CMS Guidance, OIG, Regulatory, Stark Law January 13, 2021

Fraud and Abuse Rules Part II: Amended EHR and New Cybersecurity Donation Safe Harbors and Exceptions

By Holly Buckley, Janice M. Suchyta, Michael Paluzzi and Kelly A. Bauer

As discussed in a previous McGuireWoods alert, the U.S. Department of Health and Human Services (HHS) published final rules expected to be effective Jan. 19, 2021, that significantly amend the Physician Self-Referral Law (Stark Law) and the federal Anti-Kickback Statute (AKS). This client alert, the latest in McGuireWoods’ summary series on these final rules, focuses on changes to the electronic health records (EHR) items and services exception to the Stark Law and EHR safe harbor to the AKS. This alert also provides a summary of a new exception to the Stark Law and a safe harbor to the AKS related to the donation of cybersecurity software and services.

These changes include the addition of a standalone cybersecurity safe harbor and exception, and the following changes within the existing EHR safe harbor and exception: (1) the addition of cybersecurity technology and services, (2) modernization updates regarding interoperability provisions, (3) changes to cost-sharing requirements, (4) removal of the replacement technology donation prohibition and (4) removal of sunset provisions. By implementing these changes, the Office of the Inspector General (OIG) and the Centers for Medicare & Medicaid Services (CMS) are allowing more flexibility around the donation of certain EHR and cybersecurity items and services, with an overall intent by the OIG to strengthen healthcare industry defenses against cyberattacks.

The final rules stem from HHS’ Regulatory Sprint to Coordinated Care (discussed in a Sept. 26, 2018, client alert), intended to incentivize value-based arrangements and patient care coordination by expressly permitting certain activities that could be deemed problematic under current law.

1. CMS and OIG added cybersecurity technology and services to the EHR exception and safe harbor, and added a standalone cybersecurity technology and related services exception and safe harbor. CMS and OIG noted that the digitization of healthcare delivery and rules designed to increase interoperability and data sharing in the delivery of healthcare create numerous targets for cyberattacks.

CMS and OIG finalized rules providing for the donation of cybersecurity items and services both within the EHR exception and safe harbor and through a standalone exception and safe harbor. To qualify under the EHR exception and safe harbor, such software and services must have the predominant purpose of protecting electronic health records, particularly against cyberattacks caused by ransomware and other digital threats. In contrast, the new cybersecurity exception and safe harbor are broader than their EHR counterparts and include fewer conditions. For example, the cybersecurity exception and safe harbor do not share the condition of a 15 percent required contribution from recipients that exists under the EHR exception and safe harbor. The chart in this alert (see below) summarizes the key differences between the EHR and cybersecurity exceptions and safe harbors. CMS and OIG clarified that a party seeking to protect an arrangement involving the donation of cybersecurity software and services must comply with only one exception.

As finalized, the cybersecurity exception and safe harbor allow for the donation of cybersecurity technology (including hardware) and related services if certain conditions are met:

The nonmonetary remuneration (consisting of technology and services) is necessary and used predominantly to implement, maintain or re-establish cybersecurity. “Cybersecurity” means the process of protecting information by preventing, detecting and responding to cyberattacks.
Neither the eligibility of a recipient for the technology or services, nor the amount or nature of the technology or services, is determined in any manner that directly takes into account the volume or value of referrals or other business generated between the parties.
Neither the physician nor the physician’s practice (including employees and staff members) makes the receipt of technology or services, or the amount or nature of the technology or services, a condition of doing business with the donor.
The arrangement is documented in writing, which must identify the recipient, and includes a general description of the item or service provided, the time frame of donation, an estimated value of the donation and, if applicable, the recipient’s financial responsibility within the arrangement.

The final exception and safe harbor will protect certain cybersecurity hardware donations that meet conditions in the exception and safe harbor, but it will not require parties to conduct a risk assessment to determine whether the hardware is reasonably necessary, as contemplated in the proposed rule, prior to donating hardware. The cybersecurity exception and safe harbor include hardware that is necessary and used predominantly to implement, maintain or re-establish cybersecurity.

CMS and OIG have taken a neutral approach toward the types of technology that can be donated. So long as these technologies comply with the exception and safe harbor conditions of necessity and predominate use, they will likely be protected. CMS broadened the definitions of cybersecurity technology and services by removing the word “effective” to encourage donations where parties may not have the technical knowledge required to determine the effectiveness of a software donation. CMS and OIG made it clear that they will not distinguish between locally downloaded and cloud-based software, and that both can qualify for protection. Some examples of donation-eligible items and services include installed and cloud-based cybersecurity software, EHR patches and updates, and cybersecurity training services.

2. CMS and OIG finalized modernization updates to EHR interoperability provisions. The original rules — discussed in an April 12, 2013, client alert and a Dec. 24, 2013, client alert — prohibit a donor from taking any action to limit or restrict the use, compatibility or interoperability of EHR items or services. CMS and OIG proposed modifications to the requirements that prohibit a donor from taking any action to limit or restrict the use, compatibility or interoperability of EHR items or services, in recognition of significant intervening legal updates in this area. CMS did not finalize a proposed information-blocking modification and indicated that the Office of the National Coordinator for Health Information Technology is more qualified to enforce the prohibition against information blocking.

3. OIG expanded the scope of protected donors under the EHR safe harbor. The OIG final rule expanded the scope of protected donors under the EHR safe harbor to include certain entities comprised of the types of individuals or entities that provide services covered by a federal healthcare program and submit claims or requests for payment, either directly or through reassignment, to the federal healthcare program. In addition to the entities currently covered as protected donors, this change now allows donation from a broader scope of entities that have an indirect responsibility for patient care (e.g., parent companies of hospitals, health systems and accountable care organizations). OIG explained that there is little risk associated with these entities, as they generally do not directly receive referrals and have existing financial risk for patient outcomes. OIG declined to expand the list of protected donors to include all donors.

4. CMS and OIG changed the EHR cost-sharing requirements. CMS and OIG retained the 15 percent contribution requirement for donation under the EHR exception and safe harbor for all recipients, despite comments requesting decreased percentages or waived requirements for rural and small practices. Additionally, CMS and OIG clarified that a recipient must pay the required cost contribution amount before receiving an initial donation of electronic health records items and services or a donation of replacement items and services. However, with respect to items or services donated after the initial donation or the replacement donation, the final rule does not require that the cost contribution amount be made in advance, and allows for such amounts to be paid at reasonable intervals. The specific example provided for “reasonable intervals” is that a donor could bill separately for each update or bill the recipient monthly or quarterly to combine the contribution payments for all updates during a select period of time.

5. CMS and OIG allowed donation of replacement technology. The current EHR exception and safe harbor do not protect the donation of replacement technology when the replacement is for “equivalent items or services.” This prohibition has meant that where a potential recipient has an EMR, donation of EMR technology may not be protected if it is “equivalent” — a term that is not clearly defined. In the adopted rules, CMS and OIG finalized the proposal to permit donations of replacement items and services by removing the requirement that the donor not have actual knowledge of, or not act in reckless disregard or deliberate ignorance of, the fact that the physician possesses or has obtained items or services equivalent to those provided by the donor. In making this change, CMS and OIG recognized that the existing prohibition on donation of replacement items and services effectively locks a physician recipient into a particular vendor because recipients are forced to choose between paying 15 percent as contribution for donated software that is outdated or subpar, and paying the full cost of replacement software.

6. CMS and OIG eliminated the sunset provisions in the EHR exception and safe harbor. The exception and safe harbor concerning EHR items and services originally were scheduled to sunset on Dec. 31, 2013. In 2013, CMS and OIG extended the sunset date to Dec. 31, 2021, but retained the idea that this exception would be obsolete once EHR technology was universal and would then be eliminated. In the final rules, CMS and OIG removed the sunset provisions, acknowledging that universality of cybersecurity software has not yet been achieved nationwide, but continues to be a goal of both CMS and OIG.

With the implementation of these final rules, CMS and OIG removed burdens on providers, without creating substantial risk of increased fraud and abuse. While CMS and OIG acknowledged that any donation of valuable technology poses risks of fraud and abuse, the need to protect the “weak links” in a healthcare system outweighs these concerns due to the threat of cyberattacks. Allowing entities to donate cybersecurity technology and related services to physicians will lead to strengthening of the entire healthcare ecosystem by increasing interoperability and decreasing the overall threat posed by cyberattacks.

	EHR Exception and Safe Harbor	Cybersecurity Exception and Safe Harbor
What software does it cover?	EHR software is necessary and used predominantly to create, maintain, transmit, receive or protect electronic health records, expressly including cybersecurity software necessary and used predominantly to protect electronic health records.	Any cybersecurity software that is necessary and used predominantly to implement, maintain or re-establish cybersecurity.
What hardware does it cover?	Does not apply to the donation of hardware, even if related to or predominantly used for electronic health records.	Applies to hardware that is necessary and used predominantly to implement, maintain or re-establish cybersecurity.
Does this include replacement technology?	Yes, but only if replacement technology will qualify as necessary and used predominantly to create, maintain, transmit, receive or protect electronic health records. The final rules remove the previous obstacle to this kind of donation.	Yes, but only if replacement technology will qualify as necessary and used predominantly to implement, maintain or re-establish cybersecurity. For example, if the technology being replaced is outdated or poses a cybersecurity risk, replacement technology will fulfill this requirement.
What services does it cover?	Services that are necessary and used predominantly to create, maintain, transmit, receive or protect electronic health records.	Services that are necessary and used predominantly to implement, maintain or re-establish cybersecurity.
Is donor contribution required?	Yes. All donations require the donor to contribute 15 percent of the value of the donated software.	No. There is no contribution requirement under the exception and safe harbor. However, donors are free to structure arrangements to include contribution and still use the exception and safe harbor.
Can donation take into account the volume or value of referrals?	No.	No.
Can donation be a condition for doing business with the donor?	No.	No.
Must the arrangement be documented in writing?	Yes.	Yes.
Is there a deeming provision that can be used to ensure compliance?	Yes. So long as the software donated is NIST-certified at the time of donation, the software qualifies under the deeming provision.	No, CMS and OIG declined to include such a provision in the final rules.

Contact a McGuireWoods attorney or one of the authors of this alert for more information regarding these final rules. Given the significance of these changes, McGuireWoods plans to provide additional analysis and summaries leading up to the rules’ anticipated Jan. 19, 2021, effective date.

To review additional guidance on the final rules, see the following McGuireWoods legal alerts:

Part I: Changes to Patient Inducement and Kickback Policies (Jan. 11, 2021)
Private Equity Healthcare Affiliations (Jan. 7, 2021)
Summary of the final rules (Nov. 23, 2020)

OIG, Regulatory January 12, 2021

Fraud and Abuse Rules Part I: Changes to Patient Inducement and Kickback Policies

By Anna Timmerman, Timothy Fry and Brian King

As discussed in a previous McGuireWoods alert, the U.S. Department of Health and Human Services (HHS) published final rules expected to be effective Jan. 19, 2021, that significantly amend the Physician Self-Referral Law (Stark Law), the federal Anti-Kickback Statute (AKS) and the Civil Monetary Penalties (CMP) Law. This client alert, the first in McGuireWoods’ summary series on these final rules, focuses on three key revisions to the AKS and the CMP Law related to patient inducement and patient kickback policies.

These policy changes include (1) a new safe harbor for patient engagement and support for participants in value-based arrangements, (2) expansion around patient transportation protections and (3) incorporation of the statutory exception for furnishing telehealth technologies to certain in-home dialysis patients. By implementing these changes, the Office of the Inspector General (OIG) is allowing more flexibility around beneficiary inducement and patient engagement tools that could be deemed to violate the AKS, which prohibits remuneration with the intent to induce or reward referrals, or the CMP Law, which imposes penalties against any person offering or transferring remuneration to a federal healthcare program beneficiary that is likely to influence the beneficiary’s selection of a particular provider.

Importantly, these changes affect the types of additional services that may be provided to patients, such as transportation and telehealth, the need for which has become only more critical during the COVID-19 pandemic.

The final rules include several amendments related to the AKS safe harbors, which protect providers under both the AKS and the CMP Law, as well as the beneficiary inducement CMPs. Notably, the final rules do not include most of the optional conditions that OIG had asked commenters to consider in its proposed rule, discussed in a Oct. 29, 2019, McGuireWoods alert. Rather, the final rule generally tracks the conditions as proposed, with certain key changes to the proposals discussed below.

1. New Patient Engagement and Support Safe Harbor

In the final rules, OIG finalized a new safe harbor at 42 CFR § 1001.952(hh) to protect “patient engagement tools and supports furnished by a participant in a value-based enterprise [(VBE)] to a patient in a target patient population.” This new safe harbor is intended to help providers keep patients involved in their care and to help patients take steps to make informed healthcare decisions and maintain or improve their health, without AKS and beneficiary inducements CMP barriers. Although these changes broaden the support services that can be provided to members of the target population, it remains important to comply with the rules for VBEs, which are complex and designed to ensure two or more providers collaborate to achieve certain enumerated provisions, as will be further discussed in a forthcoming alert on value-based arrangements.

Specifically, under the new safe harbor, “remuneration” will not include a “patient engagement tool or support furnished by a VBE participant to a patient in the target patient population of a value-based arrangement to which the VBE participant is a party” if the safe harbor elements are satisfied. Some of the key requirements with respect to the engagement tool or support are that the retail value of the per-patient engagement tool or support cannot exceed $500 (to be adjusted annually), and the tool or support must: (i) be an in-kind item, good or service; (ii) have a “direct connection” to the coordination and management of the target patient population’s care; (iii) not be cash or a cash equivalent; (iv) not “result in medically unnecessary or inappropriate items or services reimbursed” by government healthcare programs; (v) constitute something that was recommended by the patient’s healthcare professional; and (vi) advance one or more VBE goals. While OIG removed certain barriers and did not incorporate optional safeguards that had been proposed, such as returning the tool at the end of care or the VBE, the OIG did add that the patient’s insurance coverage could not be considered in determining whether to provide the tool or support if it would receive safe harbor protection.

However, there are limitations on who can offer these patient engagement tools or supports. Certain entities are ineligible for safe harbor protection. The safe harbor uses the same ineligible entities list as the value-based safe harbors — including, for example, pharmaceutical manufacturers, wholesalers and distributors; PBMs; laboratory companies; compounding pharmacies; and DMEPOS suppliers — but notably includes a pathway for manufacturers of devices or medical supplies that provide digital health technology. Further, OIG revised language in the final rule to clarify that a provider’s agent could provide the tool or support (e.g., contracting with a vendor to install shower handle bars to prevent patient injury from falls) if certain conditions are met.

2. Modifications to Patient Transportation Safe Harbor

OIG has acknowledged that transportation plays a significant role in patients’ “access to care, quality of care, healthcare outcomes, and effective coordination of care for patients, particularly for patients who lack their own transportation or who live in ‘transportation deserts.’” In the new rules, OIG finalized several modifications to the existing safe harbor for local transportation at 42 CFR § 1001.952(bb), which include expanding mileage limits for rural areas (up to 75 miles instead of 50 miles) and eliminating mileage limits on the transportation of a patient “discharged from an inpatient facility following an inpatient admission or released from a hospital” after the patient was under observation status for at least 24 hours to the patient’s place of residence (which is broadly defined).

rideshare arrangements

In the final rules, OIG points out that the safe harbor is available for transportation provided through rideshare arrangements, if that is how an eligible entity desires to make transportation available. These modifications should allow more use of the safe harbor protection to the AKS and CMP Law than the previous version discussed in a Jan. 11, 2017, McGuireWoods alert.

3. Protection for Telehealth Technologies for In-Home Dialysis Patients

The final rule amends 42 CFR §1003.110 to formally implement the Budget Act of 2018 amendments to the beneficiary inducements CMP definition of “remuneration,” allowing certain telehealth technologies to be provided to at-home dialysis patients. Specifically, these changes allow Medicare Part B beneficiaries with end-stage renal disease (ESRD) to receive certain telehealth technologies from their providers to furnish at-home dialysis if the following conditions are met:

The telehealth technologies are furnished to the individual by the provider of services that is currently providing care to the patient, or has been selected by the individual to provide services. This is a change from the proposed rule where OIG was planning to require care to have begun (and not just selected).
The telehealth technologies “are not offered as part of any advertisement or solicitation.”
The telehealth technologies “are provided for the purpose of furnishing telehealth services related to the individual’s [ESRD].”

In addition, for purposes of this protection, OIG revised its proposed definition of telehealth technologies to: “hardware, software, and services that support distant or remote communication between the patient and provider, physician, or renal dialysis facility for diagnosis, intervention, or ongoing care management.” Notably, this revised definition is technology agnostic and would not require that there be two-way, real-time interaction as the proposed rule suggested. This means, for example, fax machines theoretically could qualify, but the provider would have to determine that the technology meets all applicable conditions, including that the technology was provided to furnish telehealth services for the patient’s ESRD.

OIG declined to impose certain proposed conditions that would have significantly limited the protection’s practical use by providers for their patients. Proposed conditions not adopted in the final rule included, among others, requirements that the donated technology “contribute substantially” to the provision of ESRD-related telehealth services, that the technology not be of “excessive value,” and that it not be duplicative of technology the patient already owns. This increased flexibility may reflect the growing role telehealth plays in the context of the COVID-19 pandemic. Further, OIG recognized that there could be practical reasons why a provider would furnish duplicate technology, such as a single platform for all patients or situations in which a patient’s existing technology has some, but not all, of the capabilities necessary for services.

To take advantage of this new exception to the definition of remuneration in the beneficiary inducements CMP, the ESRD patient must have received the telehealth technology on or after Jan. 1, 2019.

With the implementation of these final rules, OIG seeks to remove specific AKS and CMP Law burdens on providers in engaging with their patients, without creating substantial risk of increased fraud or abuse. While some of these patient tools are not getting the same focus as the value-based arrangement changes, the changes could have similarly large impacts in allowing more care coordination and reducing overall costs to the healthcare system.

To review additional guidance on the final rules, see the following McGuireWoods legal alerts:

Part II: Amended EHR and New Cybersecurity Donation Safe Harbors and Exceptions (Jan. 12, 2021)
Private Equity Healthcare Affiliations (Jan. 7, 2021)
Summary of the final rules (Nov. 23, 2020)

CMS Guidance, OIG, Regulatory, Stark Law January 11, 2021

Stark & AKS Reform Webinar – Tues., Jan. 12, 2021

By Timothy Fry and Gretchen Townshend

On Tues., Jan. 12, 2021, at 12 – 1 p.m. (ET) | 11 a.m. – 12 p.m. (CT) | 9 – 10 a.m. (PT), McGuireWoods will be hosting a complimentary webinar, Fraud and Abuse Regulatory Reforms: Key Themes for Private Equity-Backed Platforms.

As previously reported on The FCA Insider, the federal government recently released final rules reducing certain burdens implicit in federal fraud and abuse laws—the Stark Law, the Anti-Kickback Statute and the Civil Monetary Penalties Law.

During this webinar, McGuireWoods attorneys Gretchen Townshend and Tim Fry, who have been analyzing these rules closely, will share how they may impact your business. The webinar is focused on private equity-backed healthcare platforms, but will be of interest to the wider healthcare community.

Please visit the McGuireWoods website to join us for this webinar.

Defense Arguments, OIG, Stark Law December 15, 2020

MedMal Plaintiff Uses Anti-Kickback and Stark to Avoid Summary Judgment

By Ashley M. Monzel, Timothy Fry, Brett Barnett and David Pivnick

A federal court recently allowed a plaintiff’s state law negligence claim, which utilized the Anti-Kickback Statute (“AKS”) and federal physician self-referral law (the “Stark Law”) as legal support to survive a motion for summary judgment. In Post v. AmerisourceBergen Corporation, No. 1:19-CV-73 (N.D.W. Va. Nov. 2, 2020), Plaintiff, Frances G. Post, filed suit against Defendants, AmerisourceBergen Corporation, US Bioservices Corporation, I.g.G. of America, Inc., and HIS Acquisition XXX, Inc., alleging negligence claims arising from Plaintiff’s purchase of immunoglobulin (“IVIG”). Facing a motion to dismiss, the court allowed the Plaintiff to utilize these federal fraud and abuse laws to support a state law cause of action.

Plaintiff’s claims revolve around allegations of I.g.G. employees targeting physicians to achieve increased sales of and profits from IVIG, an intravenously administered blood product with the potential for severe side effects that may prevent people from carrying out functions of daily living. Included in the allegations was the assertion that Defendants made payments to Plaintiff’s physician to induced him to “misdiagnose patients and wrongfully disclose sensitive, private, and protected medical information of Plaintiff and other putative class members for the purpose of increasing new-book sales of IVIG, which increased Defendants’ profits.” From these facts, Plaintiff alleged seven claims: negligence, personal injury, civil conspiracy, fraudulent concealment, unjust enrichment, breach of confidentiality, and violation of privacy.

Plaintiff’s use of Defendants’ conduct, as alleged to AKS and Stark Law violations, to support unrelated state law claims, is noteworthy for a claim of action outside of a False Claims Act (“FCA”) action. Many courts, like the federal court applying West Virginia law in Post, allow negligence claims to utilize violations of law to meet elements of the legal claim. Further, if there are injuries like in Post, plaintiffs could similarly allege conduct when a private right of action is not available. The judicial opinion here did not agree with the Defendants’ arguments that this effectively created a private right of action for these fraud of abuse laws that did not exist and is only “enforceable through the qui tam provisions of the [FCA].”) But they were unsuccessful and the court appeared to give weight to Plaintiff’s view that these federal statutes do not prohibit a person from asserting state tort claims based on conduct that results in personal injuries and damages where the conduct may also violate federal regulatory standards or criminal statutes. The court then denied the motion to dismiss the case.

Past Cases

Though not an overwhelmingly common topic in litigation, Plaintiff is not the first to bring state law claims rather than an FCA action for conduct that may have violated AKS or Stark Law. Our review of such cases that unlike in Post most plaintiffs have been unsuccessful. In those case which we discuss examples of below, the AKS and Stark Law violations were the sole basis for making out a state law claim. In Post, by contrast, the court viewed that there was possibly evidence that the inducement led to an improper diagnosis causing the injury and therefore the AKS and the Stark Law were additional support making out elements of the state law claim assisting in demonstrating improper conduct, while alleging other negligent conduct.

Reliable Ambulance Service

In Reliable Ambulance Service, Inc. v. Mercy Hospital of Laredo, No. 04-02-00188-CV (Tex. App. Aug. 20, 2003), damages and injunctive relief were sought based exclusively upon proof that Mercy Hospital’s violation of AKS injured Reliable Ambulance. The state appeal court affirmed summary judgment, holding that allowing a private citizen to assert a claim “based solely” on an alleged violation of the federal criminal statute would be inconsistent with the intent of Congress. As such, plaintiff ultimately failed to state a claim under Texas law. As noted in a footnote to the opinion, the court recognized that other courts have acknowledged the possibility that conduct allegedly violating these federal statutes could form the basis for liability under a state law cause of action. However, as the plaintiff in Reliable Ambulance did not plead any claim in addition to a “generic tort of wrongful competition” based solely on the alleged AKS violation, the court did not fully address when a plaintiff could use alleged AKS and Stark Law violations as a basis for a state law claim where the plaintiff has made out all elements of the state law cause of action.

Synthesis (U.S.A.)

A federal court came to a similar conclusion in Synthesis (U.S.A.) v. Global Medical, Inc., No. CIV.A. 04-CV-1235 (E.D. Pa. Sept. 14, 2005). In Synthesis, the plaintiff also relied on evidence of AKS violations in an attempt to make out its Pennsylvania state law claim. The Court explicitly noted that the same conduct that is prohibited under the AKS can nevertheless provide a basis for civil liability under another state or federal law. The question was merely whether the conduct violated Pennsylvania state law. The Synthesis Court held that the plaintiff’s claim must be dismissed because it failed to state a claim under Pennsylvania law, because the plaintiff failed to make out each element of the state law cause of action. The court did not dismiss the plaintiff’s case because it believed it to be improper to bring the claim under state law; the case was dismissed because the plaintiff failed to state a claim and sufficiently establish all elements of the state law claim.

Potential Defense Arguments Regarding Contravention of Legislative Intent

Notwithstanding these three cases where courts have appeared to be willing to consider the AKS and the Stark Law used to support state law claims, there still may be a strong argument that this tactic runs flies in the face of legislative intent. This argument was highlighted in Reliable Ambulance, as the court there noted, in determining whether reliance on a federal penal statute as evidence of state law violations contradicted legislative intent as part of that dismissal. Congress has actively regulated this area—providing an explicit private right action, through the FCA (with public disclosure laws), and providing both civil and criminal penalties depending on the circumstances. Similarly, many states have their own comparable state statutes with their own judgments with respect to appropriate remedies and private claims.

Currently, there have not been an abundant number of such cases brought under state law claims, whether for medical malpractice or otherwise. However, should that change and we begin to see more plaintiffs bringing state law claims in reliance on conduct that allegedly violates AKS or Stark Law, this would add one more punishing element in addition to the FCA that must be evaluated for healthcare providers in their fraud and abuse compliance. Such a trend could also change the risk calculation when considering government-approved self-disclosure protocols if such submission could be used by a plaintiff to allege medical malpractice or other state law claims (and potentially argue an admission of guilt) notwithstanding the settlement.

DOJ, FCA Litigation, OIG December 8, 2020

Eleventh Circuit Holds “Knowingly and Willfully” Does Not Require Motive for Kickback Recipient

By Timothy Fry, Brett Barnett and David Pivnick

A recent Eleventh Circuit opinion clarified the mens rea burden the Government must prove to establish criminal intent to violate the Federal Anti-Kickback Statute (“AKS”) for a recipient or payee of a kickback or bribe under 42 U.S.C. § 1320a-7b(b)(1), and affirmed a conviction against a healthcare provider. The opinion in United States v. Alap Shah held that erroneous jury instructions regarding the AKS were harmless, as the instructions required the Government prove more than the statute requires. The Shah opinion clarified that the AKS requires no proof of a defendant’s motivation for accepting an illegal payment, so long as he accepts the kickback knowingly and willfully.

the AKS requires no proof of a defendant’s motivation for accepting an illegal payment

The case involved a Georgia-based podiatrist (“Shah”) who participated in a kickback conspiracy involving prescriptions for compounded drugs, reimbursable by federal payors, in exchange for remuneration. The physician was recruited as a medical director for a company that compensated him on a monthly basis under what was found to be a sham medical director agreement. The Government brought evidence of text exchanges between Shah and the company owners discussing target numbers for prescriptions as well as reimbursement rates for different drugs as well as evidence that Shah failed to complete any medical director “duties” as required by the agreement. The monthly compensation paid to Shah was found by a jury to be in exchange for his prescription rates for costly compounded drugs rather than performance of actual medical director duties.

At trial, the judge instructed the jury that the physician was guilty of violating the AKS if just one of his motives for writing prescriptions was receiving remuneration, even it was not his sole purpose. The relevant jury instruction read as follows (emphasis added):

“To satisfy the second element of this offense, the Government does not have to prove that the defendant’s sole purpose in soliciting or receiving the remuneration or kickback was to obtain payment in return for the purchasing, leasing, ordering and arranging for, and recommending purchasing, leasing and ordering. Rather, the Government must only prove that obtaining payment in return for the purchasing, ordering or leasing was one of the defendant’s purposes in soliciting or receiving the remuneration or kickback.”

In reviewing the jury instructions, the Eleventh Circuit held that the AKS requires a showing that the defendant “knowingly and willfully” accepted payment in return for referrals, but does not require a the defendant’s motive for accepting the payment. The opinion contrasted its holding with the language in 42 U.S.C. § 1320a-7b(b)(2) where the statutory prohibition for offering or paying remuneration is “to induce such person” to refer, suggesting motive is critical for the offeree of payment. Accordingly, while the Circuit Court held that the trial court erred by instructing the jury that the government had to prove Shah accepted the payments at least in part because they were made in return for the prescriptions he wrote, since no such showing was necessary, in the absence of any harm to the defendant, the Circuit Court affirmed the trial court’s decision.

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The physician in this case was convicted of one count of conspiring to receive health care kickbacks or defraud the United States, two counts of receiving kickbacks. He was sentenced to 36 months of incarceration on each count, to run concurrently, and ordered to pay $55,340 in restitution (approximately the amount he received under this charged conspiracy).

If you have any questions related to the AKS or other laws related to health care fraud, please contact the authors of this post or another member of the healthcare department.

CMS Guidance, OIG, Regulatory, Stark Law November 24, 2020

HHS Finalizes Stark Law, AKS Changes to Reduce Burdens on Healthcare Providers

By Gretchen Townshend and Timothy Fry

On Nov. 20, 2020, the U.S. Department of Health and Human Services (HHS) published two long-awaited final rules significantly amending the Physician Self-Referral Law (Stark Law), the federal Anti-Kickback Statute (AKS) and the Civil Monetary Penalties (CMP) Law. These new rules are a direct result of HHS’ Regulatory Sprint to Coordinated Care, and largely adopt the proposed rules discussed in an Oct. 10, 2019, McGuireWoods client alert.

As discussed in a Sept. 26, 2018, McGuireWoods client alert, the Regulatory Sprint has the goal of reducing regulatory burdens on the healthcare industry and incentivizing coordinated care, by examining federal regulations that impede coordinated care efforts. HHS Secretary Alex Azar praised the rules’ release for assisting in “delivering a system that pays for outcomes rather than procedures.” The final rules are seen as a necessary step in this direction as they provide protections of various value-based arrangements and patient care coordination activities that could have been deemed problematic under the current law.

The final rules, respectively released by HHS’ Centers for Medicare & Medicaid Services (CMS) and the HHS Office of Inspector General (OIG), have, among other changes, added new value-based exceptions to the Stark Law and additional safe harbors under the AKS, and largely take effect in January 2021.

These rules focus on building a system that delivers value

These rules focus on building a system that delivers value, with CMS stating in its rule that it has the goal of “pioneering bold new models in Medicare and Medicaid and removing government burdens that impeded care coordination.” Indeed, for value-based arrangements, CMS and OIG respectively have enacted three largely consistent exceptions to the Stark Law and safe harbors to the AKS to protect remuneration between participants in value-based arrangements. These three proposals vary by the types of remuneration protected, level of financial risk assumed by the parties and types of safeguards: (i) value-based arrangements where participants take full financial risk, which have the fewest regulatory requirements; (ii) value-based arrangement with substantial downside risk (in addition to upside rewards), which have some additional regulatory requirements; and (iii) care coordination arrangements to improve quality health outcomes and efficiency, which do not need to carry financial risk and which carry the most significant regulatory burden.

OIG finalized two other value-based arrangement safe harbors: (1) the Patient Engagement and Support safe harbor for a provider’s furnishing of certain tools and supports to patients to improve quality, health outcomes and efficiency, such as in-kind items and services to support patient compliance with discharge and care plans and services and supports to address unmet social needs affecting health (although OIG removed its enumerated list of examples to be agnostic as to the type of tools and support that are offered); and (2) the CMS-Sponsored Models safe harbor for remuneration provided in connection with CMS-sponsored payment models.

OIG finalized additional changes to the AKS safe harbors, including the following:

Adding a Cybersecurity Technology and Services safe harbor for donations of cybersecurity technology and services.
Modifying the Electronic Health Records Items and Services safe harbor to update the provision regarding interoperability, and to remove the sunset date.
Modifying the Personal Services safe harbor to add flexibility with respect to outcomes-based payments and part-time arrangements. In addition, OIG revised the set-in-advance requirement to no longer necessitate that total payments be determined when entering into the arrangement and instead require the methodology to be determined, which makes this more consistent with the Stark Law.
Modifying the existing Warranties safe harbor to revise the definition of “warranty” and provide protection for bundled warranties for one or more items and related services.
Modifying the Local Transportation safe harbor for local transportation (discussed in a Jan. 11, 2017, client alert) to expand and modify mileage limits for rural areas to 75 miles and to allow more transportation for patients discharged from an inpatient facility or released from a hospital after being placed in observation status for at least 24 hours.
Codifying a statutory exception to the definition of remuneration under AKS related to Accountable Care Organization Beneficiary Incentive Programs.

With respect to the CMP Law, OIG amended the definition of “remuneration” in the CMP interpreting and incorporating a new statutory exception to the prohibition on beneficiary inducements for “telehealth technologies” furnished to certain in-home dialysis patients.

Similar to OIG, in its Stark Law final rule, CMS finalized the value-based arrangements discussed above, as well as a modification to its existing exception for electronic health records items and services. CMS added protections for financial arrangements related to cybersecurity technology, to update and remove interoperability requirements and to remove the electronic health records exception’s sunset date. OIG also updated its similar safe harbor provisions in an almost identical manner.

CMS includes new Stark Law exceptions for the following:

Limited Remuneration to a Physician. Arrangements where a physician receives remuneration limited to no more than $5,000 per calendar year (up from $3,500 as proposed), adjusted annually for inflation, in a fair market value exchange for items or services actually provided by the physician.
Cybersecurity Technology and Related Services. The donation of nonmonetary technology and related services used predominately to implement, maintain or re-establish cybersecurity to a referring provider, similar to the AKS safe harbor finalized by OIG.

The Stark Law final rule also . . . provided guidance for industry stakeholders

The Stark Law final rule also revised certain existing exceptions and provided guidance for industry stakeholders whose financial relationships are governed by the Stark Law, specifically providing new definitions and/or further guidance of key terms used throughout various Stark Law exceptions. CMS clarified that its intent in interpreting and implementing Stark Law has always been to “interpret the [referral and billing] prohibitions narrowly and the exceptions broadly, to the extent consistent with statutory language and intent.” As such, the overall intention of these clarifications was stated as “reduc[ing] the burden of compliance with the [Stark Law], provid[ing] clarification where possible and achiev[ing] the goals of the Regulatory Sprint.” These clarifications and updates include the following, among a long list of others:

Defining “commercially reasonable” to mean that the particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope and specialty. The final regulation also states that an arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties.
Establishing special rules to identify the universe of compensation formulas that are considered to be determined in a manner that takes into account the “volume or value” of a physician’s referrals or the “other business generated” by a physician.
Clarifying when compensation is considered to be “set in advance” for purposes of satisfying the requirements of the exceptions to Stark.
Revising the definition of “fair market value” and “general market value” to provide additional specificity based on the type of financial arrangement being valued.

Through these two final rules, HHS seeks to remove Stark Law and AKS key burdens on providers, without creating substantial risk of increased fraud and abuse. While many providers will likely support these changes and the added flexibility, existing provider arrangements may need to be adjusted, reformed or terminated to comply with the amendments.

Given the significance of these changes and their impact on the healthcare industry, McGuireWoods plans to provide additional in-depth analysis on these proposals in the coming weeks.

The final rule changes are effective Jan. 19, 2021, with one exception on the Stark Law’s definition of group practice, to take effect Jan. 1, 2022. Please do not hesitate to contact a McGuireWoods attorney or one of the authors of this alert for more information regarding these final rules or for assistance in assessing various financial arrangements in light of the new rules.

Defense Arguments, DOJ, Individual Liability, Investigations November 23, 2020

Fifth Circuit Upholds Health Care Fraud Convictions for Home Health Agency Employees

By David Pivnick, Brett Barnett and Timothy Fry

The U.S. Fifth Circuit recently upheld convictions and sentences against five named defendants, each charged with conspiracy to commit health care fraud, conspiracy to violate the Federal Anti-Kickback Statute (AKS) and several counts of substantive health care fraud. In United States v. Barnes, No. 18-31074, 2020 WL 6304699 (5th Cir. Oct. 28, 2020), the Fifth Circuit rejected arguments from five convicted former employees (four physicians and one biller) of Abide Home Care Services, Inc. (“Abide”) who had appealed the trial court’s determination that there was sufficient evidence to support their convictions.

Medicare reimbursement for home health care services was central to the health care fraud and conspiracy convictions in the Barnes opinion. Medicare regulations require that a Medicare patient be in need of skilled services and be “homebound,” as certified by the patient’s physician in order to receive reimbursement for home health care services. The physician certification requires that a physician review an in-home assessment completed by a nurse and approve a plan of care using forms which are then submitted to Medicare. Patients require recertification every sixty days. Payment for home health services varies depending on the complexity of the patient’s diagnosis, with more complex diagnoses receiving higher Medicare reimbursements.

The Government alleged that the defendants committed fraud by billing Medicare for plans of care that they authorized for medically unnecessary home health services which included diagnoses that were not medically supported. Four of the defendants were formerly employed physicians at Abide where they served as “house doctors” that referred patients for home health care services, reimbursable by Medicare. The fifth defendant, a spouse of one of the physician-defendants, served as a biller for Abide. Because Abide employees could predict how much Medicare would reimburse for any particular patient, they were encouraged to “get the score up” on any files that did not meet Abide’s “break-even point.” Moreover, the Government argued that the physician-defendants were paid for referrals, disguised as compensation for services performed as medical directors. Finally, the biller-defendant was alleged to have been paid a salary that increased as her physician-husband’s referrals increased.

As noted above, on appeal, the defendants contended that there was insufficient evidence to support their convictions. In rejecting their argument, the Fifth Circuit pointed to several significant findings from the trial court and held that such findings were sufficient to allow a jury to conclude the conduct was fraudulent. These findings included testimony that employment agreements with the physicians were merely established to create a paper trail, disguising the real intent of the arrangement which was compensation for referrals. Abide staff also would sign for the physician defendants with their knowledge and that certain patients were recertified by the physicians without the patient ever knowing or being treated by such physician. Also, the court pointed to statistical evidence brought out at trial showing that Abide physicians diagnosed patients with complex (and therefore more profitable) diagnoses with significantly greater frequency than other providers in the region—indeed, Abide was an outlier nationally. The owner of Abide also admitted to conspiring with the defendant-physicians to pay them for referrals. Finally, the trial record demonstrated that the biller generated weekly reports tracking revenue and had a “911 code” in the event that law enforcement arrived as evidence sufficient to persuade a jury that she was aware criminal activity was occurring. Collectively, the Fifth Circuit believed a reasonable juror could have convicted the defendants.

*****

On all counts, the recent appellate decision granted significant deference to the trial court’s findings. This case illustrates the uphill battle defendants have on appeal for health care fraud convictions, particularly the difficulty of prevailing on an argument of insufficient evidence. It is also another example, without discussion in the opinion, that while the employment safe harbor to the federal Anti-Kickback Statute has broad applicability that the government views the safe harbor’s rules with limits if it encourages referrals as the individuals convicted in this case were all employees. If you have any questions about the Federal Anti-Kickback Statute or other laws related to health care fraud, please contact the authors or another member of the healthcare department.

OIG, Regulatory November 20, 2020

OIG Issues Special Fraud Alert That Challenges Industry Norms Regarding Speakers Programs

By Samuel C. Bernstein, Kimberly J. Kannensohn, Kelly A. Bauer and Ashley M. Monzel

On Nov. 16, 2020, the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services issued a special fraud alert addressing fraud and abuse concerns with speakers programs conducted by pharmaceutical and medical device companies. While the fraud alert reiterates historical OIG and Department of Justice (DOJ) concerns regarding speakers programs, it also challenges certain common industry practices as suspect under the Federal Anti-Kickback Statute (AKS), raising the bar for pharmaceutical and medical device companies seeking to implement compliant speakers programs.

The fraud alert provides that the OIG now considers the following characteristics of speakers programs to be suspect under the AKS: (i) holding speakers programs at a restaurant, (ii) holding a large number of programs on the same or substantially the same topic, and (iii) holding a program where there have not been any new recent medical or scientific developments or U.S. Food and Drug Administration (FDA)-approved or cleared indications for a product. Given recent enforcement actions regarding allegedly inappropriate speakers programs, including the OIG’s recent enforcement action against Novartis, pharmaceutical and medical device companies should carefully review their speakers programs with counsel to address concerns raised by the Nov. 16 fraud alert.

In July 2020, Novartis entered into a $642 million dollar settlement with the DOJ to resolve allegations that included conducting an inappropriate speakers program. In its settlement agreement, Novartis admitted that the majority of its speakers programs were organized by sales representatives who selected the venue, chose the speakers, and determined which physicians to invite. Novartis also admitted that its sales force used prescribing data to select high-prescribing physicians to become speakers and evaluated programs on a return-on-investment (ROI) basis. Speakers programs were held at some of the most expensive restaurants in the United States and at sporting events, wineries, and golf clubs. Many programs involved little or no scientific or medical discussion, and sales representatives invited prescribers to repeatedly attend the same program.

Even where the government declines to intervene in a lawsuit filed by a whistleblower, pharmaceutical and medical device companies may be subject to significant liability. For example, in January 2020, Teva Pharmaceuticals, USA, Inc. paid $54 million dollars to settle allegations raised by whistleblowers regarding its speakers program, and the federal government declined to intervene in the case. The whistleblowers alleged that Teva’s sales representatives tracked speakers’ prescription activity and selected and paid speakers on the basis of an ROI calculation. Allegations also included that programs were repeatedly attended by the same individuals, that numerous programs had low or no attendance, and that healthcare providers reversed roles at sequential Teva programs, attending one as a speaker and another as an audience member.

Pharmaceutical and medical device companies should be aware of the significant negative ramifications that may result from failing to comply with the guidance set forth in the fraud alert. In addition to substantial fines, penalties, and potential imprisonment for violating the AKS, manufacturers may be subject to a corporate integrity agreement (CIA) that places significant restrictions on their ability to operate. Novartis was required to enter into a CIA that included substantial restrictions on its speakers programs, including: (i) prohibiting programs at restaurants or where alcohol is served, (ii) requiring all non-employee speakers to participate virtually, (iii) prohibiting programs with non-employee speakers that occur more than 18 months after FDA approval, and (iv) limiting total non-employee speaker compensation to $100,000 per product and $10,000 per speaker. Similarly, in 2019, in connection with a $15 million dollar settlement paid by ACell, Inc. that addressed allegations including an inappropriate speakers program, ACell entered into a CIA that required ACell to establish an administrative system for overseeing its speakers programs, including requiring compliance personnel to attend and audit speakers events.

In addition to raising general concerns regarding speakers programs, the fraud alert identifies the following characteristics as illustrative of potentially suspect speakers programs under the AKS:

Presentation of little to no substantive information
Serving meals that exceed modest value or serving alcohol
A venue that is not conducive to the exchange of educational information, including restaurants and entertainment and sports venues
A large number of programs on substantially the same topic or product
Presentations where there is no new recent medical or scientific information and no new FDA approval
Repeat attendees or attendees with no legitimate reason to attend, such as friends, significant others, family members, members of the speaker’s own medical practice, or staff of facilities at which the speaker is a medical director
Selection of speakers by sales or marketing personnel or on the basis of ROI
Paying speakers more than fair market value or in a manner that takes into account the volume or value of past or future business generated by the speaker

Pharmaceutical and medical device companies should carefully consider the fraud alert and related OIG and DOJ guidance in structuring their speakers programs. McGuireWoods has a dedicated team of compliance and regulatory lawyers who serve the pharmaceutical and medical device industries. Please do not hesitate to contact the authors of this article if you have any questions regarding the fraud alert or the characteristics of a compliant speakers program.

DOJ November 13, 2020

California Doctor Pleads Guilty to EKRA Violations

By Michael Paluzzi, Timothy Fry, Brett Barnett and David Pivnick

On September 15, 2020, Doctor Akikur R. Mohammad, a California resident and drug treatment facility owner, pled guilty before the U.S. District Court of New Jersey for violating the Eliminating Kickbacks in Recovery Act (“EKRA”), one of the country’s first convictions under this statute targeting opioid kickbacks. Enforcement under EKRA can help shed light on questions remaining concerning the statute’s broad definitions, particularly around laboratory services, and its application in light of other federal laws such as the federal anti-kickback statute (“AKS”). Thus far, known enforcement cases under EKRA have focused on opioid and drug treatment cases.

The Eliminating Kickbacks in Recovery Act

Congress enacted EKRA as a part of the bipartisan Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act of 2018 (the “SUPPORT Act”), to respond to the opioid epidemic. EKRA prohibits patient brokering and kickback arrangements involving recovery homes, clinical treatment facilities and clinical laboratories regardless of whether the service was paid by a government payor. However, EKRA goes further in prohibiting kickbacks for all recovery homes, clinical treatment facilities and clinical laboratories without requiring any tie to opioid or other drug treatment.

EKRA goes further in prohibiting kickbacks . . . without requiring any tie to opioid or other drug treatment.

EKRA makes it a federal crime to “knowingly and willfully” at 18 U.S.C. § 220(a):

(1) solicit[] or receive[] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, in return for referring a patient or patronage to a recovery home, clinical treatment facility, or laboratory; or

(2) pay[] or offer[] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind—(A) to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory; or (B) in exchange for an individual using the services of that recovery home, clinical treatment facility, or laboratory.

Penalties for violation of EKRA include a fine of not more than $200,000, imprisonment of not more than ten (10) years, or both, per violation.

Questions remain as to how EKRA interacts with the AKS, particularly for laboratory services, as the AKS has statutory and regulatory safe harbors that do not apply to EKRA-prohibited conduct. As mentioned above, despite EKRA’s intent to address opioid treatment (as part of the SUPPORT Act), EKRA’s statutory language is not limited to services involved in opioid use treatment. For treatment facilities and recovery homes that operate almost wholly in the opioid treatment space, this distinction may be insignificant. However, clinical labs can be quite broad in offered services. To-date, the Department of Justice has not provided regulations or clarity on its understanding of the statute. For this reason, the industry has been closely monitoring prosecutions and convictions utilizing EKRA to better understand the parameters of the law.

Mohammed’s Conviction under EKRA

According to the DOJ’s press release, Dr. Mohammad owned a treatment facility and recovery home in Agoura Hills, California. Several of Dr. Mohammed’s co-conspirators owned and operated a California marketing company. The marketing company organized patient recruitment where Dr. Mohammed paid for patient referrals in exchange for kickbacks in part covered by reimbursements from health care programs (receiving more than $439,000 from such programs). The marketing company’s recruiters would encourage patients to remain at the facility for at least ten days to ensure reimbursement. The marketing company also steered patients to additional facilities to trigger extra payments without regard to medical necessity. Referral payments ranged from $5,000 to $10,000 per patient.

Dr. Mohammed is facing up to five years in prison and a $250,000 fine, according to the Justice Department statement. He and his co-conspirators are scheduled for sentencing on January 20, 2021.

The Importance of this Conviction

The full extent of EKRA’s implications still remain uncertain. Most open questions circulate around its application to clinical laboratories, but Dr. Mohammed’s guilty plea, as well as earlier enforcement in other jurisdictions have focused on opioid and drug treatment. Such experiences suggest DOJ is focused on EKRA’s intent and inclusion in the SUPPORT Act, despite potentially broader statutory language. That said, such focus does not ensure that it will not be used more broadly in the future. This plea does signal an increased focus on EKRA enforcement by DOJ moving forward. Future enforcement may provide further certainty around EKRA’s applicability to non-opioid-related lab and other services, as well as answer other questions about how the AKS safe harbors and EKRA interact.

Please contact the authors for more information regarding EKRA and its application to certain arrangements under out current understanding of the law.

Defense Arguments November 2, 2020

Federal Judge Dismisses False Claims Act Lawsuit Citing Advertisement as Public Disclosure

By Brett Barnett, Timothy Fry and David Pivnick

Recently, a federal judge in the Central District of California granted a Motion to Dismiss on behalf of a manufacturer of ophthalmic lenses alleged to have engaged in an illegal kickback scheme, based on the public disclosure bar doctrine. The Court found that because the defendant in the case had long publicly advertised the rewards program alleged to have violated federal law, the Relator in the case could not overcome the False Claims Act (“FCA”) public disclosure bar.

The case, captioned United States of America, et. al. v. Shamir USA, Inc., case no. 2:18-cv-09426-RGK-PLA, 2020 WL 6152466, involved a defendant-manufacturer of progressive lenses (“Shamir”) headquartered in Israel, with subsidiaries located in California. The Relator was formerly a key account manager for the lens manufacturer. Shamir’s lenses are sold to consumers through third-party eyecare professionals (“ECPs”) such as optometrists, ophthalmologists, and opticians. Shamir allegedly offered such ECP’s who sell a certain number of its lenses incentives and rewards through various rewards programs, providing cash, rebates, discounts, gifts, free products, and gift cards. Both government and private insurance plans reimburse ECPs for some of the lenses, therefore, the Relator alleged that this scheme violated the Federal Anti-Kickback Statute (“AKS”) and the FCA. In its Motion to Dismiss, however, Shamir contended that the Relator was foreclosed from bringing a complaint under the public disclosure bar because Shamir had previously publicly advertised the nature and operation of its rewards program. The Court agreed and dismissed the case, providing the Relator permission to amend his pleadings, as discussed below.

As has been discussed in previous McGuireWoods alerts, the FCA’s public disclosure bar precludes private parties from bringing qui tam suits when the relevant information alleged by the plaintiff has already entered the public domain through certain channels. The purpose of this doctrine is to prevent “parasitic” claims in which relators feed off of previous disclosures of government fraud. Therefore, the Court must first determine whether substantially the same allegations or transactions underlying the suit were previously disclosed through an enumerated channel, and, second, whether the relator is an “original source” within the meaning of the statute.

In Shamir, the Court took Judicial Notice of several articles about Shamir’s rewards programs from various industry publications, as well as Shamir’s “About Us” webpage before the lawsuit was filed. The Court held that such sources fit within the category of “news media,” which is an enumerated channel under the FCA public disclosure bar. Because the details of the allegations in this suit were substantially similar to those publicly disclosed through the news media articles, the Court found that the facts of the relevant transaction from which the alleged fraud could be inferred had previously been disclosed.

Furthermore, the Court found that even if the Relator’s alleged facts were sufficiently specific to distinguish them from publicly available information, the Relator failed to establish itself as an “original source” of the allegations. In order to be considered an original source, the Relator must have voluntarily provided relevant information to the Government before filing the FCA action. The Court found that nowhere in the Relator’s complaint did it claim to have voluntarily provided the information to the Government before filing, therefore, the Relator fails to establish itself as an original source. The Court, however, granted the Relator leave to amend its pleadings for the purpose of alleging whether he meets the statutory requirements for an original source.

As other relators and defendants consider the application of the public disclosure bar, advertisements such as the ones described in Shamir may be the subject of further inquiry. If you have any questions about the FCA, the public disclosure bar, or the contents of this post, please contact any member of our healthcare department, including the authors of this post.