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OIG Expands Audit Topics in Work Plan Update

The Department of Health and Human Services Office of Inspector General (OIG) issued an update to its Work Plan on May 28 that included several new Medicare-related topics for OIG audit or inspection.  These additions expand OIG’s work in areas that OIG has previously identified as priorities, such as hospital-based services, lab testing and Part D payments.  These new topics included:

  • Hospital outpatient intensity-modulated radiation therapy claims;
  • Payments for clinical diagnostic laboratory tests, including the top 25 clinical diagnostic laboratory tests by Medicare expenditures in 2014. This report is required by the Protecting Access to Medicare Act; and
  • Compliance with various aspects of the inpatient rehabilitation facility prospective payment system, including the documentation required 42 CFR § 412.622(a)(3) (4) and (5).
  • Examining billing trends within the Part D program, especially those for opioid drugs and pharmacy billing patterns.

OIG also announced several new programmatic studies and reports, including:

  • Examining hospital preparedness for public health emergencies due to high-risk infectious diseases.
  • Identifying best practices and possible challenges in Accountable Care Organizations’ (ACO) use of electronic health records, such as interoperability issues.
  • Whether the durable medical equipment competitive bidding program is affecting beneficiary access to certain items, citing to “anecdotal reports [that] allege that competitive bidding has led to reduced access to DME and, in turn, compromised the quality of care beneficiaries receive” as the reason for adding this review.
  • Creating a portfolio report of the OIG’s Medicare Part D oversight work to summarize OIG audits, evaluations, legal opinions and investigative work, and provide progress information on recommendations to improve oversight of the program by the Centers for Medicare & Medicaid Services, plan sponsors and Medicare Drug Integrity Contractors or MEDICs. This report will likely be similar to the 2012 portfolio report highlighting OIG’s work on personal care services.
  • Examining CMS’s management of the Open Payments program, including CMS’ oversight of manufacturers’ and group purchasing organizations’ compliance with data reporting requirements and whether the required data for physician and teaching hospital payments is accurately and completely displayed in the publicly available database.



Determining FCA Damages: Sixth Circuit Urges Comparable Sales Analysis to Assess Fair Market Value, Even Where Number of Market Participants is Small

On April 6, 2015, the Sixth Circuit reversed a $657 million judgment previously labeled by the Justice Department as “the largest judgment in the history of the False Claims Act,” because the government failed to prove damages.  For the second time in U.S. v. United Technologies Corp., the Sixth Circuit remanded to the district court to determine if the government can prove that false statements made in a 1983 supply bid by Pratt & Whitney, now owned by United Technologies Corp., in resulted in actual damages to the government.  Significantly, the Sixth Circuit opined that comparable sales analysis is the preferred method of determining the fair market value of goods to determine if the government suffered damage, even in a market that appears to be an oligopoly.

The government filed the case in 1999, claiming that Pratt had made false statements to the Air Force while competing with GE Aircraft to supply engines for fighter jets.  Pratt had served for years as the exclusive supplier of engines for the fighter jets, when, in 1982, the Air Force decided to switch to competitive bidding.  This switch led to “the Great Engine War” as Pratt and GE Aircraft tried to undercut the other to sell more engines to the Air Force.  The government alleged that in its 1983 multi-year supply bid, Pratt misstated its projected costs to supply the engines to coax the Air Force to choose Pratt over GE Aircraft.  However, this didn’t work: the Air Force purchased most of its aircraft in 1983 from GE, and in each subsequent year, the Air Force called for the companies to improve their prior “best and final” offers. The resulting lower offers allowed the Air Force to purchase more engines from the supplier who could generate that year’s best offer.

Pratt was held liable for violating the False Claims Act for the statements regarding projected costs in its 1983 bid, but the lower court initially found no actual damages, resulting in an award of $7 million in statutory penalties only.  In the first appeal in 2010, the Sixth Circuit vacated the district court’s damages holding.  On remand, the district court awarded $657 million in damages.  In its April 6, 2015 opinion, the Sixth Circuit again reversed, holding that its earlier remand had not mandated that the lower court find the government suffered actual damages, but simply required a second look at calculation issues.

The Sixth Circuit noted that the government bears the burden of proving its actual damages.  The Sixth Circuit rejected the government’s argument that in evaluating what the government should have paid for the engines, a presumption should apply that a dollar of overstated projected costs in the supply bid translates to a dollar of actual damages.  Rather, to determine whether the government paid more than it should have, the Sixth Circuit stressed that the analysis should focus on the fair market value of the supplied engines:

When the government gets what it paid for despite a contractor’s misstatements, it [...]

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