conducting its “reasonable diligence” into whether the provider has received an overpayment and is quantifying the amount of the overpayment. While this concept was discussed in the proposed rule’s preamble, many commenters expressed concern about the meaning of the proposed rule’s “reckless disregard or deliberate ignorance of the overpayment” standard and whether it allowed time for the provider to take the steps necessary to determine whether it received an overpayment and, if so, its amount. In addition, some viewed the court’s interpretation of the statute in United States ex rel. Kane v. Healthfirst, Inc. (see our prior blog post), as stating that the 60-day clock began as soon as the provider was “put on notice” of a potential overpayment. CMS’ final rule clearly states that this interpretation of Kane is incorrect – providers have the ability to conduct “reasonable diligence” into the fact and amount of the overpayment prior to the 60-day time period starting. However, CMS does not view the reasonable diligence period as never-ending. The preamble discusses a six-month time frame as a “benchmark” for how long the reasonable diligence should take absent “extraordinary circumstances” such as a physician self-referral law (Stark Law) issue. The rule also says that the 60-day clock begins on the day the provider received the information about the potential overpayment and failed to exercise reasonable diligence.

These “should have determined” and “reasonable diligence” concepts have implications for how the government and defendants will interpret the FCA’s reverse false claims provision, which is how the 60-day rule is enforced. Under the FCA, a person can be liable for “knowingly concealing or knowingly or improperly avoiding or decreasing” an obligation to the government. An overpayment that is not reported and returned within 60 days of identification becomes an “obligation.” Thus, we should expect that the government will be interested in examining whether a provider did or did not exercise reasonable diligence in evaluating this claim.

Look for additional forthcoming analysis on this rule on our Health Care Compliance and Defense Resource Center.

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.