False Claims Act whistleblowers expose themselves to significant risks by coming forward and asserting claims of fraud against the government. Often, the whistleblowers, called relators under the False Claims Act, would prefer to maintain their anonymity for personal or professional reasons, but their options to do so are limited.

A False Claims Act case is initially filed under seal, and remains under seal while the government investigates. However, once the government either intervenes in the action or declines to intervene, the seal is lifted, and the False Claims Act complaint is publicly filed. The complaint, and the identity of the relator, become public knowledge, even if the relator does not intend to go forward with the case.

In United States ex rel. Nash v. UCB, Inc., SDNY District Judge Thomas Griesa addressed a relator’s multi-pronged effort to remain unknown. The relator alleged that his former employer, UCB, Inc., had defrauded the federal government out of millions of dollars in Medicaid funds. The Government declined to intervene, however, and the relator intended to not proceed and to dismiss the action. The relator feared that his current employer might retaliate against him when it became known that he had filed an FCA case against his former employer. The relator sought to permanently maintain a seal on all documents in the case, or alternatively, to allow use of the pseudonym “John Doe” and to remove any information from the complaint that could reveal his identity.

The Court first noted the “firmly rooted” presumption of public access to judicial documents, which applies to pleadings such as a complaint. As to relator’s fear of retaliation, the Court did not find this risk to outweigh the presumption of public access to judicial documents. Moreover, the Court pointed to the False Claims Act retaliation provision, 31 USC § 3730(h), which protects a relator from discrimination or retaliation based on acts taken under the False Claims Act. The Court determined that this provision would protect against what it considered a “speculative fear” of employment retaliation. The Court denied the application to keep the case under seal.

Next, relator sought to have the complaint filed under a “John Doe” pseudonym, with the elimination of any identifying information. Federal Rule of Civil Procedure 10(a), however, states that “The title of the complaint must name all the parties.” Courts have discretion to allow a pseudonym in special circumstances, where the need for anonymity outweighs prejudice to other parties and the public interest, but the bar is high. Factors courts consider include:

  • Highly sensitive and personal matters
  • Risk of retaliatory physical or mental harm to the party or innocent non-parties
  • Likely severity of alleged harms
  • Particular vulnerability of party to possible harms of disclosure
  • Whether challenge is to Government or private actions
  • Possible mitigation of prejudice by the Court

Judge Griesa found that the relator’s articulated need for anonymity was based on “attenuated and speculative risks of harm,” particularly where the concern was not with the former employer that the relator had sued, but with the current employer that he had not. The Court declined to allow a pseudonym, stating that the public “has a right to know who is using their courts.”

The Court did allow relator’s final request, that references to his current employer be redacted from the filed version of the complaint. The Court found the weight of presumption of public access to the identity of relator’s current employer to be low. Moreover, redactions would not affect the public interest, as the substance of the fraud allegations would be clear from the unredacted portions of the complaint.

Once a case is filed under the False Claims Act, the relator loses control over remaining anonymous. A resort to yet another lawsuit if there is retaliation may provide cold comfort, but the Courts are very reluctant to permit a relator to remain anonymous, even where the government has declined and the case will be dismissed.  Balancing this risk is one of the many considerations for relator and relator’s counsel in commencing a False Claims Act case.

In the wake of some of the worst storms our country has ever faced, as seen in the devastation caused by Hurricane Harvey, in Texas, Hurricane Irma, in Florida, and now Hurricane Maria, in Puerto Rico and the U.S. Virgin Islands, it is important to understand some of the actions the United States federal government can take to assist victims of Mother Nature. How broad is the federal government’s authority? Who is that authority bestowed upon? Well, one such mechanism is the declaration of a Public Health Emergency by the Secretary of Health and Human Services (“HHS”) under Section 319 of the Public Health Service Act (“PHSA”).

Under Section 319 of the PHSA, the Secretary of HHS is empowered to declare a public health emergency, after consulting with public health officials, when the public is faced with either a (1) disease or disorder; or (2) public health emergency exists, including, but not limited to, an epidemic or bioterrorist attack.  Upon making such a declaration, the Secretary of HHS is authorized and empowered to “take such action as may be appropriate to respond to the public health emergency, including making grants, providing awards for expenses, and entering into contracts and conducting and supporting investigations into the cause, treatment, or prevention of a disease or disorder.” The Secretary’s expanded authority is not perpetual and only remains in effect for 90 days, or until the emergency ceases to exist if sooner than 90 days, with the option of a one-time renewal for an additional 90 days that can be made on the basis of new or the same facts underlying the initial declaration. However, once a declaration, and any renewal, if applicable, is made, the Secretary of HHS must inform the Congress, in writing, within 48 hours.

Practically speaking, what actions can the HHS Secretary take? Some discretionary actions include, but are not limited to: (1) waiving certain prescription and dispensing requirements under the Federal Food, Drug, and Cosmetic Act; (2) waiving or modifying particular requirements under Medicare, Medicaid, the Children’s Health Insurance Program and the Health Insurance Portability and Accountability Act; and (3) appointing temporary personnel for up to one year. These actions, in addition to others, help bring emergency relief to those in need.

On September 19, 2017, now former Secretary of HHS, Tom Price, declared a Public Health Emergency under Section 319 of the PHSA for the benefit of Puerto Rico and the U.S. Virgin Islands following the devastation caused by Hurricane Maria, and stated, in his press release, that “[d]eclaring a public health emergency for Puerto Rico and the U.S. Virgin Islands will aid in the department’s response capabilities – particularly as it relates to ensuring that individuals and families in those territories with Medicare, Medicaid and the Children’s Health Insurance Program (CHIP) maintain access to care.”  While this declaration is limited in scope, the actions authorized thereunder will help start the long recovery for the people who reside in Puerto Rico and the U.S. Virgin Islands.

Please kindly consider how you can get involved to help the people who have been negatively impacted by the devastation caused by Hurricanes Harvey, Irma and Maria.

In our July 10, 2017 post, Concierge Medicine – Is it for you?, we cautioned that Medicare compliance concerns do not fall away when moving to a concierge or direct-pay model.  HHS has determined that concierge-style agreements are permitted as long as Medicare requirements are not violated.  Unless a physician has opted out of Medicare, the predominant requirement is that an access or membership fee cannot be charged to a Medicare patient for services that are already covered by Medicare.  But how does a concierge physician know where to draw the line?  The relevant authorities have issued very limited guidance in this area.

In March 2004, an OIG Alert was issued reminding Medicare participating providers that they may not charge Medicare patients fees for services already covered by Medicare.  OIG used, as an example, a case involving physician’s charge of $600 for a “Personal Health Care Medical Care Contract” that covered, among other things, coordination of care with other providers, a comprehensive assessment and plan for optimum health, and extra time spent on patient care.  Because some of these services were already reimbursable by Medicare, the physician was found to be in violation of his assignment agreement and was subjected to civil money penalties.  The physician entered into a settlement with OIG and was required to stop offering these contracts.

In 2007, OIG settled another case involving a physician engaged in a concierge-style practice.  There, the physician, who also had not opted out of Medicar, asked his patients to enter into a contract under which the patients paid an annual fee. Under the contract, the patient was to be provided with an annual comprehensive physical examination, coordination of referrals and expedited referrals, if medically necessary, and other service amenities.  The physician was similarly found to have violated the Civil Monetary Penalties Law by receiving additional payment for Medicare-covered services and agreed to pay $106,600 to resolve his liability.

As demonstrated by these settlements, violations of a physician’s assignment agreement results in substantial penalties and exclusion from Medicare and other Federal health care programs.  It would behoove a concierge physician to tailor contracts offered to Medicare patients.  Fees charged under such contracts should relate only to noncovered services and amenities.  For example, fees could relate to additional screenings by the concierge physician that are not covered by Medicare or amenities such as private waiting rooms.

According to the GAO’s 2005 Report on Concierge Care Characteristics and Considerations for Medicare, HHS OIG has not issued more detailed guidance on concierge care because its role is to carry out enforcement, not to make policy.  However, physicians with specific concerns regarding the structure of their concierge care agreements or practices may request an advisory opinion from HHS addressing their concerns.  Advisory opinions are legally binding on HHS and the party so long as the arrangement is consistent with the facts provided when seeking the opinion.

Next week, look for the release of Medical Marijuana 105, the fifth post in a series of posts discussing the current state of law in New York regarding medical marijuana.  To read the latest post in the series, Medical Marijuana 104:  Responsibilities of Health Insurers, click here.

The Second Circuit recently agreed to accept an interlocutory appeal to decide the question whether a violation of the False Claims Act’s “first-to-file” rule compels dismissal of the complaint or whether it can be cured by the filing of an amended pleading.

In United States ex rel. Wood v. Allergan, Inc., Relator John Wood brought FCA claims against Allergan, a pharmaceutical company that develops and manufactures eye care prescription drugs. Wood alleged that Allergan violated the FCA and the Anti-Kickback Statute by providing free drugs and other goods to physicians in exchange for them providing the company’s brand name drugs to Medicare and Medicaid patients.  SDNY District Judge Jesse Furman denied most of Allergan’s motion to dismiss in an 89-page decision, deciding several FCA first-to-file issues and certifying two for interlocutory appeal to the Second Circuit.

The Initial Qui Tam Complaint Violated the “First-to-File” Bar

The FCA’s “first-to-file” rule states that once a qui tam action has been brought, no person other than the Government may intervene or bring a related action based on the same facts. The primary purpose of the first-to-file rule is to help the Government uncover and fight fraud. The rule encourages prompt disclosure of fraud by creating a race to the courthouse among those with knowledge of the fraud.

Wood was not the first relator to bring FCA claims against Allergan for the alleged conduct. Two prior actions had been brought and were pending when the Wood qui tam complaint was filed. Therefore, at the time Wood’s qui tam complaint was filed, it ran afoul of the first-to-file bar and was subject to dismissal.

The Prior-filed Actions Were Dismissed Before Wood’s Action Was Unsealed and the Third Amended Complaint Was Filed

The Wood complaint, however, was under seal for several years, and Wood amended his complaint twice before the seal was lifted. While the Wood complaint remained under seal, the two prior actions were dismissed.  When the Government declined to intervene in the Wood action and the case was unsealed, there were no longer any prior-filed pending actions. Wood thereafter filed a third amended complaint. Allergan moved to dismiss on several grounds, including the “first-to-file” bar, arguing that when Wood’s initial qui tam complaint was filed, there were two pending actions alleging the same factual allegations.

The “First-to File” Bar Is Not Jurisdictional

Judge Furman first addressed whether the “first-to-file” bar is jurisdictional. Although the majority of circuit courts have held that it is, the district court’s holding in its March 31, 2017 decision that the bar is not jurisdictional foreshadowed the Second Circuit’s similar holding four days later, in United States ex rel. Hayes v. Allstate Insurance Co.  The Circuit in Hayes stated that the first-to-file rule provides that “no person other than the Government” may bring an FCA claim that is “related” to a claim already “pending.” The Court noted that the statutory language did not speak in jurisdictional terms or refer to the jurisdiction of the courts, in contrast to other sections of the FCA. As Congress is presumed to act intentionally when it includes jurisdictional language in one statutory section but omits it in another, the Court held the a court does not lack subject matter jurisdiction over an action barred on the merits by the non-jurisdictional first-to-file rule.

An Amendment After Dismissal of the Prior Action Can “Cure” a First-to-File Violation

The district court next addressed the question of whether the first-to-file bar required dismissal of Wood’s qui tam complaint. In Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, the Supreme Court had held that “an earlier [FCA] suit bars a later suit while the earlier suit remains undecided but ceases to bar that suit once it is dismissed.”  Wood therefore would be able to bring a new FCA claim as the two prior actions had been dismissed.

However, during the years that the case had been sealed, the statute of limitations had expired on most of Wood’s claims, so a dismissal without prejudice and a re-filing of his complaint would result in a dismissal of the claims on limitations grounds. The district court was therefore faced with a question the Supreme Court did not decide: whether a violation of the first-to-file bar can be “cured” by amending or supplementing the complaint in the later-filed action after dismissal of the earlier actions.

The district court held that first-to file violation can be cured by an amended or supplemented pleading.  The court noted that most courts answering this question in the negative had relied in large part on a conclusion that the first-to-file bar is jurisdictional. The district court in Wood, and later the Second Circuit, held that the bar is non-jurisdictional. The district court noted that courts routinely allow plaintiffs to cure violations of non-jurisdictional rules by amendment under Fed. R. Civ. P. 15. Also, allowing an amendment to cure a violation advances the primary purpose of the FCA, to permit the government to recover for fraud. The court opined that barring a relator in Wood’s position from curing his violation of the rule would undermine, rather than advance, the purposes of the FCA.

The Amendment Relates Back to the Date of the Original Complaint

The parties also disputed whether, for purposes of the statute of limitations, the relevant complaint was the initial complaint, filed when the prior actions were pending, or the third amended complaint, the first one filed after they had been dismissed. The court recognized that the “touchstone” of Rule 15 is whether the original pleading put the defendant on notice of the relevant claims, and that an FCA defendant is often not on notice of a qui tam complaint because it is under seal. Nevertheless, the court concluded that any such delay is beyond the relator’s control, and an otherwise diligent relator should not have claims stripped away when the government and not the relator is to blame for the defendant not receiving notice. The district court therefore held that the third amended complaint related back to the original complaint for limitations purposes.

The Second Circuit Will Address The First-to-File Issues

In August, the Second Circuit accepted the interlocutory appeal of two issues:

  1. Whether a violation of the FCA’s “first-to-file” rule requires dismissal or can be “cured” through the filing of a new pleading after the earlier-filed action has been dismissed; and
  2. If a violation of the first-to-file bar is curable, whether the FCA’s limitations period is measured from the date of the relator’s curative pleading or the original complaint.

On August 15, 2017, the Secretary of Health and Human Services, Tom Price, issued a press release reporting that almost $105 million dollars will be bestowed upon 1,333 health centers across the United States, including its territories; and Washington D.C. Secretary Price stated “Americans deserve a healthcare system that’s affordable, accessible, of the highest quality, with ample choices, driven by world-leading innovations, and responsive to the needs of the individual patient. Supporting health centers across the country helps achieve that mission.”

According to the Health Resources & Services Administration, also known as HRSA, federally qualified health centers (FQHC) “are community-based and patient-directed organizations that deliver comprehensive, culturally competent, high-quality primary health care services.”  The main function of a health center is to provide health services to underprivileged patients where affordable healthcare is either lacking or nonexistent. Services include, but are not limited to, mental health support, substance abuse aid, dental health and many other services. While there are numerous requirements for an organization to qualify as a FQHC, one interesting qualification is that the organization must elect members of the community to serve on its governing board—ensuring that the community has a role when it comes to its own healthcare.

Even though the concept of a health center may be foreign to many in the United States, health centers play an important role in our society.  HRSA has concluded that, based on data from its Uniform Data System, almost 26 million individuals (which equals 1 in every 12 people living in the United States) depended on a health center for health services in 2016, including more than 330,000 veterans. The study also found that 1 in every 3 people living in poverty relied on a health center in 2016.

Living in a politically toxic climate on the topic of healthcare and its reforms, as we currently do today, brings in a breath of fresh air to see our tax dollars being put to good use. Health centers have served as a unique and beneficial service for the underserved and underprivileged for the last 50 years, and the federal government’s continued support appears to be unwavering.

Last week, the Second Circuit held that a False Claims Act relator does not have to plead details of specific alleged false billings or invoices to the government, as long as he can allege facts leading to a strong inference that specific claims were submitted and that information about them are peculiarly within the defendant’s knowledge.

In United States ex rel. Chorches v. American Medical Response, Inc., Paul Fabula was an emergency medical technician for AMR, the largest ambulance company in the United States. He alleged that AMR falsely certified ambulance transports as being medically necessary and submitted claims it knew were not medically reimbursable under Medicaid. He alleged that AMR routinely made EMTs and paramedics revise or re-create reports to include false statements demonstrating medical necessity in order to qualify for Medicaid reimbursement. Fabula subsequently declared bankruptcy, and the bankruptcy trustee became the relator.

Qui tam complaints, which allege fraud, are subject to Fed. R. Civ. P. 9(b)’s particularity requirement. The Second Circuit determined that relator had adequately alleged a scheme to defraud. Relator, however, admittedly did not have personal knowledge of exact billing numbers, dates, or amounts for claims submitted to the government.

The focus of the Second Circuit’s inquiry, therefore, was whether every qui tam complaint must allege specific identified false billings or invoices. The Court answered in the negative, holding that “a complaint can satisfy Rule 9(b)’s particularity requirement by making plausible allegations creating a strong inference that specific false claims were submitted to the government and that the information that would permit further identification of those claims is peculiarly within the opposing party’s knowledge.”

In Chorches, the Court found that the relator had met this standard by pleading sufficient facts, on personal knowledge, to demonstrate that billing information was peculiarly within the knowledge of AMR and that he was unable, without the benefit of discovery, to provide billing details for claims submitted by AMR to the government. Relator had also sufficiently alleged facts on personal knowledge supporting a scheme to defraud and a strong inference that false claims were actually submitted to the government.

This issue had been addressed by several other circuits, and in 2016, the Second Circuit noted a seeming circuit split on whether an FCA relator must allege the details of specific examples of actual false claims. In Chorches, however, the Court concluded that “reports of a circuit split are, like those prematurely reporting Mark Twain’s death, ‘greatly exaggerated.’” The Court then engaged in an extensive analysis of cases in other circuits, concluding that its pleading standard is fully consistent with both the emerging consensus in other circuits and its own precedents.

Several district courts in the Second Circuit have required a strict pleading of specific facts concerning individual billings or invoices to the government. Those decisions will now have to be re-examined in light of the pleading standard set by the Second Circuit in Chorches: “Rule 9(b) does not require that every qui tam complaint provide details of actual bills or invoices submitted to the government, so long as the relator makes plausible allegations . . . that lead to a strong inference that specific claims were indeed submitted and that information about the claims submitted are peculiarly within the opposing party’s knowledge.”

The Second Circuit also held in Chorches that the FCA’s public disclosure bar is not jurisdictional, and that an alleged refusal to falsify a patient report is sufficient at the pleading stage to qualify as protected activity for an FCA retaliation claim.

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.