GenomeDx Biosciences Corp., which markets a genomic test (Decipher®) intended to assess the aggressiveness of prostate cancer, has agreed to pay $1.99 million to the U.S. Department of Justice to resolve allegations that it violated the False Claims Act (31 U.S.C. §§ 3729 et seq.)(“FCA”) by submitting claims to Medicare for tests conducted to evaluate treatment options for men after prostate surgery.

The government and a whistleblower alleged that between September 2015 and June 2017, GenomeDx knowingly submitted Medicare reimbursement claims for the Decipher® test that did not meet the six clinical prerequisites in the Local Coverage Determinations (“LCDs”) published by each of the Medicare Administrative Contractors (MACs). LCDs are published by MACs when they make a determination that an item or service meets (or does not meet) the “reasonable and necessary” test in Section 1862(a)(1)(A) of the Social Security Act and under what circumstances. The prerequisites for a prostate cancer classifier assay to be deemed medically necessary include (1) evaluation for postoperative secondary therapy due to one or more risk factors for a recurrence within 60 months after a radical prostatectomy surgery, (2) no evidence of any distant metastasis, and (3) pathological stage T2 disease with a positive surgical margin or pathological stage T3 disease, or rising prostate-specific antigen levels after an initial test result of 0.2 ng/ml or less.

Therefore, for each claim, the government and the whistleblower alleged that GenomeDx had certified that the test was reasonable and necessary as defined in the LCD  even though the clinical criteria or documentation requirements had not been met because the patients did not have risk factors necessitating the test.

The issue of medical necessity for diagnostic services continues to be a primary issue in many health care-related cases filed pursuant to the FCA.  The federal courts have confirmed that a laboratory may rely on the ordering physician’s determination of medical necessity because laboratories do not and cannot treat patients or make medical necessity determinations; however, laboratories may still be liable under the FCA if the laboratory knowingly presents claims for reimbursement that are not medically necessary.

Moreover, Medicare will still require documentation that demonstrates medical necessity to support payment for the test services. Thus, if adequate documentation is not provided, even when the ordering provider failed to maintain the appropriate diagnostic or other medical information for his or her patient, it is the laboratory that will suffer the consequences of the denial or recovery of reimbursement for the claim.

This settlement highlights the need for clinical laboratories, and all Medicare providers and suppliers, to determine if any national or local coverage policies apply to their services and the prerequisites prior to submission of claims, and to file those claims only where there is a good faith belief that any relevant prerequisites have been met.  Jurisdiction of claims for laboratory services furnished by an independent laboratory normally lies with the MAC serving the area in which the laboratory test is performed.  If there is a disagreement with the national or local coverage determination, there are procedures to either challenge the policy or to request that the policies be revised and updated.

On December 21, 2018, the Department of Justice (“DOJ”) announced in a press release the recoveries obtained in settlements and judgments from civil matters involving fraud and those brought under the False Claims Act (“FCA”) for the fiscal year (“FY”) ending September 30, 2018. While total recoveries were $2.88 billion—the ninth consecutive year exceeding $2 billion—this was down almost $600 million from FY 2017, the lowest level since 2009 and the second year in a row that total recoveries fell.

However, and of particular note to those involved in the healthcare and life sciences industries, over $2.5 billion—$329 million more than in FY 2017, and almost 88 percent of all recoveries—were generated from healthcare-related matters. Notably, recoveries in such cases brought by the DOJ directly rose to $568 million, the second-highest level since 1987. And, while more than 50 percent of the recoveries are identified as attributable to a finite number of matters, pharmaceutical and medical device companies, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians all continued to be enforcement targets.

Qui Tam Cases: A Concentration on Healthcare

The statistics also reflect that cases filed by qui tam relators are a principal driver of DOJ’s FCA enforcement efforts. While the number of qui tam cases filed dropped in FY 2018, 645 matters were brought last year, representing almost 85 percent of all new matters. Relative to the healthcare industry, 446 new qui tam cases were brought in FY 2018, a drop from FY 2017 but the fifth highest number since 1987. About 88 percent of all new FCA matters pursued against entities involved in the healthcare industry were brought by relators.

The greatest risk to entities continues to be qui tam matters in which the United States elects to intervene. More than 90 percent of all dollars recovered from qui tam cases in FY 2018 were from cases in which the government elected to intervene. However, relators continue to pursue matters post-declination. In FY 2018, almost $120 million was recovered from such matters; while a sharp decline from the $445 million collected in FY 2017, almost 70 percent of all recoveries in cases pursued post-declination were from the healthcare industry.

Although plainly not a record year, expect that these statistics will still serve to encourage new filings. In FY 2018, more than $300 million was paid out in relators’ share awards; more than $266 million of which came from matters involving the healthcare industry. While these were the lowest levels since 2009, since 1988 relators have been paid over $5 billion for matters brought involving the healthcare industry alone (total payments, all industries, exceed $7 billion). The potential for a major reward—as supported by these numbers—clearly continues to drive the filing of new cases.

Individuals in Focus

DOJ’s announcement also emphasized its effort in holding individuals accountable. The press release lists multiple examples of individual enforcement, whether pursued through joint and several liability along with corporate defendants, or otherwise. Significantly, multimillion-dollar recoveries were generated this year from individuals involved in the healthcare industry.

Recent announcements from the DOJ reflecting revisions to the “Yates Memo” suggest that senior corporate management, as well as members of boards of directors, continue to face enforcement risk.

*************

While overall recoveries dropped, the dollars generated from enforcement in the healthcare space grew and remain staggering. The statistics will only serve to encourage the government and qui tam relators to continue to pursue corporations and individuals involved in the healthcare and life sciences industries. They are also a strong reminder of the importance of the development and maintenance of programs designed to deter improper conduct and promote compliance across all organizational levels.

 

This is the 7th and final installment in the Medicare Secondary Payer Compliance series. All titles in this series can be viewed below. Subscribe to our blog to receive these future updates. Prior installments of this series can be accessed using the links provided.

We can put many of the points discussed in the previous blogs into a practical context by examining two recent cases that highlight some of the struggles faced by payers in administering and processing MSP payments. These cases show that even sophisticated payers from different industries can still overlook this long-existent law, which can result in major costs to those payers. It also goes to show that a well-designed  compliance program can lead to decreased risks and potential regulatory costs.

Kane ex rel. United States v. Healthfirst, Inc. et al.[1]

In this case, the United States and the State of New York filed complaints-in-intervention  alleging that the defendant, Healthfirst, a private, non-profit insurance program with contracts with New York hospitals, issued electronic remittances to certain providers relating to Medicaid patients.  Though the remittances should have stated that Medicaid could not be billed as a secondary payer for certain covered services, due to an alleged computer software glitch, they failed to include that information; this resulted in improper payment by Medicaid for claims that  triggered MSP and FCA liability.[2]

The relator alleged that Healthfirst violated the 60 day window mandate by reimbursing Medicaid more than 60 days from the time the relator compiled the list of possible overpayments.  Healthfirst moved to dismiss the complaint, but the district court denied the motion.  It concluded that the 60 day window for reimbursement commenced when the provider was put on notice of a potential overpayment, noting that allowing an individual or entity to commence repayment only after definitively identifying an overpayment would be incompatible with the legislative history and intent of the FCA.  Subsequently, this case settled for $2.95 million.[3]

Negron ex rel. United States v. Progressive Cas. Ins. Co. et al.[4]

This FCA case based on an alleged violation of the MSP law has a twist: it involves the intersection of MSP law with New Jersey state automobile insurance law.  In Negron, the relator purchased an auto insurance policy from Progressive, which gave her the choice of selecting a “health first” policy or a “Personal Injury Protection (PIP)” policy as her primary insurer.  Under a health first policy, the enrollee’s private health insurer is the primary payer for medical bills resulting from an automobile accident.  The relator’s primary insurance was Medicare; however, Medicare and Medicaid recipients are not eligible for this type of insurance coverage because Medicare and Medicaid are treated as secondary payers in such situations.[5]

A few months later, after the relator was involved in a car accident. Medicare conditionally paid for a claim that should have been reimbursed by the auto insurance policy.  The relator brought a FCA action against Progressive and its New Jersey subsidiary, stating that the insurer had failed “to make reasonable and prudent inquiries to ensure compliance with the MSP Act” and that Medicare had improperly paid her bills as the primary payer.[6]  In response, the insurer moved to dismiss the complaint.  In denying the motion to dismiss, the court found that the practice of allowing Medicare and Medicaid beneficiaries to select the “health first” policy was a violation of the MSP, as it allows Progressive to remain willfully ignorant of a beneficiary’s primary plan coverage, and chided the auto insurance company for its lack of controls.  Specifically, the court looked at the underwriting process, which should have involved some investigation into the beneficiary’s eligibility for Medicare and Medicaid.  It also noted that the claims adjustment process should have involved an identical investigation to determine the appropriateness of a “health first” or “PIP” policy for each beneficiary.[7]

The court stated that Medicare should not pay conditionally for the services rendered to the relator just because the auto insurance company eventually paid Medicare back, and found that this manipulation of the “conditional payment” provision of the MSP ignores the requirement that a conditional payment is only to be made if prompt payment is not made by a primary payer.  Ignoring this requirement allows the defendants to “receiv[e] an interest free loan from the government on claims they are obligated to pay and were always obligated to pay.”[8]  As a result, the court found that there was a “sufficient allegation [in the complaint] demonstrating economic loss to plead that the claims were false or fraudulent.”  After the U.S. Department of Justice and the State of New Jersey intervened, the defendants settled the case for $2 million.[9]

Although Negron involves New Jersey state auto insurance laws, the key part of the court’s ruling for health care providers is that the MSP law places the burden of investigating a patient’s health insurance coverage squarely on the shoulders of the provider, and simply  allowing a patient to elect certain coverage without more inquiry may not be a sufficient defense against FCA liability based upon MSP violationspayer.

It is likely that we will see more of the MSP-based FCA cases in the coming months and years. Due to the nature of FCA cases, investigations can remain under seal for years at a time before their filing becomes public. As such, the newest trend of enforcement that has been seen may be only the tip of the iceberg of FCA actions brought against payers and providers of all types in the current health care marketplace.

Andrew Kuder, a Law Clerk (not admitted to the practice of law) in the firm’s Newark office, contributed significantly to the preparation of this post.

[1] Kane ex rel. United States v. Healthfirst, Inc. et al., 120 F. Supp. 3d 370 (S.D.N.Y. 2015).

[2] Id. at 375-77.

[3] Manhattan U.S. Attorney Announces $2.95 Million Settlement With Hospital Group For Improperly Delaying Repayment Of Medicaid Funds, The United States Department of Justice (Aug. 24, 2016), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-295-million-settlement-hospital-group-improperly.

[4] Negron ex rel. United States v. Progressive Cas. Ins. Co. et al, No. 14-577(NLH/KMW), 2016 U.S. Dist. LEXIS 24994 (D.N.J. Mar. 1, 2016).

[5] Id. at *5-*9.

[6] Id. at *27.

[7] Id. at *7.

[8] Id. at *8.

[9]  Two Insurance Companies Agree To Pay More Than $2 Million To Resolve False Claims Act Allegations, The United States Department of Justice (Nov. 14, 2017), https://www.justice.gov/usao-nj/pr/two-insurance-companies-agree-pay-more-2-million-resolve-false-claims-act-allegations.

This is part 5 of 7 in the Medicare Secondary Payer Compliance series. All titles in this series can be viewed below. Subscribe to our blog to receive these future updates. Prior installments of this series can be accessed using the links provided.

Health care providers also have important responsibilities under the MSP law.  Small and mid-sized providers should be on special alert, as they may lack the same level of centralized data processing and availability of in-house counsel to keep them informed of Medicare enforcement trends and regulatory requirements. Healthcare providers have MSP responsibilities, although they are less onerous than those placed upon GHPs and NGHPs.  Generally, providers must implement certain procedures to determine each patient’s Medicare eligibility status and submit claims to the proper insurer for reimbursement.  These procedures include asking the patient his or her Medicare eligibility status, checking the Common Working File, and creating and maintaining an internal database that stores information on each patient’s insurance coverage.  When inquiring about a patient’s insurance coverage, providers are encouraged to use a CMS Questionnaire found on the CMS website.[1]  Providers must also submit an Explanation of Benefits (EOB) form with each claim to Medicare to ensure proper billing.[2]  Providers should inquire as to whether the reason the patient is being seen for treatment is prompted by an injury that would be covered by an NGHP provider, such as an automobile accident, fall, or injury in the workplace.

If a provider submits an improper claim to Medicare but receives a conditional payment, the provider must reimburse Medicare within 60 days of receiving the payment and will not be penalized if the provider maintains an internal database that stores information on each patient’s insurance coverage and the provider can show that the claim was submitted as a result of false information provided by the beneficiary or someone acting on the beneficiary’s behalf.[3]  However, if a provider does not reimburse a conditional payment within the timeframe mandated in a Medicare demand letter, it can face civil monetary penalties, such as paying interest on any outstanding payment and being assessed double damages.[4]

These rules are summarized below:

Acting Party Responsibilities Liabilities for Non-Compliance
Providers ·         Investigate each patient’s Medicare eligibility by asking the beneficiary his/her Medicare status and by checking the Common Working File to verify each patient’s Medicare status

·         Maintain a database that includes each patient’s insurance coverage

·         Properly bill Medicare

·         Include all relevant MSP information or Explanation of Benefits with Medicare claims

·         Reimburse Medicare in 60 days if improperly billed

·         Must pay interest on reimbursement if paid 60 days after issuance of demand letter

·         Possible FCA liability if the claims to Medicare were false or fraudulent

Andrew Kuder, a Law Clerk (not admitted to the practice of law) in the firm’s Newark office, contributed significantly to the preparation of this post.

[1] https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/ProviderServices/Your-Billing-Responsibilities.html.

[2] Medicare Secondary Payer Manual, Ch. 3 § 30.5.B.

[3] 42 CFR § 489.20.

[4] 42 CFR § 489.24.

For health care providers and other government contractors, perhaps no law causes more angst than the False Claims Act, 31 U.S.C. §§ 3729 et seq. (“FCA”).  A Civil War-era statute initially designed to prevent fraud against the government, the FCA is often leveraged by whistleblowers (also known as “relators”) and their counsel who bring actions on behalf of the government in the hope of securing a statutorily mandated share of any recovery.  These qui tam actions often can be paralyzing for health care entities, which, while committed to compliance, suddenly find themselves subject to false claims allegations that reflect a lack of understanding about the complex (and sometimes ambiguous) regulatory framework that they operate under.

Apart from the substantial costs associated with defending against qui tam allegations, the threatened financial exposure is heart-stopping: penalties under the FCA currently range from $10,957 to $21,916 per improper claim, plus three times the amount of damages sustained by the government (meaning, for example, if a health care provider is found liable for improperly submitting a level one evaluation and management (or “E/M”) code, the potential maximum exposure would be treble damages—i.e., three times the payment for the service—plus up to $21,916 in penalties per claim).  For this reason, even when facing a meritless FCA suit, a defendant often settles to avoid the cost of litigation and the unpredictability of a jury.  Indeed, very few FCA cases ever go to trial.

Until recently, health care providers facing the prospect of a qui tam suit have had little reason for optimism, particularly given the steady increase in cases being filed (674 new qui tam matters were filed in fiscal year 2017, and more than 70 percent of these related to federal health care programs) and the trend of relators continuing to pursue cases after the government declines to intervene.  However, two recent U.S. Department of Justice (“DOJ”) internal policy memoranda issued this month suggest that, at least in some circumstances, the government may be reevaluating its approach in two key areas relating to FCA enforcement: (i) the dismissal of meritless qui tam actions when the government declines to intervene, and (ii) the prohibition of DOJ attorneys relying on a party’s noncompliance with agency guidance as presumptive or conclusive evidence that the party violated the law.

The Granston Memo

Recently, Michael D. Granston, the Director of the DOJ’s Civil Fraud Section, Commercial Litigation Branch, issued an internal memorandum to all attorneys in his branch and all Assistant U.S. Attorneys handling FCA cases (the “Granston Memo”).  The Granston Memo, dated January 10, 2018, addresses “Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A)” and potentially represents a significant shift in how DOJ treats meritless FCA cases.

DOJ has long had the authority via 31 U.S.C. § 3730(c)(2)(A) to dismiss FCA actions brought by whistleblowers.  However, and as the Granston Memo acknowledges, DOJ has used this power sparingly.  Instead, even in circumstances where a relator’s claims may have no basis in fact or law, DOJ has traditionally elected not to intervene and has permitted the relator to proceed, causing health care providers to spend considerable resources defending against a meritless claim.  The Granston Memo suggests that simple declination may no longer be the status quo and provides a list of factors, not intended to be exhaustive, that DOJ attorneys should consider when evaluating whether the dismissal of a FCA claim is warranted in circumstances where DOJ declines to intervene.  These factors focus on the following areas:

  1. curbing meritless qui tams,
  2. preventing parasitic or opportunistic qui tam actions,
  3. preventing interference with agency policies and programs,
  4. controlling litigation brought on behalf of the United States,
  5. safeguarding classified information and national security interests,
  6. preserving government resources, and
  7. addressing egregious procedural errors.

The Granston Memo instructs DOJ attorneys working on FCA cases to consider alternative grounds for dismissal other than 31 U.S.C. § 3730(c)(2)(A) and to consult affected federal agencies as to whether dismissal may be warranted.

The importance of this potential shift in DOJ policy should not be understated.  While only time will tell how the Granston Memo will effect non-intervened qui tam matters, its issuance should come as a welcome sign to entities potentially subject to, or actively involved in, defending FCA cases, as well as to their defense counsel, who should view the memorandum as an opportunity to establish a dialogue—beyond pressing for declination—to pursue a wholesale dismissal of FCA allegations in a case that previously was thought likely futile.

The Brand Memo

While the Granston Memo represents a potentially significant change in DOJ’s approach to FCA litigation and role in non-intervened cases, on January 25, 2018, Associate Attorney General Rachel L. Brand issued a memorandum to the Heads of Civil Litigating Components / U.S. Attorneys and the Regulatory Reform Task Force, an internal working group within DOJ, titled “Limiting Use of Agency Guidance Documents in Affirmative Civil Enforcement Cases” (the “Brand Memo”).

The Brand Memo provides that, “effective immediately,” DOJ (i) “may not use its enforcement authority to effectively convert agency guidance documents into binding rules”[1] (emphasis added), and (ii) “may not use noncompliance with guidance documents as the basis for proving violations of application law . . . .”  The Brand Memo goes on to state the following:

[DOJ] should not treat a party’s noncompliance with an agency guidance document as presumptively or conclusively establishing that the party violated the applicable statute or regulation.  That a party fails to comply with agency guidance expanding upon statutory or regulatory requirements does not mean that the party violated those underlying legal requirements; agency guidance documents cannot create any additional legal obligations.

Critically, the Brand Memo explicitly provides that “this memorandum applies when [DOJ] is enforcing the False Claims Act, alleging that a party knowingly submitted a false claim for payment by falsely certifying compliance with material statutory or regulatory requirements.”

As with the Granston Memo, it is too soon to predict the impact that the Brand Memo will have on FCA litigation.  But, at least on its face, the Brand Memo could be a game-changer.  Medicare is the largest payer for health care services and the Centers for Medicare & Medicaid Services and its Medicare Administrative Contractors (“MACs”) have produced an enormous body of sub-regulatory guidance that governs health care providers.  Because this informal guidance does not go through the rigorous review of the rule-making process mandated by the Administrative Procedure Act, it often can be ambiguous both in its application and its implementation.  Such guidance also routinely results in different standards being applied to providers in different geographic regions depending upon which MAC has jurisdiction.  The Brand Memo states that in circumstances where noncompliance with guidance is alleged, DOJ litigators are not to presume FCA liability or, perhaps more importantly, not to use such guidance to support or prove FCA violations.

Moreover, to the extent that the Brand Memo prohibits reliance on agency guidance documents, it may present an opportunity to argue that such prohibition must necessarily extend to similar documents prepared by government contractors that do not have agency status.  DOJ attorneys frequently treat contractor guidance as conclusive in deciding whether there has been a violation of an underlying statute or regulation—even when guidance is released after the conduct at issue or by a government contractor in a different jurisdiction occurs.  For example, reliance by DOJ attorneys upon statements in local coverage determinations when investigating and prosecuting FCA cases is commonplace.  The Brand Memo may present an avenue for health care entities to argue that these determinations are fundamentally “guidance documents,” and, as such, DOJ should not reflexively and exclusively rely upon them when pursuing potential FCA liability.

At a minimum, the Brand Memo casts a cloud over practices that DOJ attorneys regularly employ when investigating, evaluating, and proving FCA allegations.  It could have a major impact on the way in which the government handles FCA matters and evaluates both whether to intervene in a qui tam suit or bring an affirmative civil enforcement action.

***

Much remains to be seen as to the implications of the Granston and Brand Memos in practice.  But for those individuals and entities participating in the health sector, as well as all other government contractors, these memoranda are reason for cautious optimism.

 

ENDNOTE

[1] The Brand Memo defines a “guidance document” as “any agency statement of general applicability and future effect, whether styled as ‘guidance’ or not, that is designed to advise parties outside of the federal Executive Branch about legal rights and obligations.”  This definition largely mirrors the definition set forth by Attorney General Jeff Sessions in his November 16, 2017, memorandum setting forth a prohibition on improper guidance documents.

On December 21, the Department of Justice (“DOJ”) reported its fraud recoveries for Fiscal Year 2017. While overall numbers were significant – $3.7 billion in settlements and judgments from civil cases involving allegations of fraud and false claims against the government – this was an approximate $1 billion drop from FY 2016. However, the statistics released by DOJ reflect themes significant to the healthcare industry.

Greatest Recoveries Come From The Healthcare Industry

As in years past, matters involving allegations of healthcare fraud were the driver, accounting for more than 66% of all fraud related recoveries in FY 2017. While the $2.47 billion was effectively constant from FY 2016, this was the fourth largest recovery in the past 30 years. It is also the eighth consecutive year that healthcare fraud recoveries exceeded $2 billion.  Largest recoveries came from settlements involving the drug and medical device sector.

Qui Tam Cases Lead Recoveries – and Healthcare Cases Dominate

Cases pursued under the False Claims Act’s qui tam provisions continue to drive matters pursued against healthcare entities. Of the 544 new matters brought in FY 2017, 491 were initiated by relators, down just slightly from 2016 but, nevertheless, the third largest annual filing since DOJ began keeping records in 1986.

Government intervention in these cases continues to generate the lions share of the recoveries. Of the $2.47 billion recovered in healthcare matters, $2.06 billion was generated from cases where the government intervened. While by contrast cases in which the government declined to intervene generated $380 million, this was the second-highest annual recovery from such cases in 30 years. Thus, while government intervention continues to be a significant concern, the reality is that more cases are being pursued by relators post declination, creating additional risk for healthcare entities.

DOJ statistics also confirm the significant financial incentives for relators to pursue these cases. In FY 2017, the government paid more than $392 million in relator share awards; more than $283 million of these payments came in connection with healthcare cases. Since 1987, almost $5 billion has been paid to realtors. These numbers suggest that the potential of a major financial reward is real and will continue to encourage the filing and pursuit of actions, particularly against those in the healthcare industry.

Individual Accountability Remains A Priority…Particularly in Healthcare
Finally, the report reflects the Department’s continued focus on individual accountability. Recoveries included individuals agreeing to hold themselves jointly and severally responsible for multimillion dollar settlements with the government, as well as individual settlements following, and separate and apart from, corporate resolutions.

Significantly, every case cited in DOJ’s press release on the issue of individual accountability was from the healthcare sector. This suggests that those employed in the healthcare industry remain key targets of both the government and qui tam relators.

*          *          *

The FY 2017 DOJ statistics reflect that a change in Administration has done little to alter the government’s belief that devoting time and resources to FCA cases makes “good business sense.” Health care entities—and, as important, individuals in the healthcare industry—need to be mindful of this focus, the potential for violations and to ensure the existence of strong compliance functions to deal with compliance-related matters in a way that is intended to prevent claims and litigation, and to serve as strong defenses when matters are pursued.

As discussed previously in this blog, efforts to curb fraud, waste and abuse are generally “bi-partisan.” Given the significant monetary recoveries the Government enjoys through enforcement of the federal False Claims Act (“FCA”), we have predicted that efforts in this arena will continue under a Trump administration. However, this is dependent, in part, on the priorities of the new administration and the resources it devotes in this arena. To this end, the testimony of Attorney General nominee Sessions during his confirmation hearing on January 10th may have given us some insight into how he views the FCA.

Notably, as part of his opening testimony, Attorney General nominee Sessions said:

“Further, this government must improve its ability to protect the United States Treasury from waste, fraud, and abuse. This is a federal responsibility. We cannot afford to lose a single dollar to corruption and you can be sure that if I am confirmed, I will make it a high priority of the Department to root out and prosecute fraud in federal programs and to recover any monies lost due to fraud or false claims.”

During questioning by Senate Judiciary Committee Chairman Charles Grassley (R. IA.), Sessions elaborated on his intent to focus on the FCA. When asked whether he would “pledge to vigorously enforce the False Claims Act and devote adequate resources to investigating and prosecuting False Claims Act cases,” Sessions testified:

“In the qui tam provisions and the part of that, I’m aware of those. I think they are valid and an effective method of rooting out fraud and abuse. I even filed one myself one time as a private lawyer…. It has saved this country lots of money and probably has caused companies to be more cautious because they can have a whistleblower that would blow the whistle on them if they try to do something that’s improper. So, I think it’s been a very healthy thing…”

In addition, after commenting that, in his opinion, some qui tam cases remain under seal for an “awfully long time,” Sessions testified that, if confirmed, he would provide Congress with “regular timely updates on the status of…. False Claims Act cases including statistics as to how many are under seal and the average length of seal time.”

Sessions’ testimony seems to have offered something to those on “both sides” of the FCA. His statements suggest that he recognizes the value of the FCA and its qui tam provisions; indeed, we learned that he even brought a qui tam case when he was in private practice. However, his testimony also reflects concern about unreasonably long seal periods, which are a significant problem for defendants in FCA cases. Extended seal periods plainly provide a unilateral litigation advantage to the Government and qui tam Relators by allowing extensive time to investigate while providing defendants no corresponding opportunity. Instead, extended seal periods often force defendants to be relegated to face aged claims once they are finally able to defend themselves. (Most FCA actions are filed under whistleblower, or qui tam, provisions. According to the Department of Justice, whistleblowers filed 702 qui tam suits in fiscal year 2016—an average of 13.5 new cases every week.) Only time will tell if a Justice Department under Attorney General Sessions will press to expedite consideration of FCA cases and improve the “playing field” in the process.

The federal government continues to secure significant recoveries through settlements and court awards related to its enforcement of the False Claims Act (FCA), particularly resulting from actions brought by qui tam relators. In fiscal year (FY) 2016, the federal government reported that it recovered $2.5 billion from the health care industry. Of that $2.5 billion, $1.2 billion was recovered from the drug and medical device industry.  Another $360 million was recovered from hospitals and outpatient clinics.

Government Intervention Drives Recoveries

The FY 2016 FCA statistics reflect that more than 97% of the recoveries from qui tam cases resulted from matters in which the government elected to intervene and pursue directly. Government intervention remains a real danger to health care entities.

However, more than 80% of new FCA matters were filed by qui tam relators; relator share awards reached almost $520 million in FY 2016. The financial incentives to pursue these matters are significant and well recognized; last year, the number of new qui tam FCA cases was the second highest since 1987.

Enforcement Climate Became Worse for Individuals in FY 2016—and Will Likely Continue

The government’s focus on individual liability, as reflected in the “Yates Memo,” is expected to continue. This focus on individual accountability has recently resulted in substantial FCA recoveries from physicians, a former hospital CEO, a nursing home CFO, and even the Chair of a board of directors.[1]  On the administrative side, such focus has resulted in the 20-year exclusion of a physician specializing in urogynecology whom the government alleged billed for services not performed or not medically necessary. Indeed, this focus continues: just last week, the government filed a FCA complaint against a mental health and substance abuse clinic and its owner in his individual capacity.

Regulatory Changes in 2016 Created More Financial Exposure

The monetary exposure faced by health care industry participants under the FCA is increasing. In June, the Department of Justice released an interim final rule increasing the minimum per-claim penalty under Section 3729(a)(1) of the FCA from $5,500 to $10,781 and increasing the maximum per-claim penalty from $11,000 to $21,563.

The Government’s Use of Technology

The use of technology has markedly enhanced the government’s recovery efforts. Federal and state governments, along with some commercial insurers, are investing in the use of predictive analytics that can analyze large volumes of health care data to identify fraud, waste, and abuse. Notably, the government reportedly enjoyed an $11.60 return for each dollar it spent on its investment in these technologies in 2015.  The use of such technology is expected to continue under the new administration.

The Risk of Enforcement Is Real

The FY 2016 FCA statistics reflect the government’s belief that devoting time and resources to FCA cases makes “good business sense.” This realization is very unlikely to change. Health care entities—as well as individuals—must be alert to potential violations and have strong compliance functions to deal with compliance-related matters in a way that prevents claims and litigation.

Enforcement in a Trump Administration and Opportunities to Reshape the Landscape

Enthusiasm for efforts to curb fraud, waste, and abuse is bipartisan. As a result, government enforcement is likely to stay on its present course with the incoming administration, in good part due to the high return on investment in government fraud investigations and no public policy outcry to reduce such enforcement efforts.

While the growth of the federal government’s investment in enforcement efforts might slow due to both the anticipated federal worker hiring freeze and President-elect Trump’s pledge to reduce regulations, health care entities should not ignore the real risk that they face in this area.

A new administration, however, may bring opportunities to reshape part of the enforcement landscape. President-elect Trump promised to repeal and replace the Affordable Care Act (“ACA”). Included within the ACA were several provisions that made it easier for qui tam relators to bring FCA cases.[2] While it is likely that such provisions—which plainly benefit the government—would be pressed for exemption from any repeal, this does present the potential for legislative changes beneficial to potential FCA defendants. Additionally, given the real likelihood of multiple U.S. Supreme Court appointments, along with the need to fill the more than 100 current federal district court vacancies, more legal challenges to efforts to expand the reach of the FCA can be anticipated.

____

[1] See Press Release, Department of Justice, North American Health Care Inc. to Pay $28.5 Million to Settle Claims for Medically Unnecessary Rehabilitation Therapy Services (Sept. 19, 2016), https://www.justice.gov/opa/pr/north-american-health-care-inc-pay-285-million-settle-claims-medically-unnecessary; Press Release, Department of Justice, Former Chief Executive of South Carolina Hospital Pays $1 Million and Agrees to Exclusion to Settle Claims Related to Illegal Payments to Referring Physicians (Sept. 27, 2016), https://www.justice.gov/opa/pr/former-chief-executive-south-carolina-hospital-pays-1-million-and-agrees-exclusion-settle.

[2] The ACA impacted the FCA by narrowing the Public Disclosure Bar (31 U.S.C. § 3730(e)(4)(A)), expanding the scope of the “original source” exception for the Public Disclosure Bar (31 U.S.C. § 3730(e)(4)(B)), relaxing intent requirement for violations of the Anti-Kickback Statute (42 U.S.C. § 1320a-7b(h)), and providing that claims resulting from Anti-Kickback Statute violations would also be considered false claims (42 U.S.C. § 1320a-7b(g)).

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.

In fiscal year 2015, the U.S. Department of Justice (“DOJ”) recovered more than $3.5 billion from False Claims Act (“FCA”) cases. A staggering $1.9 billion of that amount was recovered from health care providers who were alleged to have provided unnecessary care, paid kickbacks or overcharged federal health care programs.  While this amount may seem high, the drastic increases in FCA penalties expected this summer have the potential to skyrocket FCA recoveries in coming years. DOJ has not yet released the increased penalty amounts that would apply to FCA cases involving companies in the health care and life sciences industries, but penalty increases released this month by another agency, the U.S. Railroad Retirement Board (“Railroad Board),[1] seem to be a good indication of what providers can expect.

On May 2, 2016, the Railroad Board released an interim final rule, which will take effect on August 1, 2016, that nearly doubles the penalty amounts for false claims submitted to the Railroad Board. The mandatory minimum penalty will increase to $10,781 per claim and the maximum penalty to $21,563 per claim.  The current civil monetary penalty amounts under the FCA (which apply across all federal agencies) range from $5,500 per claim (minimum) to $11,000 per claim (maximum).

 

False Claims Act Penalties: Breaking Down the Numbers
Date and Legislation Minimum Penalty Maximum Penalty Additional Facts

1986

Federal False Claims Act

31 U.S.C. § 3729

$5,000 $10,000 N/A
1996

Inflation Adjustment Act

 

$5,500 $11,000 This adjustment was no more than 10% of the previous penalty amount due to the cap imposed by the Debt Collection Improvement Act of 1996.
2015

Federal Civil Penalties Inflation Adjustment Act Improvements Act  (Bipartisan Budget Act of 2015, Section 701)

$10,781 $21,563 The minimum and maximum penalty amounts are derived by multiplying:

(a) the 1986 penalty amounts; with

(b) the Consumer Price Index for all Urban Consumers (CPI-U) percentage increase between 1986 and 2015 (which is 215.628%).

 

Federal agencies that handle FCA cases are required (under the Bipartisan Budget Act of 2015 (the “Act”)) to publish rules updating their FCA penalty amounts by July 1, 2016, with the new amounts becoming effective on August 1, 2016.  And the penalty increases may not stop there. Under the Act, federal agencies may make annual adjustments to penalty amounts on January 15 of each year.  The allowable increase is based on the percent increase between the Consumer Price Index for all Urban Consumers (“CPI-U”) from the previous year and the CPI-U from two years before.[2]  In other words, if the Railroad Board were to increase the minimum and maximum penalties in 2017, the adjustment would be calculated by multiplying the 2016 penalty amounts ($10,781 (minimum), $21,563 (maximum)) with the percent change between the CPI-U for October 2016 and October 2015.

It is important to remember that this interim final rule is specific to the Railroad Board, and therefore does not apply broadly to health care FCA cases. Still, it strongly suggests that other agencies, including DOJ, are headed in the same direction.  Health care providers and life sciences entities should be thinking about the implications of the impending penalty increases.  For example, higher penalty amounts could make it harder for defendants to reach favorable settlement agreements as relators and the government will have a stronger argument for starting negotiations at much higher numbers.  Also, note that the increased penalties do not affect the government’s ability to seek treble damages in FCA cases.  At the end of the day, though, we suspect that the government will avoid being too aggressive in pushing for extremely high penalty amounts as these could potentially incite challenges under the excessive fines bar of the Eighth Amendment of the U.S. Constitution.

If you are interested in commenting on this interim final rule, note that the Railroad Board has a condensed comment period.  Comments must be submitted on or before July 1, 2016.  Since future penalty adjustment increases do not require prior public notice or comment, this may be one of the few opportunities for health care stakeholders to weigh in.

 

[1] The Railroad Board is an independent executive agency that administers retirement, survivor, unemployment, or sickness benefit programs for railroad workers and their families.  As part of the retirement program, the Railroad Board has administrative responsibilities under the Social Security Act to provide railroad workers benefit payments and Medicare coverage.

[2] Agencies can, through rulemaking, choose to increase penalties by a lesser amount than the new formula dictates, but only if the Secretary of the agency finds, and the Director of the U.S. Office of Management and Budget concurs, that increasing the penalty by the required amount will have a negative economic impact or that the social costs outweigh the benefits.