Civil Monetary Penalties Law

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 Recent Developments on the Fair Market Value Front – Part 1

On December 7, 2016, the Office of the Inspector General (OIG) of the US Department of Health and Human Services (HHS) issued a policy statement increasing its thresholds for gifts that are considered “nominal” for purposes of the patient inducement provisions of the civil monetary penalties law (section 1128A(a)(5) of the Social Security Act) (CMP Law). HHS also announced the new thresholds in the preamble to a final rule issued on December 7, 2016, revising safe harbors under the Anti-Kickback Statute and rules under the CMP Law. 81 Fed. Reg. 88368, 88394 (Dec. 7, 2016).  The previous thresholds for gifts to Medicare and Medicaid beneficiaries were $10 per item or $50 in the aggregate annually per patient. The new thresholds are $15 per item or $75 in the aggregate annually per patient.

Under the CMP Law, a person who offers or provides any remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable for civil money penalties, subject to a limited number of exceptions. The OIG has indicated that gifts of “nominal value” are not required to meet an exception. However, the OIG has not changed its thresholds for what constitutes “nominal value” since issuing its 2002 Special Advisory Bulletin: Offering Gifts and Other Inducements to Beneficiaries, which included thresholds of no more than $10 in value individually or $50 in value in the aggregate annually per patient. To account for inflation, the OIG has now increased its interpretation of “nominal value,” permitting inexpensive gifts (other than cash or cash equivalents) of no more than $15 per item or $75 in the aggregate per patient annually, effective immediately.

The OIG’s policy statement provides that violations of the CMP Law could result in penalties of up to $10,000 per wrongful act; however, HHS increased the penalty to $15,024 per violation in an interim final rule issued earlier this year. 81 Fed. Reg. 61538, 61543 (Sept. 6, 2016). While the new thresholds are still fairly low, they are a welcome update to the longstanding $10/$50 thresholds.

On June 9, 2015, the Office of Inspector General of the Department of Health and Human Services (OIG) issued a new fraud alert concerning physician compensation arrangements and compliance with the federal Anti-Kickback Statute (AKS). While the fraud alert itself does not break new ground interpreting the AKS, it signals OIG’s steadily increasing scrutiny and enforcement activity of physicians and physician arrangements.

The fraud alert encourages physicians who enter into compensation arrangements, such as medical directorships, to “ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide” by “carefully consider[ing] the terms and conditions of medical directorships and other compensation arrangements before entering into them.” Payments that take into account the volume or value of referrals, do not reflect fair market value for the services performed, or compensate the physician in ways that are unrelated to providing services—such as subsidizing office staff costs—raise compliance risks, according to the OIG. Similarly, not providing the services called for under the arrangement can also create liability issues.

Rather than provide new or updated AKS guidance to the health care community, however, this fraud alert’s purpose appears to be to publicize a series of 12 settlements under the OIG’s Civil Monetary Penalties Law (CMPL) authorities obtained over the past two years with individual physicians who had medical director arrangements with Fairmont Diagnostic Center and Open MRI Inc. (Fairmont), an imaging facility in Houston owned and operated by Dr. Jack L. Baker. In 2012, Dr. Baker and Fairmont entered into a $650,000 False Claims Act settlement concerning allegations that Dr. Baker and Fairmont paid illegal compensation to physicians through medical director agreements to induce patient referrals. As part of the settlement, Dr. Baker agreed to be excluded from federal health care programs for six years. Following the settlement, OIG pursued “spin-off” CMPL cases against some of the physicians who had these suspect medical director agreements. In total, the OIG collected over $1.4 million in penalties from 11 physicians and excluded one physician for three years. The settlement amounts ranged from $50,000 to $195,016.

The fraud alert highlights that the OIG is stepping up its own administrative enforcement activities of physicians separate from the government’s more traditional False Claims Act efforts. With a large budget increase this year, the OIG is able to hire more lawyers who can investigate and bring CMPL cases. The OIG has displayed additional signs of interest in physicians, including a ramped-up issuance of guidance. After a somewhat lengthy span without issuing much guidance, the OIG has issued a new fraud alert specifically addressing physician issues each year for the past three years. In 2013, the OIG warned the industry about its concerns with physician-owned distributors and other joint ventures. In 2014, the OIG cautioned labs and physicians about labs making certain suspect specimen collection and other payments to physicians.

We should expect to see more OIG scrutiny of physicians and their financial arrangements with the recipients of their referrals. To avoid this scrutiny, health care entities should consider examining their compliance program’s policies and systems regarding

  • Review and approval of physician arrangements, including
    • The physician selection process
    • The business justification for the arrangement
    • An appropriate internal and legal review process
    • Making fair market value determinations
  • Monitoring physician performance of the services provided for in the arrangement
  • Contract management to avoid potential technical Stark Law issues

In advisory opinion (15-03) earlier this month, the U.S. Department of Health and Human Services (HHS) Office of the Inspector General (OIG) found that a Medigap insurer’s arrangement allowing discounts on deductibles at certain preferred hospitals  – with a portion of the resulting savings going to the insurer’s policyholders  – would not result in penalties under the Anti-Kickback Statute (AKS) or Civil Monetary Penalties (CMP) Law prohibition on inducements to beneficiaries, because the likelihood of fraud and abuse under the proposal is minimal.

The requestor was an offeror of Medigap insurance, a supplemental insurance policy sold by private companies to pay some costs that Medicare does not cover. For its Medigap plans, the insurer proposed an arrangement with certain network hospitals through a preferred provider organization (PPO) where the PPO hospitals would provide discounts of up to 100 percent of the Part A inpatient deductibles, for which the requestor would otherwise be liable. Policyholders who were admitted for an inpatient stay at a network hospital would receive a $100 premium credit from the requestor towards the policyholder’s next renewal premium. If the policyholder was admitted to a non-network hospital, the requestor would pay the full deductible.

OIG stated that the AKS safe harbor for (1) waivers of beneficiary coinsurance and deductible amounts and (2) for reduced premium amounts offered by health plans would not protect the requestor’s proposal. First, the safe harbor for waivers of beneficiary coinsurance and deductible amounts “specifically excludes such waivers when they are part of an agreement with an insurer.” Second, the safe harbor for reduced premium amounts offered by health plans “requires health plans to offer the same reduced cost-sharing or premium amounts to all enrollees.” But under the requestor’s plan, the discounts would be available only to policyholders who opted for network hospitals.

Nevertheless, OIG found the risk of fraud and abuse under the AKS to be minimal, for several reasons:

  1. Neither the discounts nor the premium credits would increase or affect per-service Medicare payments, as Part A payments are fixed and not affected by cost-sharing;
  2. The arrangement would not likely increase utilization, as the discounts effectively would be invisible to the policyholders since they “would apply only to the portion of the individual’s cost-sharing obligations that the individual’s supplemental insurance otherwise would cover”;
  3. The arrangement would not unfairly affect competition among hospitals, since the PPO’s hospital network would be open to any accredited, Medicare-certified hospital that meets the requirements of applicable state laws and that contractually agrees with the PPO to discount all or a portion of the Part A deductible for policyholders;
  4. The arrangement was not likely to affect professional judgment, as the providers for the policyholders would not receive remuneration, and policyholders could go to any hospital without additional expense; and
  5. The requestor made clear to policyholders that they have the ability to go to any hospital without additional liabilities or penalties, thereby operating transparently.

OIG also said that the premium credits implicated the CMP prohibition on inducements to beneficiaries, because the credits are offered to induce policyholders to select certain network hospitals. OIG, however, found that the exception to the definition of remuneration for differentials in coinsurance and deductible amounts as part of a benefit plan design, in section 1128A(a)(i)(6)(C) of the Social Security Act, instructive for its analysis.  While the premium credits do not technically fit the exception, OIG viewed the premium credits as having “substantially the same purpose and effect” as differentials in coinsurance and deductibles, thus presenting a low risk of fraud or abuse.

OIG’s advisory opinion is consistent with similar opinions (e.g., 14-02, 14-04, 14-07, 14-10) issued in the past year approving discounts to Medigap insurers by preferred hospitals and credits to Medigap policyholders who use preferred hospitals.