Few, if any, in the medical industry are unfamiliar with the federal Anti-Kickback Statute (“AKS”).  Under AKS, those giving or receiving compensation for referrals for items or services reimbursed by the federal healthcare programs are subject to criminal prosecution.  The statute is intended to prevent exploitation of the federal healthcare system, avoid unnecessary inflation of program costs and encourage fair competition in the industry.

AKS prohibits, among other things, the knowing and willful payment or receipt of any form of compensation to induce or reward referrals involving any item or service payable by federal healthcare programs.  “Federal healthcare programs” include more than just Medicare and Medicaid – “any plan or program providing health care benefits, whether directly through insurance or otherwise, that is funded directly, in whole or part, by the United States government (other than the Federal Employees Health Benefits Program), or any state health care program” is included.  This means that remuneration for referrals in connection with items and services that are reimbursable under TRICARE, the Veterans Administration, Federal Employees’ Compensation Act, and block grant programs are all subject to prosecution under AKS.

 

Where items or services are not reimbursable by a federal healthcare program, providers and referring parties are not subject to AKS prosecution.  However, due to an emerging trend in prosecution, the absence of reimbursement from federal healthcare programs should no longer leave providers and referral sources with a sense of security that they cannot be prosecuted for kickback arrangements.

 

Prosecutors are increasingly bringing charges against payers and recipients of remuneration for referrals in the medical arena under the Travel Act.  The Travel Act criminalizes the use of the United States mail and interstate or foreign travel for the purpose of engaging in certain specified criminal acts.  The Travel Act typically enforces two categories of state laws – laws prohibiting commercial bribery (i.e. corrupt dealings to secure an advantage over business competitors) and laws addressing illegal remuneration, including specific provisions regarding improper payments in connection with referral for services.

 

In two very recent high profile cases, prosecutors brought charges against those allegedly involved in kickback schemes under the both AKS and the Travel Act – Biodiagnostic Laboratory Services in New Jersey and Forest Park Medical Center in Texas.  Both cases have resulted in several plea bargains, yet both have charges under AKS and the Travel Act that are still pending.  While no court has directly ruled on the merits of prosecuting kickback schemes for medical services and items under the Travel Act, it is noteworthy that, in the Forest Park Medical Center case, the charges under the Travel Act survived a motion to dismiss at the district court level just last month.

 

All parties involved in referral arrangements for medical items or services should be on heightened alert as a result of this development.  Whereas AKS can only be used to prosecute parties to a kickback arrangement where federal healthcare program funds are at issue, the use of the Travel Act may broaden prosecutors’ reach to the private payor sector, even where federal healthcare programs are not involved.

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.

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.

 

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.

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.

Leslie Caldwell, DOJ Assistant Attorney General for the Criminal Division, spoke to the qui tam relators’ bar at a Taxpayers Against Fraud conference last month, stating a new DOJ policy for criminal and civil division coordination of qui tam cases, starting with intake. 

Taxpayers Against Fraud is an organization of whistleblowers and their counsel, which seeks to combat fraud against the government.  Caldwell encouraged TAF members to reach out to the criminal division, and its 40 attorney Health Care Fraud unit, in qui tam cases that could potentially involve criminal conduct.  Stating that “qui tam cases are a vital part of the Criminal Division’s future efforts,” she outlined a newly implemented procedure so that all new qui tam cases will be shared by the Civil Division with the Criminal Division as soon as they are filed.  “Those prosecutors then coordinate swiftly with the Civil Division and U.S. Attorney’s Offices about the best ways to proceed in the parallel investigations.”   

Early civil-criminal coordination of qui tam cases has been standard practice for some time in several U.S. Attorney’s Offices, including locally in the Eastern District of New York.  As early as 1997, Attorney General Janet Reno issued a Memorandum on Coordination of Parallel Criminal, Civil and Administrative Proceedings.  In the 1997 Memo, Attorney General Reno recognized the necessity of coordinating criminal, civil and administrative investigative and litigative resources,  stating that “every United States Attorney’s office and each Department Litigating Division should have a system for coordinating the criminal, civil and administrative aspects of all white-collar crime matters within the office.”  In 2012, Attorney General Eric Holder updated this policy in a Memorandum on Coordination of Parallel Criminal, Civil, Regulatory and Administrative Proceedings.   Attorney General Holder stressed that this coordination should operate at all stages of fraud investigations, including intake, investigation and resolution. 

Healthcare providers can expect DOJ to continue to expand its aggressive efforts in combatting healthcare fraud.  DOJ has signaled that it intends to increase its coordination of civil and criminal investigations and remedies for maximum deterrence and collection of healthcare dollars.  Providers facing scrutiny from the government will need to be aware that, behind the scenes, there is likely an organized and coordinated effort that includes civil, criminal, regulatory, and administrative resources.

When does the 60-day clock start for an identified overpayment of federal funds to become a reverse false claim under amendments to the False Claims Act?  A closely watched SDNY qui tam  case may provide an answer. 

In June, the United States and New York intervened in United States v. Continuum Health Partners, Inc., alleging that defendants had knowingly failed to return overpayments owed to Medicaid arising out of a computer glitch.  Defendants have now filed motions to dismiss the Federal and New York State FCA claims. 

In 2009, the Fraud Enforcement and Recovery Act defined “obligation” in the FCA to include “the retention of an overpayment.”  The following year, in 2010, the Affordable Care Act provided that an overpayment of federal funds must be reported and returned within “60 days after the date on which the overpayment was identified.”  In addition, the ACA amendments provided that the failure to return an overpayment in 60 days constitutes a reverse false claim, subjecting the provider to treble damages and civil penalties under the FCA. 

In their motion to dismiss, Beth Israel Medical Center, St. Luke’s-Roosevelt Hospital Center, and Continuum Health Partners argued that there was never an “obligation” to the Federal government, because there must be a present, existing duty to repay.  Defendants asserted that an overpayment is not “identified” unless it has been confirmed and quantified, and the 60 day period does not start until that occurs.  Defendants referenced the process most providers undertake when they become aware of a potential overpayment, including an internal audit, sampling of claims, consultations with physicians and staff, and factual and legal analysis.  This process ordinarily cannot occur within 60 days of initially becoming aware of a potential overpayment. 

The complaint attached an internal summary, by one of Continuum’s employees, of approximately 900 Medicaid claims, totaling over $1 million, that were potential overpayments.  Defendants stressed that this was not a list of actual overpayments, and in fact only 465 of the claims were paid.  As further analysis was required to determine if the claims did result in overpayments, defendants argued that the summary did not “identify” overpayments, and the complaint therefore did not allege any obligation owed the government under the FCA. 

Defendants also argued that the complaint failed to allege any affirmative act of concealment to prevent an overpayment from being disclosed, and that an overpayment from Medicaid is not an obligation owed to the Federal government under the reverse false claim section of the FCA.  In a separate memorandum seeking to dismiss the state FCA claims, defendants incorporated their Federal FCA arguments and also argued that the state reverse false claim provision was enacted after the alleged conduct, and therefore could not be applied retroactively. 

This case is being closely watched, as it raises significant issues on when the government can assert reverse false claim liability for overpayments.  Significantly, in this case, there is no dispute that the overpayments resulted from a computer glitch and not fraud, and that defendants repaid the overpayment to the government.  The complaint alleges that defendants did not make that payment soon enough.  The government intervened to seek treble damages and civil penalties, signaling that it will be aggressively pursuing cases where providers become aware of overpayments and fail — in the government’s view — to promptly reimburse the government. 

The case is pending before SDNY District Judge Edgardo Ramos, and the government opposition papers are due on October 22.

At the end of June, the U.S. Attorney’s Office in Manhattan filed a False Claims Act complaint against Beth Israel Medical Center, St. Luke’s-Roosevelt Hospital Center, and Continuum Health Partners, United States v. Continuum Health Partners, Inc., alleging that defendants had knowingly failed to return overpayments owed to Medicaid arising out of a computer glitch. 

In 2010, the Affordable Care Act amended the False Claims Act to provide that overpayments of federal funds must be paid within 60 days after they are identified, and that the failure to timely return an overpayment constitutes a reverse false claim, subjecting a party to liability for three times the amount of the claim and a penalty of between $5,500 and $11,000 for each claim. 

Under the Medicaid regulations applicable to this case, the defendant providers were not permitted to receive additional payments from Medicaid above amounts paid by a managed care organization.  A computer glitch caused defendants to erroneously seek additional payments from Medicaid. 

According to the complaint, defendants became aware of the problem in September 2010, when the State Comptroller identified a small number of improper payments.  A review by defendants in February 2011 revealed a more significant problem, involving approximately 900 claims totaling over $1 million that were wrongly submitted to Medicaid.  Nevertheless, defendants only repaid the small amount of claims identified by the Comptroller. 

The employee who identified the significant overpayment problem was terminated, and later filed the qui tam case in which the government intervened.  The State Comptroller continued to investigate, and defendants made certain payments when they were identified by the Comptroller.  The complaint alleges that defendants dragged their heels on making all the repayments, however, and sought to conceal the true extent of the problem.  Defendants only finished returning the overpayments in 2013, more than two years after they were identified.  In addition, many of the repayments were not made until after June 2012, when the government issued a Civil Investigative Demand to defendants. The government now seeks to recover treble damages and a penalty of up to $11,000 for each claim. 

There is no question that the overpayments in this case resulted from a mistake, a computer glitch.  Nevertheless, this case shows that the government will aggressively seek to recover False Claims Act damages and penalties for the failure to timely return overpayments once they have been identified, even if the original overpayment was due to mistake or inadvertence rather than fraud.  The allegations of this complaint seem particularly egregious, with defendants allegedly being aware of significant overpayments and making only minimal efforts to repay the government.  The law, however, only requires a failure to return an overpayment within sixty days after identification for False Claims Act liability to attach. 

This case highlights a serious problem for providers who become aware that they may have been overpaid on claims to the United States.  In that situation, providers will have to promptly assess whether an overpayment has in fact occurred, and then determine what next steps are in order to avoid False Claims Act liability.  The government can be expected to aggressively prosecute these cases.  In addition, False Claims Act investigations into allegedly improper claims will likely include investigation into whether providers were aware of problems with certain claims, and whether they let more than sixty days lapse before addressing them.

The New York Court of Appeals decided last week, in Handler v. DiNapoli, that the State Comptroller has the authority to review the billing records of a non-participating provider receiving funds from the State’s primary health benefit plan, even though the payment of state funds is made indirectly.

New York State provides health insurance to its employees, retirees, and their dependents.  The plan at issue, the Empire Plan, is funded by New York State.  United Healthcare Insurance of New York (United) contracts with the State to process and pay claims by Empire Plan beneficiaries.  United processes and pays the claim, and then the State reimburses United and pays it an administrative fee.

When non-participating providers provide a service to Empire Plan members, they charge market rates and bill the patient directly.  United reimburses the patient for 80% of the actual fee or the “customary and reasonable charge” for the service, whichever is lower.  The patient must then pay these funds to the provider  and also pay the remaining 20%.  Non-participating providers have a legal duty to collect co-payments from the patients.

The New York Comptroller sought to examine the billing records of non-participating providers to determine if they had waived Empire Plan member co-payments.  The Court provided an illustration of how failure to collect the co-payment “inflates a claim’s cost and adversely impacts the State’s fisc.”  If a non-participating provider charges $100 for a service, receives $80, and does not collect the $20 co-payment, then the service was provided for $80.  In that case, the State should have only paid $64, and has overpaid by $16.

The providers gave the Comptroller access to their records upon request.  After auditing a random sampling, the Comptroller concluded that the providers had routinely waived the co-payment, extrapolated the sample amount to the universe of claims, and sought recovery of overpayments of $787,000 in one instance and $900,000 in another.  The providers then filed suit, challenging the Comptroller’s authority to audit their records because they did not receive state funds directly, but rather through United.

The Court of Appeals upheld the Comptroller’s authority, stating that the fact that a third party is a conduit for the funds does not change the character of the state funds.  The Court found that limiting the Comptroller’s authority would make its task of auditing state funds impossible; there would be no other way to determine whether providers had required a co-payment.  The Court also noted that the providers certainly knew that the payments were state funds and required the collection of co-payments.

This decision confirms that the Comptroller has wide authority to audit when state funds are at issue, even where the state does not contract with the entity being audited.  Litigants will have to try to fit themselves into some of the areas where the Court states the Comptroller may not act, such as performing the administrative duties of another State agency or overseeing activities that, while financial in nature, have no impact on the state fisc.

DOE-logoA recent SDNY False Claims Act decision provides strong support for the argument that a false claim may not be based on conduct that follows federal or state rules and guidelines. 

In United States ex rel. Doe v. Taconic Hills Central School District, relators alleged that the New York City Department of Education (“DOE”) and several school districts submitted fraudulent claims to Medicaid for case management services provided to disabled children when defendants had already received funding under the Individuals with Disabilities Education Act (“IDEA”). 

New York State agencies receive federal grants under the IDEA, and distribute the funds to public school districts for the development of special education services.  In addition, Medicaid provides federal funds to states for Targeted Case Management (“TCM”) services furnished to school children.  The New York State Education Department issues a handbook that describes the type and scope of TCM services covered by Medicaid. 

Relators alleged that defendants billed Medicaid for TCM services that had already been funded by IDEA grants.  Relators argued that the school districts did not provide services beyond development and implementation of an Individualized Educational Program (“IEP”), which had been funded under the IDEA, and that billing Medicaid for those services was the  presentation of a false claim. 

Judge Crotty stated that the federal government approved New York’s Medicaid program, and it was then up to New York State to determine the standards and procedures for claims submission.  The state provisions authorized schools to bill Medicaid for IEP reviews, regardless of whether they had received any IDEA funding.  If there was a conflict between federal and state Medicaid regulations, the Court said, that was the fault of New York State.  “[I]t is not appropriate to hold DOE liable for submitting a ‘false claim’ when it complied with all applicable regulations and therefore did absolutely nothing wrong.”

The Court questioned whether federal law is violated when a school bills Medicaid for services that also received IDEA funding.  Even if it were a violation, however, the Court held that relators failed to sufficiently allege that defendants acted knowingly.  The DOE billed Medicaid “under the exact procedures set up by the State. . . .  As a result, it would have been impossible for the DOE to know that billing Medicaid – using rate codes provided by the State and approved by the Federal government – violated federal law.” 

The Taconic Hills decision provides defendants with a strong argument that reliance on federal or state guidance can defeat a False Claims Act case by undermining the requirement that a false claim be presented with knowledge of its falsity.