Health care fraud prosecutions in the Second Circuit and throughout the country have typically sought forfeiture money judgments against all defendants for the proceeds of the fraud obtained by all members of a health care fraud conspiracy.  The Supreme Court recently curtailed these efforts in Honeycutt v. United States.  In Honeycutt, the Court held that the forfeiture statute only permits a forfeiture money judgment for property a defendant actually acquired as part of the crime, not all proceeds of the conspiracy.

In Honeycutt, defendant Terry Honeycutt managed sales and inventory at his brother’s hardware store.  The brothers were prosecuted for conspiring to sell iodine with the knowledge that it was being used to manufacture methamphetamine.  The government sought a forfeiture money judgment of $269,751.98, constituting the hardware store’s profits.  The defendant’s brother pled guilty and agreed to forfeit $200,000.  The government sought and obtained a forfeiture money judgment against defendant Terry Honeycutt for $69,751.98, even though he did not personally benefit from the hardware store’s profits.  The Sixth Circuit held that the conspiring brothers were “jointly and severally liable for any proceeds of the conspiracy,” joining several circuits, including the Second Circuit, in an expansive view of criminal forfeiture.

Justice Sotomayor’s decision in Honeycutt strictly followed the language of the statute, 21 U.S.C. § 853, which mandates forfeiture of “any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of” certain crimes.  The Court concluded that the provisions of the statute limit forfeiture to property the defendant himself actually acquired, not property obtained by other conspirators.  The Court held that the plain text of the statute and the limitation of forfeiture to property acquired or used by the defendant “foreclose joint and several liability for co-conspirators.”

Prosecutors have routinely sought to forfeit all proceeds of health care fraud and other conspiracies from all co-conspirators.  Thus, minor players in a conspiracy with significant assets could find themselves liable for a forfeiture money judgment well in excess of the proceeds they actually received from their crime.  In Honeycutt, the Supreme Court refused to apply the tort concept of joint and several liability to the forfeiture statutes, and has taken a sweeping tool away from the government.

 

According to the 2016 Kaiser/HERT Employer Health Benefits Survey, the average annual premium for employer-sponsored family health insurance coverage in 2016 was $18,142 – representing a 20% increase since 2011 and a 58% increase since 2006.  As the cost of healthcare coverage has continued to rise dramatically, patients are seeing a reduced level of personal care.  The average wait to schedule an appointment with a doctor in the United States is 24 days – up 30% since 2014.  Meanwhile, physicians report that they spend, on average, only 13 to 24 minutes with a patient and of that time, approximately 37% of it is spent on EHR and other administrative tasks.

 

In 2010, the Affordable Care Act imposed a requirement that most Americans have insurance coverage.  But it also identified direct primary care as an acceptable option.  Whereas concierge and direct-pay medicine had once been limited to a very wealthy consumer base, it was suddenly poised to hit the mainstream.  And it can be a win-win for both physicians and consumers – physicians have the potential to devote more time to each patient and less time to paperwork, and consumers can pay for faster, more personalized attention from a physician instead of paying the pricey premiums now charged in the market for traditional insurance coverage.

 

But is concierge medicine right for every physician?

 

  1. Do you want to continue to participate in Medicare? If so, you will still be required to bill Medicare for your concierge patients and will not be able to charge Medicare patients extra for Medicare covered services.  Nor can you charge a membership fee (aka an access fee) that includes extra charges for services Medicare usually covers.  (The exception is if you do not accept assignment, in which case you can charge up to 15% more than the Medicare-approved amount for a Medicare covered services.)  If Medicare usually covers a service but will not pay for it, you must still provide the patient with an ABN.  And even if you do choose to opt out of Medicare, give extreme care to following the proper procedures or you could be subjected to substantial penalties.

 

  1. You still need to price services at fair market value. Even if you opt out of Medicare, providing “free” services because they are included in the access fee could run afoul of state anti-kickback laws.  Obtain advice regarding your state laws before setting your contract, and set a fair market value at which you provide each service.

 

  1. Check with your state to make your concierge/direct-pay contract is in compliance. Some states – including New York and New Jersey – have questioned whether these arrangements are deemed to be the practice of insurance but even where they are not, certain provisions of state insurance law could apply to your contract.

 

  1. Termination of existing patients. You can expect attrition by many, if not most, of your existing patients when transitioning from a traditional practice to a concierge or direct-pay model.  You will need to comply with state laws and ethical rules with regard to finding alternate care.

 

  1. Compliance with HIPAA. To the extent you are not participating in insurance or Medicare, you might not be a “covered entity” under HIPAA; however, there are many state privacy and confidentiality laws that you will still be required to comply with.

 

In some instances, transitioning to a concierge or direct-pay business model could be a win-win for both doctors and patients.  However, there are many legal issues that require careful consideration as you set up your practice.  There are many consulting firms that specialize in planning this transition, and a good attorney can help you avoid any pitfalls and ensure compliance with all applicable laws and regulations.

On June 14, 2017, the Sixth Circuit Court of Appeals in Breckinridge Health, Inc., et al. v. Price affirmed the district court’s finding that HHS could offset the amount of a hospital’s Medicare reimbursement by the Medicaid Disproportionate Share Hospital (DSH) payments received by such hospital.  In its decision, the Sixth Circuit followed the holding of the Seventh Circuit Court of Appeals in its 2012 decision in Abraham Lincoln Memorial Hospital v. Sebelius, where the Seventh Circuit, under similar facts, came to the same conclusion.

 

Breckinridge Health involved various Kentucky Critical Access Hospitals that, as part of Kentucky’s contribution to the DSH program, must pay a 2.5% tax on their gross revenue (the KP-Tax).  The revenue from the KP-Tax is then deposited into the Medical Assistance Revolving Trust under Kentucky law.  Funds from the revolving trust are then used to fund, in part, the DSH payments made to Kentucky hospitals.

 

The hospitals in this case had historically sought and received reimbursement under the Medicare Act’s reasonable cost statute for the full amount of their 2.5% tax payment.  However, for 2009 and 2010, full reimbursement was denied by the Medicare Administrative Contractor.  Instead, each hospital’s tax costs were offset against the amount of Medicaid DSH payments such hospital actually received.  This decision was upheld by the Provider Reimbursement Review Board and later the Administrator of the Centers for Medicare and Medicaid Services and, finally, the district court.

 

In affirming the district court’s decision, the Sixth Circuit relied on the Seventh Circuit’s rationale in Abraham Lincoln Memorial Hospital.  There, Illinois hospitals paid a tax assessment to the state as a condition of participation in Medicaid “access payments.”  The Seventh Circuit found that the tax assessment was a reasonable cost eligible for Medicare reimbursement.  However, because the payments the Illinois hospitals received from the fund were meant to reduce expenses associated with participation in the program, including the expense of paying the mandatory tax assessment that is a condition to participation, the set off was appropriate because the net economic impact of the access payments must be considered in calculating the reimbursement.

 

Applying the Seventh Circuit’s rationale, the Breckinridge court reasoned that “[b]ecause the DSH payment [the hospitals] received derived from the fund into which the [hospitals’] KP-Tax expenditures were placed, the net effect of the DSH payment is to reduce, at least in part, the costs [the hospitals] incurred in paying the KP-Tax.  Therefore, it constituted a refund notwithstanding the fact that it was not labeled as such.”  In other words, by receiving a return of the economic value of their KP-Tax payments through the disbursement of revolving trust funds, the hospitals essentially had already been reimbursed for their KP-Tax payments and such costs were not eligible to be reimbursed again under the reasonable cost statute.

 

In affirming the district court’s judgment, the Sixth Circuit made clear that the standard of review is to give the judgment of HHS controlling weight unless it is “arbitrary, capricious, or manifestly contrary to the statute.”  However, through its detailed review of HHS’s decision, the Breckinridge court bolsters the rationale arguably justifying the expanding view that DSH payments can properly be set off against the reasonable costs of participation.

The Medicaid Fraud Control Unit (MCFU) of the New York State Office of the Attorney General has recently issued restitution demand letters to providers for allegedly entering into percentage-based contracts with their billing agents. The MCFU letters cite the Medicaid Update March 2001, titled “A Message for Providers Using Service Agents as follows:

Billing agents are prohibited from charging Medicaid providers a percentage of the amount claimed or collected. In addition, such payment arraignments, when entered into by a physician, may violate the Education Law and State Education Department’s regulations on unlawful fee-splitting.

A physician will be guilty of misconduct if he or she permits:

any person to share in the fees for professional services, other than: a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice medicine, or a legally authorized trainee practicing under the supervision of a licensee. This prohibition shall include any arrangement or agreement whereby the amount received in payment for furnishing space, facilities, equipment or personnel services used by a licensee constitutes a percentage of, or is otherwise dependent upon, the income or receipts of the licensee from such practice, except as otherwise provided by law with respect to a facility licensed pursuant to article twenty-eight of the public health law or article thirteen of the mental hygiene law.

See Educ. Law §6530(19)*.

A physician is subject to professional misconduct charges if he or she has

directly or indirectly requested, received or participated in the division, transference, assignment, rebate, splitting, or refunding of a fee for, or has directly requested, received or profited by means of a credit or other valuable consideration as a commission, discount or gratuity, in connection with the furnishing of professional care or service . . .

See Educ. Law §6531.

The prohibition against fee-splitting is related to the state anti-kickback law which prohibits physicians from

[d]irectly or indirectly offering, giving, soliciting, or receiving or agreeing to receive, any fee or other consideration to or from a third party for the referral of a patient or in connection with the performance of professional services . . .

See Educ. Law §6530 (18).

Licensed professionals in New York State must review their contracts to verify that the compensation paid to their agents is not based on a percentage of fees for professional services.

*A similar rule applies to other licensed professionals. See N.Y. Rules of the Board of Regents §29.1(b)(4).

**In addition to the Federal Anti-Kickback Statute at 42 U.S.C. §1320a-7b(b), New York has enacted its own wide-reaching anti-kickback and anti-referral laws and regulations seeking to eliminate fraud and abuse in healthcare on a statewide basis. The state anti-kickback statue is set forth in the Social Services Law (See N.Y. Social Services Law § 366-d). The N.Y. Education Law addresses matters of professional misconduct rather than violations of fraud and abuse laws and regulations.

The Supreme Court recently allowed liability through the implied certification theory of the False Claims Act (FCA), which was raised and upheld in Universal Health Services, Inc. v. United States ex rel. Escobar. The decision provided for a new applicable standard and resolved the split among circuit courts on whether to recognize the theory.

In Escobar, a teenaged patient was receiving health services from a mental health facility. The patient had an adverse reaction to medication prescribed and died of a seizure. The parents later discovered United Health Services sought reimbursement from MassHealth (the Massachusetts State Medicaid Program) for mental health services provided at the facility by individuals who did not meet the standards for licensure and other requirements. The parents then filed a qui tam suit relying on the implied certification theory of liability. The District Court ruled against the parents finding the claims for reimbursement were not expressly false because the facility made no express statement regarding the service providers. United States ex. rel. Escobar v. Universal Health Services, 780 F.3d 504 (1st Cir. 2015). On appeal, the First Circuit rejected the bright line approach and determined that compliance with licensure and other MassHealth regulatory requirements were conditions of payment sufficient to support an FCA suit. United States ex. rel. Escobar v. Universal Health Services., 780 F.3d 504 (1st Cir. 2015)

The Supreme Court held that implied false certification is a proper basis for liability under the False Claims Act where (1) “the claim does not merely request payment, but also makes specific representations about the goods or services provided”, and (2) “the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” The Court focused on defining the FCA’s materiality standard as whether the government’s knowledge of the noncompliance “would have” affected their payment decision rather than “could have”. The Court further explained that whether an obligation was a condition of payment relates to, but is not dispositive of, materiality.

Now, after Escobar, FCA plaintiffs must overcome a more demanding materiality standard when relying on implied false certification to establish False Claims Act liability.

Special thanks to Law Clerk Joanna Lima for her assistance in preparing this blog post.

Consumers often seek online reviews of a business on platforms such as Yelp, CitySearch, Yahoo and Google Plus Pages before purchasing products or services. This includes patients seeking online reviews of a physician or other licensed professional before seeking treatment. Unfortunately, a practice known as “Astroturfing” has developed where businesses attempt to create an impression of widespread support for their services or products, where little such support exists. This practice is now occurring in the health care industry.

On December 2, 2016, New York Attorney General Eric T. Schneiderman announced a $100,000 settlement with the urgent care medical service provider MedRite, LLC, d/b/a Medrite Urgent Care (“Medrite”). According to the announcement, Medrite paid thousands of dollars to internet advertising companies and freelance writers for positive reviews on consumer opinion websites. However, Medrite never required that reviewers visit a Medrite facility or experience Medrite’s services, and Medrite never disclosed that the reviewers were paid for the review.

The announcement cites New York Executive Law §63 (12) and the General Business Law §349 and 350 which prohibit misrepresentation and deceptive acts or practices in the conduct of any business. The announcement further cites the FTC “Guidelines on the use of endorsements and testimonials in advertising” (16 CFR Part 255) which state that it is a deceptive practice to solicit endorsement support for a product or service without disclosing material connections between the endorser and the advertiser sponsor. Medrite never disclosed that the reviewers were paid by the review. Under the settlement, Medrite is prohibited from falsely saying that someone promoting its services is an independent party and it cannot pay an endorser unless the payment is disclosed.

Picture1Catholic Health Care Services of the Archdiocese of Philadelphia (CHCS) is the first business associate to be held directly liable for violations under the HIPAA rules. CHCS provided management and information technology services to six nursing homes. According to the OCR Resolution Agreement, OCR received separate notifications from each of the six nursing homes regarding a breach of unsecured electronic protected health information (ePHI) by CHCS resulting from the theft of a CHCS mobile device. The mobile device containing ePHI of 412 nursing home residents was neither encrypted nor password-protected. The settlement includes a monetary payment of $650,000 and a two-year corrective action plan.

OCR’s investigation concluded that:

  1. CHCS failed to conduct an accurate and thorough assessment of the potential risks and vulnerabilities to the confidentiality, integrity, and availability of ePHI held by CHCS; and
  2. CHCS failed to implement appropriate security measures sufficient to reduce the risks and vulnerabilities to a reasonable and appropriate level to comply with the HIPAA Security Rule.

It is important for Business Associates and subcontractors of Business Associates to understand that since enactment of the Omnibus Rule in 2013, Business Associates and their subcontractors can be held directly liable for HIPAA violations, including the failure to conduct appropriate risk assessments and the failure to adopt adequate written policies and procedures to reduce the risk of violations.

The Department of Health and Human Services, Office for Civil Rights (“OCR”), enforces the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). This includes the requirement that Covered Entities (health care providers and health plans) have Business Associate Agreements with their “Business Associates.”

“Business Associates” are persons or entities who “create, receive, maintain or transmit Protected Health Information (“PHI”) in performing services on behalf of a Covered Entity. Furthermore, a subcontractor of a Business Associate that creates, receives, maintains or transmits PHI on behalf of a Business Associate is also a “Business Associate.”

Both Covered Entities and Business Associates are directly liable for failing to have a compliant Business Associate Agreement in place. In addition, Business Associates must have Business Associate Agreements with their subcontractors who create, receive, maintain or transmit PHI on behalf of a Business Associate.

Recent cases of OCR enforcement for failure to have a required Business Associate Agreement include:

  • North Memorial Health Care of Minnesota agreed to pay $1.55 million to settle OCR charges for failing to have a Business Associate Agreement in place when a business associate’s laptop containing thousands of individuals’ PHI was lost.
  • Raleigh Orthopedic Clinic agreed to pay $750,000 and to enter into a Corrective Action Plan in settlement of OCR charges that it failed to have a Business Associate Agreement in place with its Business Associate engaged to transfer x-rays to electronic media.
  • Triple-S Management Corporation agreed to pay $3.5 million to settle OCR charges of multiple violations, including “impermissible disclosure of its beneficiaries’ PHI to an outside vendor without having a required Business Associate Agreement in place.”

To avoid multi-million dollar settlements, Covered Entities must evaluate their relationships with third parties, and Business Associates must evaluate their relationships with subcontractors, to ensure required Business Associate Agreements are in place. Covered Entities and Business Associates should consider adopting written policies and procedures regarding their Business Associates and subcontractors to demonstrate their efforts at compliance.

 

*My thanks to Farrell Fritz summer associate Joanna Lima for her assistance with this blog posting.

The Supreme Court held last week that in a federal health care fraud prosecution, the Sixth Amendment prevents the government from obtaining a pretrial freeze of assets that were untainted by the alleged crime and that defendant sought to use to pay her lawyer.

In Luis v. United States, the government alleged that the defendant had been engaged in paying kickbacks and conspiring to commit health care violations, and had fraudulently obtained close to $45 million.  The government sought a pretrial order restraining $2 million under 18 U.S.C. § 1345, which allows a restraint on property obtained as a result of health care fraud or “property of equivalent value.”  Here, however, the property the government sought to restrain was not connected with the alleged crime, and defendant sought to use those funds to hire counsel to defend her in the criminal case.

The Supreme Court held that the pretrial restraint of legitimate, untainted assets needed to retain counsel of choice violates the Sixth Amendment. Justice Breyer’s plurality opinion first emphasized that the Sixth Amendment right to counsel is “fundamental” and “guarantees a defendant the right to be represented by an otherwise qualified attorney whom that defendant can afford to hire.” The government argued that the important interests of keeping assets available for statutory penalties and compensation of victims justified the restraint.

Justice Breyer found controlling the fact that the funds at issue were untainted by the alleged crimes, so they belonged to the criminal defendant “pure and simple.” In contrast, tainted funds—assets connected to a crime—may be subject to pretrial restraint.  The Court, for example, has held that tainted funds subject to forfeiture may be restrained pretrial even if the defendant seeks to use those funds to pay a lawyer. Caplin & Drysdale v. United States, 491 U.S. 617 (1989); United States v. Monsanto, 491 U.S. 600 (1989).  A significant factor in the forfeiture cases was that title to forfeited property passes to the government at the time of the crime.  The government, however, had no present interest in the defendant’s untainted funds in the case before the Court.

While in some circumstances a party without a present interest may restrain property, here the criminal defendant sought to use the funds to hire counsel, and the Sixth Amendment right to counsel does not permit such a restraint.  Justice Breyer noted that accepting the government’s position could erode the right to counsel, as Congress may provide more statutory provisions allowing for restraint of untainted assets equivalent in value to the criminal proceeds.

The decision did not break along usual lines for the Court. The plurality opinion authored by Justice Breyer was joined by Chief Justice Roberts and Justices Ginsberg and Sotomayor.  Justice Thomas concurred in the judgment, writing that he would not engage in any balancing and would hold strictly that the Sixth Amendment does not allow a pretrial asset freeze infringing the right to counsel.  Justices Kennedy, Alito and Kagan dissented, asserting on various grounds that where the government has established probable cause to believe that it will eventually recover all of the defendant’s assets, she has no right to use them pretrial to pay for a lawyer.

In the end, the decision draws a clear Constitutional line between: (1) tainted funds, which may be subject to pretrial restraint, and (2) innocent or untainted funds needed to pay for counsel, which may not.

imagesPA8ET6EQIn our previous post [found here], we explained that, under the Privacy Rule, HIPAA covered entities (health care providers and health plans) must provide individuals and their “personal representatives” with access to the individual’s protected health information. An individual’s personal representative is determined under State law. In this post, we will define who is a “personal representative” under New York law.

Section 18(2) of the New York Public Health Law (PHL) states that, upon written request, a health care provider shall provide an opportunity, within ten days, for a patient to inspect the patient’s information concerning or relating to the examination or treatment of the patient. Upon the written request of any qualified person, a health care provider shall furnish to the qualified person, within a reasonable time, a copy of any patient information requested which the authorized person may inspect. The law provides no specific time period by which copies of medical records must be provided. However, the New York State Department of Health considers 10 to 14 days to be a reasonable time in which a practitioner should respond to such a request.

A “qualified person” under PHL§ 18(1)(g) includes:

  1. the properly identified patient;
  2. a guardian for an incapacitated person appointed under article eighty-one of the mental hygiene law;
  3. a parent of an infant or a guardian of an infant appointed under article seventeen of the Surrogate’s Court Procedure Act or other legally appointed guardian of an infant who may request access to a clinical record;
  4. a distributee of any deceased subject for whom no personal representative, as defined in the Estates, Powers and Trusts Law, has been appointed; or
  5. an attorney representing a qualified person or the subject’s estate who holds a power of attorney from the qualified person or the subject’s estate explicitly authorizing the holder to execute a written request for patient information.

PHL§ 18(1)(g) states that a qualified person shall be deemed a “personal representative of the individual” for purposes of HIPAA and its implementing regulations. Although not a “qualified person,” an agent appointed under a patient’s Health Care Proxy may also receive medical information and medical and clinical records necessary to make informed decisions regarding the patient’s health care (See PHL § 2982(3)). Presumably, the holder of a Health Care Proxy would also be a “personal representative of the individual” for purposes of HIPAA, although there is no explicit statement to that effect in PHL § 2982.

There are circumstances where a qualified person may be denied access to inspect or obtain a copy of the patient’s records. In the next post, we will explain those circumstances.