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For the first time since 2008, the Advanced Medical Technology Association (“AdvaMed”) has updated its “Code of Ethics on Interactions with Health Care Professionals.”  These updates were announced on January 9, 2019 and will become effective on January 1, 2020.

AdvaMed’s goal in updating the Code was to address the evolving nature of interactions between the medical device industry and health care professionals (“HCPs”), bring existing examples up-to-date, and enhance user-friendliness.  Topics that were previously covered in multiple areas of the Code are now consolidated into more comprehensive sections on Company programs, Third-Party Programs, Travel and Meals.  There are also three new sections on: Jointly Conducted Education and Marketing Programs, Communicating for the Safe and Effective Use of Medical Technology, and Company Representatives Providing Technical Support in the Clinical Setting.  Additionally, the updated Code includes language that clarifies when it is acceptable to provide evaluation products, and adds additional detail to the section on Consulting.  These changes are explained in further detail below.

Consulting Arrangements with HCPs

While the updated section on consulting arrangements retains much of the same content as the previous version, it also provides additional clarity on determining whether there is a legitimate need for consulting services, explaining that a legitimate need arises when a company requires the services of an HCP to achieve a specific objective.  It also specifies that rewarding an HCP for referrals, or designing an arrangement to generate business, are not considered legitimate needs.  Additionally, the updated section includes criteria on how manufacturers can establish fair market value compensation rates for consulting services.  These include the HCP’s specialty, years and type of experience, geographic location, practice setting, and the type of service performed.

Third-Party Programs

The updated Code consolidates existing language on providing support for third-party educational, charitable, and research programs into one section on grants, donations, and commercial sponsorships.  This section includes a checklist that companies can use to review requests for educational grants, and adds language on whether companies can host satellite symposia.  It also expands and clarifies the requirements for supporting independent research grant requests or charitable donations.

Travel and Meals

The updated Code also consolidates its previous guidance on travel and lodging into one section and provides clarity on situations for which a company may pay for travel and lodging expenses (e.g., consulting, training, legitimate need for meeting, HCP presence) and when such payments are prohibited (e.g., general education, attending a third-party program, no legitimate need).  It also includes additional information on evaluating appropriate venues for meetings, taking into consideration whether the venue is in a central location and whether it is conducive to an exchange of information. The added language also places a limit on “top category” or luxury hotels.

Jointly Conducted Education and Marketing Programs

The Code’s new section on Jointly Conducted Education and Marketing Programs explains that these types of programs are typically educational programs that are aimed at highlighting a medical technology as well as an HCP’s ability to treat a condition using that technology (e.g., a manufacturer promotes its surgical implant device while a surgeon discusses his or her ability to perform the implant procedure using the device.)  AdvaMed acknowledges the benefits of such jointly conducted programs; however, it also advises manufacturers to follow certain principles to ensure that the program does not unduly benefit the HCP in a manner that violates the Anti-Kickback Statute.  For example, the manufacturer and the HCP must establish a bona fide partnership, meaning the arrangement should be documented in a written agreement and any contributions and costs should be shared equitably between them.

Communications & Technical Support

The updated Code also features a new section on communicating for the safe and effective use of medical technology, which sets forth principles for communicating information on unapproved or uncleared uses. For example, communications should be truthful and non-misleading, provided by authorized personnel, and appropriately identified as off-label.  AdvaMed advises that companies develop policies on the dissemination of off-label information based on existing guidance.

The final new section added to the Code is on the provision of technical support in the clinical setting. This section provides guidelines for company representatives who provide technical support in this setting to follow.  This includes, but is not limited to, being transparent that they are acting on behalf of the company and not interfering with an HCP’s clinical decision-making.

Although only certain states, such as California, Nevada, and Connecticut, have required device manufacturers to model their compliance programs after principles set forth in AdvaMed’s Code of Ethics, the Code has long been relied upon as the industry standard for maintaining ethical and compliant relationships between device manufacturers and HCPs. As such, manufacturers should carefully review the changes that have been made to the Code and update their internal policies and procedures as necessary.  Manufacturers in states like California, Nevada, and Connecticut should also look out for any updates in their states’ legislation to adopt the changes made to the Code.

The updated Code is available here and a brief overview of the changes can be found here.

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Clinical laboratories need to review how they compensate sales personnel following the passage of the Eliminating Kickbacks in Recovery Act of 2018 (“EKRA”) (Section 8122 of the SUPPORT Act) which is effective as of October 24, 2018.  The SUPPORT Act is a combination of more than 70 bills aimed at fighting the opioid epidemic, with EKRA intended to address patient brokering in exchange for kickbacks of individuals with substance abuse disorders.  However, as written, EKRA is far more expansive.

EKRA adds an all payor (public and private) anti-kickback rule to the health care fraud laws concerning improper remuneration for patient referrals to, or in exchange for an individual using the services of, a recovery home, clinical treatment facility or clinical laboratory.  This broad language enables the federal government to monitor provider arrangements intended to generate business for any laboratory services, not only those related to individuals in treatment for substance abuse disorders, payable by a federal health care program (“FHCP”) or commercial health insurer.

The prior version of the bill entitled “Opioid Crisis Response Act” (passed in the Senate on 9/17/18) did not include EKRA provisions, and it appears that laboratories were thrown into EKRA at the last minute, as multiple House bills proposing the addition of EKRA to the SUPPORT Act did not include laboratories.  Congressman Pallone expressed his concerns with EKRA in that “[i]t did not go through regular order and was not properly vetted . . . it was added at the very last minute . . .”  He further states that: “multiple stakeholders have raised concerns that the language does not do what we think it does. It may have unintended consequences.”  This is evident in our review and analysis of the EKRA provisions.

With regard to payment arrangements with sales personnel, one statutory exemption provides that compensation paid to both W-2 employees and 1099 contractors would not violate EKRA if the payment is not determined by or does not vary by:

  • the number of individuals referred;
  • the number of tests or procedures performed; or
  • the amount billed or received

By inclusion of the statutory exemption in EKRA, Congress indicates that payments to any employee or contractor related to the business they generate is prohibited unless the laboratory can meet the specific criteria under the three-prong exception.

As a comparison, the federal Anti-Kickback Statute (“AKS”)[1] prohibits improper remuneration “in return for referring an individual” or “purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item” directly or indirectly reimbursable by a federal health care program.  We know that the Office of the Inspector General (“OIG”) for the Department of Health and Human Services imposes a broad interpretation of the AKS (especially the phrase “arranging for or recommending”) and has taken the position that a pure marketing relationship to generate FHCP business could be a violation of the AKS.  However, compliance with the regulatory criteria under the Bona Fide Employee safe harbor[2] has been heavily relied upon in the health care industry to permit commission-based payments to sales personnel based on FHCP business they generate.[3]

On its face, EKRA would seem to make such commission-based payments to W-2 sales personnel, otherwise permissible under the AKS safe harbors, a criminal act that can carry up to $200,000 in fines and imprisonment up to (10) years for each occurrence.  However, Congress includes an exemption provision that states: “[t]his section shall not apply to conduct that is prohibited under section 1128B of the Social Security Act (42 U.S.C. 1320a–7b) [Anti-Kickback Statute].”  We are uncertain why Congress used the term “prohibited” instead of “not prohibited” or “permitted” in this provision.  This may have been a mere drafting error, but CMS will need to clarify whether it believes payments to sales personnel permitted under a AKS safe harbor are now prohibited by EKRA.  If that is the case, then the exemption should apply to the business generated by W-2 sales personnel for all payors (public and private) under EKRA.

Prior enforcement actions illustrate that the federal government takes the position that sales personnel can be deemed to induce patient referrals in violation of the federal AKS; however, to our knowledge this position has not been fully litigated and we do not believe this is a strong position.  Generally, sales personnel are in a position to solicit referrals and promote laboratory services but are not in a position to make a patient referral; exert undue influence on medical decision-making; or control an individual’s election of a laboratory service.  This distinction should be relevant to a criminal or civil prosecution; especially in the context of laboratory services where coverage requires an order by a physician or other authorized person.

Notwithstanding the above, EKRA would appear to permit a payment arrangement with sales personnel similar to the type that meets the criteria of the Personal Services and Management Contract safe harbor under the AKS.[4]  That safe harbor permits payments to sales personnel if the compensation is fixed in advance and not determined by the volume or value of the FHCP business they generate, which means commission-based payments do not qualify since there would be a nexus between the compensation and volume or value of business they generate.[5]

Finally, Congress does not address whether intent requires actual knowledge of the statute or specific intent to commit a violation, which is the standard in most criminal laws.  Multiple House bills proposing the addition of EKRA to the SUPPORT Act included intent language that did not ultimately make it into EKRA (“Neither actual knowledge of this section nor specific intent to commit a violation of this section shall be an element of an offense under this section.”)[6].  CMS will need to provide clarity.

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[1]  42 U.S.C. § 1320a-7b(b)(1)

[2] 42 C.F.R. §§ 1001952(i)

[3] 54 Fed.Reg. 3088, 3093 (1989)

[4] 42 C.F.R. §§ 1001952(d)

[5] See 64 Fed.Reg. 36360; OIG Advisory Opinion No. 98-10.

[6] See H.R. 6878 (Sept. 25, 2018).

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A dental practice and related dental management company have become the first two entities to make their way on to the newly created “High Risk – Heightened Scrutiny” list from the Office of Inspector General for the United States Department of Health and Human Services (the “OIG”).[1]

ImmediaDent of Indiana, LLC, a professional dental practice (“ImmediaDent”), and Samson Dental Partners, LLC, a dental management company which provides management and administrative services to ImmediaDent and other dental practices in Indiana, Kentucky and Ohio (“Samson”), jointly agreed on October 31, 2018 to an approximately $5.14 Million settlement with the Department of Justice and the OIG.[2]  The settlement stems from a qui tam suit brought by Dr. Jihaad Abdul-Majid, DDS, a dentist formerly employed by ImmediaDent.  Dr. Abdul-Majid claimed that ImmediaDent and Samson perpetrated fraud against Indiana’s Medicaid program by way of upcoding certain tooth extraction procedures, in addition to improperly billing for tooth cleanings which were either not medically necessary or never performed.  Interestingly, the settlement also involves claims that Medicaid fraud occurred in part due to Samson’s violation of Indiana’s prohibition on the corporate practice of dentistry.  The theory proffered was that a pre-requisite to compliance with Indiana’s Medicaid program requirements was compliance with the law and regulations governing the practice of dentistry, including those requiring dentistry to only be practiced by licensed professionals.  The government contended that Samson violated Indiana’s prohibition on the corporate practice of dentistry, and thus illegally engaged in the unlicensed practice of dentistry, by exerting undue influence over ImmediaDent’s dentists and other dental staff, including by way of rewarding production, disciplining those who did not meet production goals and directly interfering with clinical judgment.

The High Risk – Heightened Scrutiny list is a part of a new, five tier Fraud Risk Indicator system promulgated by the OIG to assess future risk posed by individuals and entities that have been alleged to have engaged in healthcare fraud.[3] The tiers range from “Low Risk – Self Disclosure” to “Highest Risk – Exclusion”.   The second “riskiest” tier is “High Risk – Heightened Scrutiny”.  As part of this tier, the Federal government has begun listing entities that it believes “pose a significant risk to Federal healthcare programs and beneficiaries” and further need additional oversight, but have refused the government’s request to enter into a Corporate Integrity Agreement (“CIA”).

Though not required by statute or regulation, CIAs are typically utilized by the government as part of settlement negotiations with providers and other entities alleged to have perpetrated healthcare fraud.  CIAs are structured to monitor an entity’s compliance with Federal healthcare program requirements in order to show the OIG that it should waive its authority to exclude the entity from participation in Federal healthcare programs.  CIAs involve significant expense, requiring the ongoing engagement of specialized external auditors, or independent review organizations, and substantial investments in compliance systems and processes.  Thus, certain entities have fought the Federal government’s attempts to impose a CIA.  As a result, some have viewed the Heightened Scrutiny list as the government’s attempt to publicly shame entities who have refused to enter into a CIA.

The Heightened Scrutiny list has only formally been in place since October 1, 2018, and thus it remains to be seen if the government will actively add other entities to this list, and further whether the list will serve as a deterrent to entities considering pushing back on the government’s attempts to impose a CIA.

_____

[1] See https://oig.hhs.gov/compliance/corporate-integrity-agreements/high-risk.asp.

[2] See United States ex rel. Jihaad Abdul-Majid, et al. v. ImmediaDent Specialty, P.C., et al., Civil Action No. 3:13-cv-222-CRS.

[3] See https://oig.hhs.gov/compliance/corporate-integrity-agreements/risk.asp.

In response to Republicans’ failure to repeal the Affordable Care Act (ACA), the Trump Administration is using administrative action to modify the ACA and health insurance options for Americans. On October 12, 2017, President Trump signed an executive order that instructs various departments to consider regulations related to association health plans and short-term insurance. Shortly after, the Administration announced that they would no longer make cost sharing reduction (CSR) payments to insurers on the Exchanges.  Section 1402 of the ACA requires insurance companies to reduce the amount that eligible low-income policyholders pay out of pocket for co-payments and deductibles.  Accordingly, the federal government must reimburse insurers for reductions when the Secretary of HHS is notified.

Without these payments, insurers will either increase premiums or pull out of the Exchanges altogether. In anticipation of the announcement, some insurers have already increased premiums for the 2018 enrollment period. In spite of this, policy makers can mitigate the harm that could be felt as a result of not funding CSR payments.

The Passage of the Murray-Alexander Stabilization Bill

Senator Lamar Alexander (R-TN), Chairman of the Senate Committee on Health, Education, Labor, and Pensions (HELP) and Ranking Member Senator Patty Murray (D-WA) revealed a bipartisan plan to help stabilize the insurance market. The Murray-Alexander Bill seeks to stabilize the insurance market by funding the CSR subsidies and increasing state flexibility in their administration of the Marketplace.

The bill proposes to fund CSR payments for the remainder of 2017, as well as 2018 and 2019. The bill also reduces the time for the Center for Medicare and Medicaid Services (CMS) review of 1332 waivers, from 180 days to 90 days and creates a new 45 day expedited review process for qualifying circumstances. Through Section 1332 waivers, states are allowed to implement insurance market innovations that provide coverage “comparable” in benefits and affordability.

The Congressional Budget Office (CBO) scored the Murray-Alexander Bill and found that it would cut the federal deficit by $3.8 billion in the next decade. The CBO notes that savings would come from states offering lower-cost policies, attracting younger and healthier individuals into the market.  Insurers would lower their premiums because of the influx of younger individuals and in the long-term, save the government more than $1.1 billion in premium tax credits. Despite the savings scored by CBO, the Murray-Alexander bill will not have an affect on 2018 plans. Further, the bill may not pass before open enrollment ends on December 15.  The bill has bipartisan support in the Senate, but will have difficulties in the House because of Speaker Paul Ryan’s opposition to the current version.

State Efforts

States can play a role in telling insurers where to apply their premium increases. For example, states could tell insurers to apply premiums to only Silver marketplace plans, all metal level plans inside and outside the marketplace, or all Silver plans inside and outside the marketplace. About 30 states assumed that CSR payments would not be disseminated and either encouraged or required states to increase premiums onto marketplace silver plans only. States that choose this option allows consumers in the marketplace to receive premium tax credits and consumers outside the marketplace to not experience any increase in premiums. Additionally, some legal scholars and health policy experts argue that states could pay for the premium themselves and then bill the federal government.

Legal Challenges

Eighteen states and the District of Columbia sued the Trump Administration seeking an immediate injunction to block President Trump from ending CSR payments to insurers. California federal judge, U.S. District Judge Vince Chhabria, denied the motion for an injunction.  Judge Chhabria argued that states had enough time to plan for the end of the cost-sharing payments and adjusted accordingly. Although Judge Chhabria has denied the injunction, California Attorney, General Xavier Becerra, will still proceed with the lawsuit.

Despite the Trump Administration’s attempt to unravel parts of the ACA, states and Congress are working to anticipate more downstream impacts and must act to find solutions or ways to mitigate the issues that will arise for low-income policy holders.

Stakeholders should anticipate a continuation of unstable markets as insurers will have to adjust their rates or leave the Exchanges if there are no changes made to fund CSR payments. State regulators will have to use creativity and flexible ways to help their constituents.

Our colleague Robert F. Atlas, President of EBG Advisors, Inc., published an advisory that will be of interest to stakeholders in the health care industry: The After-Effects of Graham-Cassidy’s Demise.

Following is an excerpt:

Taken together, the failure of the ACA repeal-and-replace effort (for now) bodes well for health care providers. The percentage of the population that’s covered—and thus is less likely to represent uncompensated care for providers—will remain fairly high, notwithstanding some erosion if the individual market isn’t bolstered.

Similarly, insurers will continue to have most of the enrollees whom they gained thanks to the ACA. True, at least with regard to exchange enrollees, the insurers may see a slightly worse adverse selection that would challenge profitability, but they can raise premiums without causing too many defections among the majority of enrollees who are eligible for federal premium subsidies. And the continuation of high levels of Medicaid enrollment benefits many insurers as well. Nearly all states contract with private health plans to coordinate care for Medicaid beneficiaries in return for capitation payments; in the aggregate, approximately one-half of all Medicaid dollars run through private plans.

For most employers, the direct effects of Graham-Cassidy and other GOP repeal-and-replace measures were never very strong. Had Graham-Cassidy passed, the mandate for employers with 50 or more workers to offer health insurance would have disappeared, but with the labor market tightening, few large employers are inclined to stop offering health benefits anyway.

Manufacturers of pharmaceuticals stand to benefit—or not to be harmed—thanks to the continuation of the ACA and Medicaid laws in their current forms. The more people who have health insurance generally, the more people who have coverage for prescription medications. Medical device makers, on the other hand, were counting on Graham-Cassidy to repeal the medical device tax that they believed hurt them. Though, they may have reason to hope that the tax will be repealed or at least delayed in other vehicles, as there are plenty of Democratic legislators who agree with Republicans that the tax ought to go.

Read the full advisory here.

The U.S. Department of Health and Human Services, Office of Inspector General (“OIG”), has made pursuing fraud in the personal care services (“PCS”) sector a top priority, including making it a focus of their FY2017 workplan.

Last week, OIG released a report, Medicaid Fraud Control Units Fiscal Year 2016 Annual Report,  which set forth the number and type of investigations and prosecutions conducted nationwide by the Medicaid Fraud Control Units (“MFCUs”) during FY 2016.  Overall, the MFCUs reported 1,564 convictions, over one-third of which involved PCS attendants; fraud cases accounted for 74 percent of the 1,564 convictions.[1]

Looking at data released by HHS, PCS was the largest category of convictions reported in FY 2016. Thirty-five percent (552 of 1,564) of the reported convictions were of PCS attendants, representatives of PCS agencies, or other home care aides. Of these 552 reported convictions, 500 involved provider fraud and 52 involved patient abuse or neglect.[2] Of the reported fraud convictions, PCS attendants accounted for the greatest number of fraud convictions (464 of 1,160).[3]

The emphasis on PCS is likely to not only continue, but increase in 2017.  Notably, recent high-profile investigations and prosecutions this year include the following cases:

  • Six Missouri home health and personal care aides and patients were charged on April 4, 2017, with making false statements to Medicaid. The aides and patients allegedly falsified documentation that claimed the aides were providing services to the patients at particular times when, in fact, no such services occurred. According to the indictments in the case, one defendant patient was vacationing in New Orleans and on a cruise during the times she supposedly received services. One aide was found gambling at a casino during the same time period she claimed to be providing services. The investigation was led by the Kansas City, Missouri office of the OIG and the MFCU of the Missouri Attorney General’s Office.
  • On March 30, 2017, Godwin Oriakhi, the owner and operator of five Texas-based home health agencies pleaded guilty to conspiring to defraud Medicare and Texas Medicaid programs. Oriakhi, along with his co-conspirators, pleaded to defrauding the state and federal governments of over $17 million, the largest home services-based (including both home health services and PCS) fraud in Texas history. Oriakhi admitted that he and several co-conspirators, including his daughter, paid illegal kickbacks to physicians and patient recruiters in exchange for patient referrals. The defendants also paid patients to receive services from Oriakhi’s agencies and in exchange for the use of the patients’ Medicare and Medicaid identification numbers to bill for home health and PCS services.

Given that HHS is securing large monetary recoveries in this space, there is clearly an incentive for HHS to focus on the PCS sector. Indeed, the recent HHS report notes that MFCUs recovered an average of over $7 for every dollar spent towards investigation and prosecution of healthcare fraud cases, including PCS cases, in FY2016.

EBG has been watching this trend and will update this blog with the status of OIG’s and DOJ’s continued focus on home health and PCS prosecutions. For more information on OIG’s investigations into PCS aides, please see our Law360 article “HHS Has Its Eye on Medicaid Personal Care Service.”

Endnotes:

[1] https://oig.hhs.gov/oei/reports/oei-09-17-00210.asp (hereinafter “Report”)

[2] Report at 6.

[3] Report at 7.

On April 14, 2017, CMS issued the FY 2018 Medicare Hospital IPPS Proposed Rule that includes numerous proposed changes.   However, there is a very small provision in this proposed rule that organizations may not be aware of …. especially those that are not hospitals and who normally would not look at the Hospital IPPS rule.

Within the rule, there is a section proposing to revise the application and re-application process for Accrediting Organizations so as to require them to post provider/supplier survey reports and plans of corrections on their website.   Although the survey results are currently available through a number of other methods, CMS states that they are proposing AOs be required to post this information on their websites “in order to advance the Department’s and Agency’s commitment to transparency in terms of patient access to quality and safety information. Access to survey reports and PoCs will enable health care consumers, in addition to Medicare beneficiaries, to make a more informed decision regarding where to receive health care thus encouraging health care providers to improve the quality of care and services they provide.”

In my communications and discussions with several AOs and health care providers, many are concerned that a requirement that AOs post this information on their websites will not achieve the desired result of providing consumers with more transparency, but instead will merely provide what otherwise might be considered confusing information.   Specifically, it has been advanced that requiring AOs to post these reports on their websites will not support the intent to help the public but instead will:

  • Jeopardize the necessary confidentiality of quality improvement work that takes place between organizations and accrediting bodies through the private accreditation survey to ensure quality outcomes that are already public through accreditation decisions;  and
  • Not produce meaningful information for patients or the public beyond extensive data already available through CMS, departments of health, and many other entities that report information to the public appropriate to their scopes and roles, but instead create confusion for the public and patients seeking valid quality data on a healthcare organization.

Comments are due to CMS no later than 5:00 pm EST on June 13, 2017.

As many pundits speculate regarding the future of the Yates Memo[1] in a Trump administration, on Wednesday, November 30, 2016, Department of Justice (“DOJ”) Deputy Attorney General, Sally Q. Yates, provided her first comments since the election.  The namesake of the well-known, “Yates Memo,” Yates spoke at the 33rd Annual International Conference on Foreign Corrupt Practices Act in Washington, D.C. and provided her perspective on the future of DOJ’s current focus on individual misconduct.

Yates, who has served at the DOJ for over twenty-seven years, stated that while the DOJ has endured many transitions in leadership during her tenure, the ideology of the DOJ with respect to general deterrence as well as enforcement of corporate misconduct has remained unchanged. Thus, Yates predicted that the incoming administration under President-elect Donald Trump will maintain the DOJ’s current commitment to pursing potential individuals while combating alleged cases of corporate fraud and wrongdoing, proclaiming:

In 51 days, a new team will be running the department, and it will be up to them to decide whether they want to continue the policies that we’ve implemented in recent years. But I’m optimistic. Holding individuals accountable for corporate wrongdoing isn’t ideological; it’s good law enforcement.[2]

Given the length of time that white collar investigations typically take, Yates noted there are a significant number of corporate investigations that began after the issuance of the Yates Memo in September 2015 that will not resolve until well after the new administration takes control. Yates also stated that she expects that the cases already in the pipeline will continue being pursued, and as a result, she anticipates that “higher percentage of those cases [will be] accompanied by criminal or civil actions against the responsible individuals.”[3]

In recent years, the Department of Justice has accelerated its emphasis on the investigation and prosecution of healthcare-related cases.[4]  In the civil realm, since release of the Yates Memo in September 2015, there has been a significant increase in False Claims Act[5] settlements containing cooperation provisions.[6] In the criminal side of the house, since the release of the Yates Memo, DOJ has brought high-profile indictments alleging violations of federal law including conspiracy to commit health care fraud, violations of the anti-kickback statute, money laundering, and aggravated identity theft, and involving a variety of health care-related services such as home health care, psychotherapy, physical and occupational therapy, durable medical equipment, and compounding prescription drugs schemes.  Most recently, on December 1, 2016, an indictment was unsealed in the Northern District of Texas charging 21 people, including the founders and investors of the physician-owned Forest Park Medical Center (“FPMC”) in Dallas, other executives at the hospital, and physicians, surgeons, and others affiliated with the hospital,[7]  with allegedly participating in a $200 million bribery and kick-back scheme focused on inducing surgeons to use the FPMC facilities.

Even before the Yates memorandum explicitly set forth guidance regarding parallel investigations, over the past few years DOJ already was increasing coordination between civil and criminal attorneys running parallel health care-related investigations with the goal of establishing collaboration at the very inception of an investigation. One U.S. Attorney’s Office, the District of New Jersey, even has co-located criminal and civil assistants dedicated to investigating health care fraud, who are supervised by the same AUSA to facilitate civil and criminal investigations, increase coordination and “maximize appropriate deterrence.”[8]

Notably, in June 2016, DOJ and the Department of Health and Human Services (HHS) announced a nationwide sweep of health care fraud civil and criminal cases.  Billed as the largest health care-related take-down in history, and led by DOJ’s Medicare Fraud Strike Force[9] in 36 federal districts, the takedown resulted in criminal and civil charges being filed against 301 individuals, including 61 doctors, nurses, and other licensed medical professionals, for their alleged participation in health care fraud schemes involving approximately $900 million in false billings.[10] [11]

Based on Yates’s comments on November 30, 2016, it can be anticipated that there will be a continued effort by the DOJ to combat corporate misconduct by focusing on individual accountability for alleged wrongdoers. Therefore, health care companies will need to remain diligent in maintaining sufficient compliance and corporate policies, including providing adequate training for executives and employees on the Yates Memorandum, as well as conducting thorough internal investigations, and to identify potential instances of corporate misconduct.[12] Since a centerpiece of the Yates Memo is the disclosure of individual wrongdoing in order to receive credit for cooperating with an investigation, health care-related companies must develop ways to identify individuals involved in potential fraudulent schemes, and the extent of each individual’s potential involvement in wrongdoing, to ensure they receive credit for cooperation. As Yates’s concluded on November 30th, “In the days ahead, this institution – and those who lead it – will continue the hard work of rooting out corruption here and abroad. And we will remain determined to protecting and strengthening our values of justice, fairness, and the rule of law. That has always been, and will always be, at the core of the DOJ.”[13] Thus, there is no indication of a DOJ slow-down any time soon, and based on recent high-profile DOJ enforcement efforts, the health care industry will not be excluded from DOJ’s focus on individual accountability any time soon either.

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[1] Sally Quillian Yates, Deputy Attorney Gen., DOJ, “Individual Accountability for Corporate Wrongdoing,” (“Yates Memo”), (Sept. 9, 2015) The Yates Memo, released by the DOJ in September 2015, sets forth six specific steps for DOJ attorneys to focus on while assessing potential corporate wrongdoing:  (1) in order to quality for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct; (2) criminal and civil corporate investigations should focus on individuals from the inception of the investigation; (3) criminal and civil attorneys handling corporate investigations should be in routine communication with one another; (4) absent extraordinary circumstances or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation; (5) DOJ attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and (6) civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.

[2] Sally Quillian Yates, Deputy Attorney Gen., DOJ, Remarks at the 33rd Annual Int’l Conference on Foreign Corrupt Practices Act (Nov. 30, 2016).

[3] Id.

[4] DOJ, Facts and Statistics¸ (June 9, 2015), https://www.justice.gov/criminal-fraud/facts-statistics.

[5] The False Claims Act, 21 U.S.C. § 3729(2)(B).

[6] Eric Toper, “DOJ Increasingly Demanding Corporate Cooperation in FCA Settlements After Yates Memo,” Bloomberg BNA, (May 25, 2016), https://www.bna.com/doj-increasingly-demanding-n57982072932/.

[7] Shelby Livingston, “Execs, Physicians at Doc-Owned Luxury Hospital Chain Indicted in Alleged Kickback Scheme,” Modern Healthcare (Dec. 6, 2016), http://www.modernhealthcare.com/article/20161206/NEWS/161209950/execs-physicians-at-doc-owned-luxury-hospital-chain-indicted-in. See https://www.justice.gov/usao-ndtx/pr/executives-surgeons-physicians-and-others-affiliated-forest-park-medical-center-fpmc (press release and indictment).

[8] Gabriel Imperator, Combating Healthcare Fraud in New Jersey: An Interview with Paul J. Fishman, Compliance Today 16-22 (Oct. 2015).

[9] DOJ, June 2016 Takedown, (June 22, 2016), https://www.justice.gov/criminal-fraud/health-care-fraud-unit/june-2016-takedown (The Medicare Fraud Strike Force are part of the Health Care Fraud Prevention & Enforcement Action Team (“HEAT”), a joint initiative announced in May 2009 between the DOJ and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. Since its inception in March 2007 it has charged over 2,900 defendants who have falsely billed the Medicare program over $8.9 billion).

[10] Id.

[11] Id.

[12] For more information please view: EBG’s Individual Accountability in Health Care Fraud Enforcement: Thought Leaders in Health Law.

[13] Yates, supra note 2.

If your organization has missed an opportunity to participate in the voluntary Medicare Bundled Payments for Care Initiatives and/or the mandatory CJR program, CMS’ Centers for Medicare and Medicaid Innovation has issued a proposed rule introducing three new mandatory Episode Payment Models (EPMs) and a Cardiac Rehabilitation incentive payment model intended to be tested with a broad scope of hospitals which may not have otherwise participated in innovative payment model testing.

In the proposed rule issued August 2, 2016, CMS introduced EPMs for Acute Myocardial infarction (AMI), Coronary Surgery Bypass Graft (CABG) and Surgical Hip/Femur Fracture Treatment- Excluding Lower Joint Replacement (SHFFT) and a Cardiac Rehabilitation incentive model to be tested for five performance years, beginning July 1, 2017 and continuing through December 31, 2021. CMS estimates Medicare savings of $170 million over the five-year test period.

These new EPMs were selected to compliment care episodes addressed in other voluntary BPCI models and the mandatory Comprehensive Joint Replacement program with different patient populations due to the clinical conditions and non-elective treatment nature of the episodes chosen. As the clinical characteristics of these EPMs include both planned and unplanned treatment needs and underlying chronic conditions, the EPMs will be tested over a broader and complementary array of hospitals and MSA regions, to further promote care redesign models that focus on coordination and alignment of care in a largely fragmented acute to post acute care spectrum. It is hoped that with testing these new EPMs and the Cardiac Rehabilitation incentive model with a broader scope of hospitals with aligned post-acute providers will promote the rapid development of evidence-based knowledge CMS is striving to obtain.

These AMI, CABG and SHFFT EPMs were selected due to the high volume of these procedures among beneficiaries with common chronic conditions, such as cardiovascular disease, which contribute to the episode and impact high readmission rates. With these EPMs, CMMI is furthering its goals of testing innovative payment models to reduce cost and improve care transition efficiencies and long term outcomes throughout the care continuum. The same quality measures applied to Comprehensive Joint Replacement will be applied to SHFFT. The Cardiac Rehabilitation incentive model is designed to encourage treatment, reduce barriers to high –value care and increase utilization of cardiac rehabilitation and intensive cardiac services which have been shown to improve long term outcomes, but appear to be underutilized. (For example, CMS estimates that 35% of AMI patients older than 50 receive cardiac rehabilitation services). The Cardiac Rehabilitation incentive payment will be made to the selected hospitals with AMI and CABG EPMs for cardiac rehabilitation services provided during the EPM as they are already engaging in managing such episodes.

The EPM episodes will begin with acute admission at an anchor hospital for the applicable MS-DRG for the EPM upon discharge, and continue for 90- day period post discharge. Similar to CJR , acute care hospitals bear the financial risk for AMI, CABG and SHFFT EPMS, which include the inpatient admission(s), all related Medicare Part A and B services, including hospital, post-acute and physician services within the 90-day period. Eligible beneficiaries admitted to the anchor hospital for the applicable EPM will automatically be included within the applicable EPM. Hospitals and providers will be paid under Medicare FFS and after the first performance year, calculation of the actual episode payments will be reconciled against an established historical EPM quality adjusted target. Hospitals will bear upside and downside risk for the episodes after performance year two. The Cardiac Rehabilitation incentive will be paid to AMI and CABG EPM hospitals at a per cardiac rehabilitation/ intensive cardiac rehabilitation service level based on threshold treatments provided per AMI/ CABG episode post discharge.

While complementing current BPCI and CRJ programs, CMS is addressing potential advantages and disadvantages to certain overlapping of programs, geographic regions (MSAs) and hospitals. For example, acute care hospitals participating in BPCI Models 2 and 4 for hip and femur procedures and for all three BPCI cardiac episodes (AMI, PCI and CABG) will not be included for selection for the new EPMs. SHFFT EPMs will be implemented in the same 67 geographic MSAs where the CJR model is currently implemented. AMI and CABG EPMs will be implemented together in 98 MSAs selected based on specific criteria to avoid overlap with other payment initiatives such as BPCI models and AMI/ CABG procedure volumes.

Hospitals and certain ACOs may share gains with other providers under the AMI, CABG and SHFFT models as EPM collaborators. Similar to other model programs, the adoption of certain waivers are also proposed, such as adopting waivers of the telehealth originating and geographic site requirements and allowing for in-home telehealth visits for the three EPMs; EPM-specific limits for post-discharge home nursing visits and the SNF 3-day stay waiver, and expanding the practitioners allowed to perform certain cardiac rehabilitation services. Hospitals’ aligning with post acute providers and programs to effectively manage their EPM patients’ post acute transition and treatment adherence and monitoring will be critical to the EPM program success.

The selected MSAs and hospitals will be announced with the publication of the final rule. CMS is requesting public comment on the proposed rule and on any alternatives considered, by October 3, 2016.

On July 7, 2016, the Centers for Medicare and Medicaid Services (“CMS”) imposed several administrative penalties on Theranos, a clinical laboratory company that proposed to revolutionize the clinical laboratory business by performing multiple blood tests using a few drops of blood drawn from a finger rather than from a traditional blood draw that relies on needles and tubes. However, after inspecting the laboratory, CMS concluded that the company failed to comply with federal law and regulations governing clinical laboratories and it posed an immediate jeopardy to patient health and safety. CMS has revoked the CLIA certification of the company’s California lab, imposed a civil monetary penalty of $10,000 per day until all deficiencies are corrected, barred Medicare or Medicaid reimbursement for its services, and excluded its founder and CEO from owning or operating a clinical laboratory for two years.

Although Theranos’s history has received an outsize amount of media attention, its experience with regulatory agencies highlights several important issues for start-up and emerging health care entities:

What Do Regulators Want?

It is no surprise that health care is one of the most highly regulated sectors of the U.S. economy, and that noncompliance with health care laws and regulations can result in penalties that can cripple an organization or force it to shut down. As a result, even in an environment that encourages innovation, health care organizations must understand the scope of regulatory oversight at the federal and state levels, and the range of remedies available to regulators for noncompliance. Every organization should also have a protocol in place for responding to regulatory inquiries or inspections.

What Do Health Care Providers and Payors Want?

Adopting a new health care technology is an intensely data-driven process. This is especially the case with clinical laboratories, which are subject to rigorous requirements for proficiency, quality assurance, and training. This burden is greater for laboratory-developed tests, commonly known as “home brew” tests, because they are currently exempt from FDA oversight.

In most cases, the innovator sponsors clinical studies subject to peer review and publication to demonstrate the efficacy of the new technology. These trials can also generate the clinical and cost data needed to convince practitioners that the test has reliable diagnostic or clinical value, and to persuade payors that the test is medically necessary.

However, Theranos declined requests to sponsor studies or disclose data. This was a red flag for many clinicians. In the interim, a group of independent investigators published a study based on a small sample of patients and found that the Theranos’s results were more variable than the results obtained from the same blood samples sent to laboratories using standard equipment. These variations were significant enough that they had the potential to affect clinical decision-making and jeopardize patients.

Who Is Investing in the Venture?

For start-up companies, committed investors are indispensable. Although early-stage investors are accustomed to risk, they also depend on reliable data to gauge whether health care professionals will adopt a new technology, and whether health plans will cover and pay for that technology. In Theranos’s case, several investors with experience in health care start-ups did not invest in the company because it did not release data on its proprietary technology and did not conduct or sponsor well-controlled clinical trials.

Who’s on Board?

The critical role of health care regulations demands that a company’s management and board be familiar with the key challenges and potential barriers to entry under the applicable regulatory framework. Nevertheless, at the time of the CMS survey Theranos’s board reportedly lacked individuals with specific experience in health care operations or clinical laboratories; however, it included two former Secretaries of State (one of whom had also been the dean of a business school), two former U.S. senators, the CEO of a bank, and retired military officers. While it is unclear how much the board knew of potential regulatory risks, the fact that CMS determined that the company had not made a “credible allegation of compliance” in response to any of the deficiencies in the initial survey report is an indicator that CMS did not believe that the company’s management and directors may not have appreciated the regulatory requirements or how to avoid or minimize these significant risks.