Defense Arguments, FCA Litigation June 30, 2020

Sixth Circuit Holds Qui Tam Plaintiff a Government “Agent” for Public-Disclosure Bar

By David Pivnick, Brett Barnett and Timothy Fry

A recent Sixth Circuit opinion continues to “snuff [ ] out parasitic suits” brought under the False Claims Act (“FCA”) through the public-disclosure bar. In U.S. ex rel. Holloway v. Heartland Hospice, Inc. (June 3, 2020 opinion), the court affirmed the lower court’s entry of summary judgment in favor of a hospice provider on grounds that the relator’s claims were barred in light of prior public disclosures of the underlying allegations contained in the complaint. The Holloway court’s holding is significant in that it found that relators can be the Government’s “agent” for purposes of the public-disclosure analysis, even when the Government declines to intervene.

The relator in this action, Holloway, was a former hospice employee who sued Heartland Hospice and related entities (“Heartland”) under the FCA alleging that Heartland engaged in a fraudulent scheme wherein patients were recruited and kept in hospice care, despite the fact that many of these patients were not terminally ill. According to Holloway, clinicians were trained to document patient care using language specifically designed to ensure hospice eligibility (e.g., “new episodes of chest pain”; “shortness of breath”; “refusing meals”). Holloway also accused Heartland of misleading Medicare auditors by simply failing to respond to audit requests, resulting in a minor penalty, rather than answering audits honestly and risking the discovery of the entire scheme.

Heartland moved for summary judgment arguing that the relator was not a “genuine whistleblower” as her claims were drawn from prior allegations against Heartland in a different portion of the country. Those cases, brought in South Carolina, alleged similar conduct involving different hospices owned by the same parent company. As many readers will know, the FCA’s public disclosure bar precludes FCA suits that “merely feed off prior public disclosure of fraud.” Such cases include “substantially the same allegations” as those previously disclosed in public sources, including hearings in which “the Government or its agent” is a party.

Here, Heartland argued the Holloway’s allegations merely added “new, slightly different, or more detailed allegations” to what had already been disclosed in prior complaints. In response, Holloway argued that because the Government did not intervene in the prior cases, such cases could not be considered public sources “in which the Government or its agent is a party.” The court declined to adopt this interpretation and ruled in favor of the defendants, dismissing the suit.

The court joined what it believed was the majority of district courts, holding that even when the Government declines to intervene in a qui tam suit, the relator is the Government’s agent for purposes of the public disclosure bar. The court reasoned that even where the Government declines to intervene, it remains the real party in interest and exerts a fair amount of control over any qui tam litigation. Accordingly, the prior FCA suits brought by other relators in South Carolina were considered “public disclosures” under the FCA, and therefore, barred under the public-disclosure bar standard.

The Sixth Circuit reasoned that its decision was guided by the statutory purpose of “encouraging genuine whistleblower actions while snuffing out parasitic suits.” This decision may impact larger providers who often have similar conduct across their platform. As other relators and defendants analyze claims under the public disclosure bar, they will need to consider similar claims against other parts of the platform, some of which may be under seal.

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.

CMS Guidance, Stark Law June 22, 2020

Stark Law 2019 Settlements Continue Downward Trend

By Gretchen Townshend, Timothy Fry and Brett Barnett

The number and value of announced settlements with the Centers for Medicare & Medicaid Services (CMS) concerning the physician self-referral law (the Stark Law) continued a downward trend in 2019. This marks the third straight year of such aggregate settlement declines since reaching a peak in 2016. Indeed, as shown on the first chart below, CMS announced the lowest aggregate settlement dollars collected since the Stark Law disclosure first year in 2011. Similarly, as shown on the second chart, CMS announced the lowest number of settlements since the second year of the disclosure protocol in 2012.

Aggregate Amount of Settlements

Number of Disclosures Settled

These announced settlements stem from filings to CMS through its voluntary disclosure protocol to resolve liabilities arising from the strict liability Stark Law. These liabilities arise frequently as a physician is prohibited from referring designated health services (e.g., hospital services, laboratory, prescription drugs, radiology or other imaging, or DMEPOS) to an entity, including his or her medical practice, where he, she or his/her family have a compensation or ownership relationship, unless the referral and/or the relationship is protected by meeting each element of an enumerated Stark Law exception. Due to the frequency of such conduct, and the, often, inadvertent and technical failure to comply fully with an exception, many in the industry believe voluntary disclosures are rising although we are not aware of CMS confirming this expectation. This raises the question, however, of how to reconcile the increased number of voluntary disclosures with the decreases in the trends revealed in the charts above.

One possible answer has to do with CMS workload for those subject matter experts focused on the Stark Law. Similar CMS staff are responsible both for reviewing the voluntary disclosures and for promulgating Stark Law regulatory policy. In that vein, CMS released proposed reforms to the Stark Law last fall, as discussed in McGuireWoods’ alerts dated Oct. 10, 2019, Nov. 1, 2019, Nov. 7, 2019 and Nov. 22, 2019, which were focused on reducing the compliance burdens for providers (referred to herein at the “Proposed Rules”). CMS has also recently updated its separate advisory opinion process – effective Jan. 1, 2020 (as detailed by McGuireWoods) – and has issued rulemaking to provide additional flexibility on the writing requirements of the Stark Law exceptions effective in 2016 (as earlier discussed by McGuireWoods here). These changes may have tied up CMS staff who might otherwise be processing the voluntary disclosures as the agency modernizes the Stark Law’s regulations.

If staff time restraints are in part responsible for the decrease in settlements (and, we should be clear, other explanations are possible), the industry could expect that 2020 will continue this trend of fewer settlements than previous years. CMS staff are currently working to finalize the Proposed Modernization Rules. In addition, the 2019 novel coronavirus (COVID-19) pandemic understandably may divert attention. CMS has issued guidance and affirmative waivers intended to give providers increased flexibility in the face of the pandemic, including with respect to the Stark Law (such guidance discussed on FCA Insider on May 2, 2020 and April 4, 2020). In addition to diverting subject matter experts, agency decision makers likely are focused on managing in light of the more pressing public health emergency rather than Stark law settlements, many of which have been pending for several years anyway.

CMS’ regulatory changes over the past several years, which each had the effect of loosening the requirements in Stark Law’s regulatory development, could also have impacted provider willingness to finalize settlements. To elaborate, providers who made disclosures with an intent to settle with CMS related to technical issues prior to this recent rulemaking, could have experienced different outcomes with the loosened standards. For example, a self-disclosure related to the lack of a signature on a contract may no longer be deemed a technical violation of the Stark Law now that may utilize signatures on certain related documents. These changes, in turn, could be prompting providers to withdraw disclosures made prior to the rulemaking, reducing the number of settlements. At the same time, CMS staff may have still have expended time reviewing a disclosure before a provider withdraws, ultimately utilizing the same amount of staff time without a reported settlement reinforcing the potential explanation discussed above. CMS’s announced Stark Law settlement details also provides good news to providers seeking to assess the scope of any settlement liability. As shown in the chart below, since the first year of the protocol, average annual settlements have ranged from a previous low of $67,601.83 (2016) to the current high of $136,866.49 (2015). This past year, however, set the lowest reported average settlement at $60,323.94.

Average Amount of Settlements

We will be interested to see if the lower 2019 average is the start of a trend to be continued in future years, or of it is an outlier. Decreasing settlement amounts in future years could suggest a change either in the kinds of voluntary disclosures submitted or the willingness of CMS to settle for lower amounts in voluntary disclosure scenarios. Anecdotally, we believe more physician groups are submitting voluntary disclosures today than in the protocol’s early days, which often focused on hospital-physician relationships. Such shift could be reflected in smaller average settlements (caused in part by less Medicare billings impacted by such technical violations in a physician group than a hospital billing relationship) in the last four years compared to the prior four-year period. Future trends could also indicate a change in CMS’ settlement formula, although we do not have any evidence that is the case. Alternatively, with fewer settlements, there is a greater likelihood that a single case could skew the average results positively or negatively, which could also be influencing these numbers.

One additional caveat, the reported settlements lag the date when the provider voluntarily submitted the disclosure. Providers often experience a significant period between voluntary submission and settlement with CMS through the Stark Law disclosure protocol. As such, it is possible the trends in the announced aggregated settlements result from an event or regulatory change a few years ago. Future settlement numbers may provide further context to evaluate the likelihood that such a historic event caused these trends.

McGuireWoods will continue to monitor the reported Stark Law settlements to assist clients in navigating voluntary Stark Law self-disclosures. If you have violated or potentially violated the strict liability Stark Law, we would be happy to discuss whether such conduct necessitates considering a self-disclosure.

Uncategorized May 26, 2020

HHS OIG Adds Audit of CARES Act Provider Relief Funds to Work Plan

By Timothy Fry and Jeffrey Alberg

On May 22, 2020, the U.S. Department of Health and Human Services’ (HHS) Office of Inspector General (OIG) updated its Work Plan to reflect its planned audit of the $50 billion disbursed by HHS to hospitals and other providers under the Public Health and Social Services Emergency Fund (Provider Relief Fund), which McGuireWoods most recently discussed in a May 22 legal alert. The Provider Relief Fund was included as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and reimburses eligible healthcare providers for expenses and lost revenue attributable to the 2019 novel coronavirus (COVID-19). The Work Plan is used by OIG to set forth its planned and ongoing agency evaluations, audits, and inspections. The OIG expects to release its audit findings in fiscal year 2020.

The Provider Relief Fund audit will be conducted by OIG’s Office of Audit Services. These audits examine the performance of HHS programs and/or grantees and are intended to provide HHS with an independent assessment of the HHS programs and operations.

As is standard for all OIG Work Plan announcements, the OIG set forth the general details of its audit objectives. The announcement provided that OIG will obtain data and interview HHS officials to gain an understanding of how Provider Relief Fund payments were calculated and review Provider Relief Fund payments for compliance with CARES Act requirements. In addition, the OIG will seek to determine whether HHS’ controls over Provider Relief Fund payments ensured that payments were correctly calculated and disbursed to eligible providers. Such an audit may be in part a response to congressional interest; the U.S. House of Representatives included changes to the Provider Relief Fund program in its passage of H.R. 6800, the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act), as discussed in item 2 of a May 18 legal alert. The Senate is not expected to pass the HEROES Act, but such changes may be included in future legislation.

For background, the CARES Act, as supplemented by the Paycheck Protection Program and Health Care Enhancement Act, appropriated $175 billion total to the Provider Relief Fund to assist providers financially impacted by COVID-19. The CARES Act statutory language called for HHS to review applications prior to disbursement of the fund but HHS largely disbursed the funds without requiring a formal application or review. The $50 billion to be audited by OIG was allocated to Medicare facilities and providers affected by COVID-19. The initial $30 billion was automatically distributed between April 10, 2020 and April 17, 2020 in proportion to providers’ Medicare fee-for-service payments in 2019, as discussed in an April 10 legal alert. On April 24, 2020, HHS began distributing an additional $20 billion to providers based on their share of 2018 net patient revenue, which was automatic for certain providers that file annual cost report information to the government, and began accepting submissions from certain other eligible providers of their financial data for subsequent waves of distributions, as discussed in an April 27 legal alert.

In addition, on May 26, 2020, OIG announced its Strategic Plan for COVID-19 Oversight (Strategic Plan). In the Strategic Plan, OIG reiterated its intention to conduct audits and evaluations of the Provider Relief Fund in order prevent, detect, and remedy waste or misspending. OIG specifically highlighted its plan to fight fraud and abuse that diverts funding from its intended purposes or exploits emergency flexibilities granted to healthcare providers. OIG is also likely to consider whether the Provider Relief Fund (and other COVID-19 responses) were successful so HHS can leverage lessons learned from these programs in the future.

McGuireWoods is continuously monitoring information released by HHS and the Trump administration regarding the fund. Please contact the authors or any of the McGuireWoods COVID-19 Response Team members for additional information on the Provider Relief Fund and its availability to healthcare providers and for assistance with the documentation and attestation and reporting process.

OIG, Regulatory May 17, 2020

OIG Responds to Physician Group COVID-19 Personal Protective Equipment Arrangement Inquiry

By Timothy Fry, Brett Barnett and Jon Steinberg

As previously discussed, on April 3, 2020, the U.S. Department of Health and Human Services Office of Inspector General (OIG) issued a process for inquiries to be submitted to OIG about whether administrative enforcement discretion would be provided for certain arrangements directly connected to the 2019 novel coronavirus (COVID-19). OIG established this process to provide regulatory flexibility to ensure necessary care responding to COVID-19, particularly with respect to the federal anti-kickback statute (AKS) and civil monetary penalty (CMP) beneficiary inducement prohibition provisions. OIG responses are publicly available through a frequently asked questions (FAQ) posting on the OIG COVID-19 portal. OIG has continued to update this FAQ since its initial publication, including those inquiries discussed in a May 13 post, most recently providing guidance on the following question:

Physician groups may provide face masks to a nursing home. A physician group that contracts with a nursing home to provide care to that nursing home’s residents questioned whether it could assist the nursing home by providing face masks at no-cost or reduced cost. OIG opined that the physician group providing face masks as personal protective equipment (PPE) to the nursing home posed a low risk of fraud and abuse so long as the following conditions were met:

The decision to provide face masks must be directly connected to addressing the COVID-19 outbreak such as the nursing home suffering a shortage as a result of supply chain disruptions.
The physician group only provides the face masks during the period of the COVID-19 public health emergency.
The physician group does not market the provision of the face masks.
The provision of the face masks is not contingent on the nursing home’s past or anticipated referrals to the physician group.

OIG views the provision of the face masks as a low risk of fraud and abuse because the physician group benefits from lowered risk of infection to its physicians.

OIG further clarified that it views the provision of the face masks as a low risk of fraud and abuse not only because of the importance of PPE in general, but because the physician group benefits from lowered risk of infection to its physicians who interact with the nursing home staff and residents due to the face mask’s use. This position suggests that OIG could negatively view a similar arrangement where the physicians were not contracted to provide services to the nursing home patients. In such a situation, OIG could view the donation of PPE to violate the AKS as a free or discounted good to an actual or potential referral source.

* * * * *

McGuireWoods will continue to monitor OIG’s release of further FAQs as additional providers utilize this inquiry mechanism. Providers may welcome the flexibility provided by OIG exercising enforcement discretion during the COVID-19 pandemic, recognizing the statements do not bind all investigative bodies who could take a different view. OIG will likely continue to require such arrangements to end at the end of the COVID-19 public health emergency declaration, and therefore, providers should plan for the post-pandemic period depending on the arrangement when utilizing these statements.

McGuireWoods has published additional thought leadership related to how companies across various industries can address crucial COVID-19-related business and legal issues, and the firm’s COVID-19 Response Team stands ready to help clients navigate urgent and evolving legal and business issues arising from the novel coronavirus pandemic.

OIG, Regulatory May 13, 2020

OIG Updates Enforcement Responses to COVID-19 Arrangement Inquiries

By David Pivnick, Timothy Fry, Brett Barnett and Jon Steinberg

As previously discussed, on April 3, 2020, the U.S. Department of Health and Human Services Office of Inspector General (OIG) issued a process for inquiries to be submitted to OIG about whether administrative enforcement discretion would be provided for certain arrangements directly connected to the 2019 novel coronavirus (COVID-19). OIG established this process to provide regulatory flexibility to ensure necessary care responding to COVID-19, particularly with respect to the federal anti-kickback statute (AKS) and civil monetary penalty (CMP) beneficiary inducement prohibition provisions. OIG responses are publicly available through a frequently asked questions (FAQ) posting on the OIG COVID-19 portal. OIG has continued to update this FAQ since its initial publication, actively posting responses to the following topics with the specific limitations described below:

Providers prescribing extended courses of treatment may assist established patients with transportation. An oncology group practice that temporarily closed a particular office location due to patient and staff exposure to COVID-19 questioned whether it could provide transportation assistance to established patients (e.g., vouchers or reimbursement for taxis or ridesharing services) so that the patients could continue receiving oncology care at one of the practice’s other locations. This transportation assistance likely would not satisfy the mileage requirement of the already-existing AKS local transportation safe harbor. OIG opined that transportation assistance that does not meet the local transportation safe harbor would pose low risk of fraud and abuse so long as the following conditions are met:
1. First, the transportation assistance is provided by an “eligible entity” to an “established patient” as defined under 42 C.F.R. § 1001.952(bb).
2. Second, the transportation assistance must be provided only when necessary because of the COVID-19 outbreak, and only during the period of the public health emergency.
3. Third, the transportation assistance must not be air, luxury, or ambulance-level transportation.
4. Fourth, access to the transportation assistance must not be related to the past or anticipated volume or value of federal health care business associated with that patient.
5. Fifth, the established entity may not publicly market or advertise the transportation assistance or market or advertise any health care items or services during the course of the transportation.
6. Sixth, any drivers or persons arranging for the transportation may not be paid on a per-beneficiary-transported basis.

OIG went beyond simply dealing with office closures caused by the COVID-19 outbreak, noting urban providers may similarly want to offer such assistant for patients who would typically take public transport. Such purpose is acceptable under OIG’s guidance. While the question posed only related to an oncology group, OIG expanded the scope of its opinion by stating that transportation assistance would likely present a low risk of fraud and abuse for other physicians prescribing extended courses of treatment such as chemotherapy, dialysis, radiation therapy, cardio/pulmonary rehabilitation treatment, or behavioral health services.

Mental health providers could provide phone or data service for patients. Mental health and substance abuse disorder providers questioned whether they could accept donations in order to fund phone, service, or data plans for financially needy patients who do not have their own cell phones and otherwise would not be able to access those plans. The providers clarified that any such funding would be for providing medically necessary services while in-person care is unavailable. In response, the OIG opined that providing a cell phone and related phone, service, or data plan by a mental health or substance abuse disorder provider to patients poses a low risk of fraud and abuse so long as the following safeguards are employed:
1. First, the provider must determine, in good faith, that the patient is in financial need before providing a cell phone or plan.
2. Second, the provider must determine, in good faith, that the patient needs a cell phone or plan in order to access medically necessary services related to his or her mental health or substance abuse disorder.
3. Third, all services provided using the cell phone or plan are medically necessary.
4. Fourth, the provider uses the funding from a public entity, private charity or health plan solely to provide access to a cell phone or plan.
5. Fifth, the provider must not market the cell phone or plan.
6. Sixth, the provider must offer the cell phone or plan only to “established patients” as defined under 42 C.F.R. § 1001.952(bb).
7. Seventh, the provision of the cell phone or plan is limited to the period of the public health emergency, requiring that the patient return the phone, the provider cease funding the plan, or both, at the end of the period.

OIG clarified that its response applies only to any potential fraud and abuse concerns associated with the relationship between the provider and the patient, and it did not contemplate any risks associated with the relationship between the donor and the provider or patient. While the question focused on receipt of funds from a donor the OIG noted that there are too many potential relationships that could implicate—and present risk under—the federal fraud and abuse laws to address through the FAQ process.

A hospital can suspend rental charges for a federally qualified health center look-alike. OIG opined that a hospital could assist a federally qualified health center look-alike (FQHLA) by waving rental charges during the public health emergency. Under the Stark Law blanket waivers, which OIG adopted for the AKS, below market rental charges to a physician are protected. However, an FQHLA is not a physician. Nonetheless, OIG opined that a hospital suspending rental charges and foregoing the accrual of interest for a FQHLA poses a low risk of fraud and abuse so long as the following conditions are met:
1. First, the suspension of rent and accrual of interest is set out in a written document that lays out all material terms and is signed by the parties.
2. Second, the suspension of rent and accrual of interest is not conditioned on the volume or value of Federal health care program business generated between the FQHLA and the hospital.
3. Third, the arrangement allows the FQHLA to refer patients to any individual or entity it chooses.
4. Fourth, the suspension of rent and accrual of interest is only made available to an FQHLA when necessary because of the COVID-19 outbreak.
5. Fifth, the suspension of rent and accrual of interest is only available for the period of the public health emergency.

OIG has previously expressed significant concerns with laboratories …. Here, however, OIG opined that the proposed arrangement would pose a low risk of fraud and abuse.

A clinical laboratory can pay fair market value fees to a retail pharmacy for costs related to collection sites. In this fact-specific scenario, a clinical laboratory that bills payors, including Federal health care programs, questioned whether it could pay fair market value to a retail pharmacy that sets up COVID-19 testing collection sites and incurs costs associated with running the sites. OIG has previously expressed significant concerns with laboratories offering anything of value as it could be seen as inducing referrals. This has been the case for payment for collecting, processing, and packaging patient specimens as it will likely be more than fair market value. Here, however, OIG opined that the proposed arrangement would pose a low risk of fraud and abuse so long as the following conditions are met during the public health emergency:
1. First, the retail pharmacy must actually incur costs associated with running the sites.
2. Second, the payment for the items and services provided by the retail pharmacy must be fair market value.
3. Third, the retail pharmacy must not submit claims to Federal health care programs that reimburse it, in whole or in part, for the costs associated with running the site. In addition, the retail pharmacy cannot receive payments from programs like the CARES Act Provider Relief Fund that could theoretically compensate the retail pharmacist for these services. Any such reimbursements or grants could allow double payment indicating an unlawful intent.

OIG further emphasized that it was not opining on what constitutes a fair market value, but that the parties must determine an appropriate amount themselves. This guidance suggests how critical fair market value would be for such a relationship with a clinical laboratory, unlike some of the other questions discussed above.

In addition to certain factual circumstances, OIG responded to questions about why they did not adopt all of the Stark Law blanket waivers in its guidance McGuireWoods recently discussed. Essentially, OIG viewed the difference in the Stark Law and AKS in such a way that the waivers related to “referrals” (including those on ownership) as opposed to “remuneration,” as well as CMS’ waiver on non-written arrangements, meant that it was not warranted to offer similar protection. That said, OIG encouraged specific circumstances to be submitted for response during this COVID-19 public health emergency to OIGComplianceSuggestions@oig.hhs.gov.

* * * * *

McGuireWoods will continue to monitor OIG’s release of further FAQs as additional providers utilize this inquiry mechanism. Providers may welcome the flexibility provided by OIG exercising enforcement discretion during the COVID-19 pandemic assuming that OIG’s FAQ responses continue to provide. OIG will likely require such relationships to end at the end of the COVID-19 public health emergency declaration, and therefore, providers seeking to utilize these statements in care to their communities should plan to terminate the relationship at the end of the pandemic.

McGuireWoods has published additional thought leadership related to how companies across various industries can address crucial coronavirus-related business and legal issues, and the firm’s COVID-19 Response Team stands ready to help clients navigate urgent and evolving legal and business issues arising from the novel coronavirus pandemic.

Regulatory May 7, 2020

Price Gouging Investigations Are Coming: What Industry Needs to Understand

By Alex J. Brackett, Kevin M. Lally and Sarah A. Zielinski

In response to the national coronavirus health crisis, federal and state Attorneys General have elevated the investigation and prosecution of COVID-19-related crime, including price gouging, to the forefront of their enforcement priorities. Attorney General William Barr created a national COVID-19 task force staffed with attorneys from all 94 United States Attorney’s Office to coordinate expedited federal enforcement actions for price gouging. Multiple state Attorneys General have created similar task forces, established federal-state partnerships, or publicly pronounced that they will zealously pursue prosecution of companies that engage in price gouging. The Federal Trade Commission also has authority to regulate price gouging. Simple complaint forms are linked to the home pages of many of these organizations, and industry-wide investigations into the sales of certain goods have already begun in some jurisdictions.

Given the breadth of products and services covered by price gouging laws, and the potentially tight pricing tolerances of the caps under some laws, companies and industries that think they are immune from scrutiny should think again.

To date, several federal and state price gouging cases have been filed and thousands of complaints are being investigated. As states re-open and grand juries reconvene, federal and state law enforcement can be expected to actively pursue investigations and prosecutions against companies engaged in the manufacture, distribution or sale of a wide variety of consumer and healthcare goods and services that experienced price spikes following federal or state emergency declarations. The industries and the specific goods and services that will be targeted for investigation will vary by jurisdiction. The federal and state statutes and orders lack uniformity regarding the items covered, the extent of price increase prohibited and the time parameters covered. As a result, price increases on a particular good or service that may be legal in one jurisdiction may be deemed criminal price gouging elsewhere.

Federal Price Gouging Enforcement (Healthcare and PPE Focused)

Under federal law, the current anti-gouging order took effect on March 23, 2020, when President Donald Trump issued Executive Order 13910 invoking the Defense Production Act to designate select health and medical resources, as identified by the Secretary of Health and Human Services, as protected items. Tailored to address the current health crisis, these items include various types of personal protective equipment, medical equipment, and sterilization materials. Until such time as the Secretary of Health and Human services terminates this designation, it is a Class A misdemeanor punishable by up to one year imprisonment to sell any designated item at prices in excess of the prevailing market rates.

State Price Gouging Enforcement (Consumer Goods and Services Focused)

State price gouging laws and orders are far more varied. Some states have issued anti-gouging orders accompanying COVID-19 emergency declarations that are largely consistent with federal law. Many other states rely on price gouging statutes triggered by declarations of emergency that incorporate within their scope a wide array of goods and services, including fuel, pharmaceuticals, food and water, clothing, cleaning and hygiene materials, building supplies, and shipping and other transportation services. A small number of states do not have statutes proscribing price gouging, although many of them have indicated intention to pursue price gouging via unfair and deceptive trade practices or other consumer protection laws.

Importantly, state laws vary significantly in how price gouging is defined. In many states, there is a statutorily-set price cap that compares prices charged during the period when the emergency is in effect with prices charged for the same good or service during a defined time period prior to the emergency declaration (e.g., 10% above the price charged for that good or service on a particular day or over a number of days prior to when the emergency was declared). The tolerance cut-off and the comparative timeframe differ from state to state. Other states eschew price caps and rely on more amorphous terms such as “unconscionable” or “excessive” price increases. States with defined caps do tend to allow for larger price increases if they are tied to higher costs, but still tend to apply a cap (e.g., 10% over cost plus standard markup).

Compliance Challenges and Strategies

The patchwork of federal and state statutes and orders can make it difficult for companies operating regionally, nationally or internationally to remain in full compliance with price gouging laws during the COVID-19 crisis—particularly as many may not be aware that they are currently, and for some weeks have been, subject to pricing caps in states into which they sell goods or services. Adding to this difficulty is the fact that the current patchwork will unravel in a non-uniform way, with standards, timing and enforcement vigor that will vary by jurisdiction. Companies that find themselves out of compliance with these laws could be exposed to significant legal and reputational risks, as branding a corporation as a profiteer that cold-heartedly placed financial gain over national security and citizen health during a global pandemic will be a politically tempting headline to grab.

However, there are ways to manage these risks. Companies that manufacture, distribute, or sell goods or services that fall within the scope of the anti-gouging statutes or orders should examine both their prices and their pricing mechanisms to confirm compliance. In the event that the price for a designated good or service increased from March 2020 to the current date, companies should assess the following:

Is the price increase the direct result of increased costs on the supply side, including, labor, materials and supplier price increases?

Was the good or service sold at a price beyond the prevailing market rate within a community or across the industry (and if so is there a justification)?

Did the price increase exceed a state-defined tolerance level, the most common of which is 10% above pre-crisis pricing (or 10% above cost plus standard markup)?

Can you document how and why prices increased, and is that information being preserved?

If prices are out of tolerance in certain markets, are you able to bring them into alignment with applicable caps?

Price Gouging Laws Guide

McGuireWoods has implemented a price gouging team ready to respond to your inquiries regarding the application of federal and state price gouging mandates. For an overview of the Price Gouging Laws for each state and jurisdiction, click here.

For additional guidance on the effects of these laws or orders, please feel free to contact Alex Brackett, Kevin Lally, or Sarah Zielinski.

McGuireWoods’ Government Investigations & White Collar Litigation Department is a nationally recognized team of nearly 60 attorneys representing Fortune 100 and other companies and individuals in the full range of civil and criminal investigations and enforcement matters. Our team is comprised of a deep bench of former senior U.S. officials, including a former Deputy Attorney General of the United States, former U.S. Attorneys, more than a dozen federal prosecutors, and an Associate Counsel to the President of the United States. Strategically centered in Washington, D.C., our Government Investigations & White Collar Litigation Department has been honored as a Law360 Practice Group of the Year and earned the trust of international companies and individuals through our representation in some of the most notable enforcement matters over the past decade.

McGuireWoods has published additional thought leadership analyzing how companies across industries can address crucial business and legal issues related to COVID-19.

CMS Guidance, Regulatory, Stark Law May 2, 2020

CMS Issues Explanatory Guidance on Stark Law Blanket Waivers During COVID-19 Pandemic

By Timothy Fry, Gretchen Townshend, Jeffrey Alberg and Erica Jewell

On April 21, 2020, the Centers for Medicare & Medicaid Services (CMS) issued guidance on the scope and application of the blanket waivers to the Physician Self-Referral Law (Stark Law) issued by the Department of Health and Human Services (HHS) on March 30, 2020, for use during the 2019 novel coronavirus (COVID-19) public health emergency. As discussed in an April 3, 2020, McGuireWoods client alert, the blanket waivers temporarily protect those financial relationships and referrals (and the claims submitted as a result thereof) specifically enumerated by HHS as pertaining to at least one outlined COVID-19 purpose. These blanket waivers were given a retroactive effective date of March 1, 2020, and thus protect those referrals and financial relationships from that date until the public health emergency ends.

To take advantage of the blanket waivers: (i) the provider must be acting in good faith to provide care in response to the COVID-19 pandemic; (ii) the financial relationship or referral must be one protected by one of CMS’ 18 permitted relationships; and (iii) the government must not determine that the resulting financial relationship creates other fraud and abuse concerns.

CMS’ waiver guidance provides informative clarification on many broad issues related to the blanket waivers’ intersection with existing Stark Law exceptions. Here are six key clarifications set forth in the blanket waiver guidance:

1. Compliance With Non-Waived Requirements of an Applicable Exception. CMS clarified that the blanket waivers waive only specific, enumerated elements of Stark Law exceptions, but the financial relationships or referrals, as applicable, must still satisfy all non-waived requirements of an applicable exception. For example, the blanket waivers allow an entity to exceed the annual nonmonetary compensation limit, but the other requirements of the nonmonetary compensation exception, such as the prohibition on physician solicitation of the compensation, still apply. The failure to satisfy one or more of the other non-waived requirements of an applicable exception would still trigger the Stark Law’s referral and billing prohibitions.

The failure to satisfy one or more of the other non-waived requirements of an applicable exception would still trigger the Stark Law’s referral and billing prohibitions.

2. Amendment of Compensation Arrangements. CMS’ guidance reiterated permissible modifications to compensation arrangements during and after the public health emergency. CMS reminded parties that its previous preamble guidance allows amendments to remuneration terms of a compensation arrangement, even within the first year after an amendment, provided that, each time the remuneration terms are amended:

all requirements of an applicable exception are satisfied,
the amended remuneration is determined prior to its effectiveness,
the formula for the amended remuneration does not take into account the volume or value referrals or other business generated by the referring physician, and
the overall arrangement remains in place for at least one year following the amendment.

Parties seeking to utilize the blanket waivers in existing compensation arrangements during the COVID-19 pandemic must still satisfy all non-waived requirements of an applicable exception. Following the expiration of the public health emergency, the arrangement should then be modified to ensure it complies with an applicable Stark Law exception without use of the waivers. This clarification should give providers comfort to utilize the waivers to revise compensation, for example, knowing that the arrangement can be revised again at the end of the public health emergency.

Alternatively, CMS suggested that, rather than amending an arrangement, the parties could instead utilize one of the blanket waivers through a new arrangement. For example, if a hospital leasing office space to a physician is considered financial support to the physician due to the COVID-19 pandemic, instead of reducing office rent below fair market value (FMV) through a waiver, the hospital could leave the lease alone and instead enter into a separate compensation arrangement, such as a loan, to provide further support that would enable the physician to cover the rental payments.

3. Application to Indirect Compensation Arrangements. CMS confirmed a point made in a prior McGuireWoods alert that the blanket waivers apply only to direct compensation arrangements. The waivers explicitly do not apply to an indirect compensation arrangement between an entity and a physician or the immediate family member of the physician, as defined at 42 CFR § 411.354(c)(2). CMS noted, however, that parties with indirect compensation arrangements may request an individual Stark Law waiver.

Alternatively, CMS reiterated that in many cases, particularly those with physician organizations, a waiver for an indirect compensation arrangement would likely be unnecessary. The Stark Law regulations require an owner of a physician organization to “stand in the shoes” of his or her organization, such that the arrangement applies directly to such physician. Further, for employees of a physician organization, the physician has the option to also “stand in the shoes” of the physician organization. Therefore, for physician practices, at a minimum, the parties can utilize a blanket waiver by having all physician owners and employees “stand in the shoes” of the organization and treating the arrangement as a direct relationship.

4. Repayment Options for Loans Between a DHS Entity and a Physician. CMS’ blanket waivers Nos. 10 and 11 permit loans with interest rates below FMV or on terms that are unavailable from a third-party lender during the COVID-19 pandemic. After inquiries requesting the ability to pay loans back in kind, or via non-cash repayment, CMS clarified that neither the Stark Law exceptions nor the blanket waivers require cash payment to satisfy a loan. As a result, parties may repay a loan in kind through the provision of professional services. That said, like in other clarifications and as required by the blanket waivers, the other elements of the exception need to be maintained — here, most critically, that repayment by services would need to be FMV in-kind payments. It will also need to be commercially reasonable and may also implicate the federal anti-kickback statute (AKS). Notably, the Office of Inspector General (OIG) also issued a policy statement adopting certain blanket waivers (discussed in an April 7, 2020, McGuireWoods client alert), which likewise protects remuneration under the AKS protected by the blanket waivers, like the loans noted above, which should provide some additional comfort.

5. Repayment of Owed Amounts Post-COVID-19. CMS also clarified that loans granted pursuant to the waivers could be repaid after the public health emergency. This would be true with respect to payments below FMV for office space, equipment, items or services provided during the public health emergency where payment obligations (but not the application of the below-FMV rates) extend beyond the emergency. CMS assured parties that completing the terms of the arrangements after the emergency would not necessarily result in noncompliance under the Stark Law.

CMS assured parties that completing the terms of the arrangements after the emergency would not necessarily result in noncompliance under the Stark Law.

To be compliant with the Stark Law, post-arrangement repayments may occur so long as appropriate repayment terms are set out at the start of the arrangement. For example, assume an arrangement provides for a physician to provide services to a hospital through Dec. 31, 2020, and provides for compensation to the physician by the hospital upon the presentation of a final invoice. In this situation, even if the hospital is presented with a final invoice on Jan. 15, 2021, for the services provided through Dec. 31, 2020, the fact that the hospital does not complete its repayment obligation until after Dec. 31, 2020, does not result in noncompliance under the Stark Law. CMS’ guidance reiterated that such repayment scenarios are permissible under Stark Law even outside the public health emergency.

While CMS provided flexibility on repayment of loans, CMS made it clear that any disbursement of loan proceeds or other remuneration after the termination of the blanket waivers must satisfy all requirements of an applicable exception, without the support of the waiver; i.e., one could not build a financial arrangement where the non-FMV remuneration would continue after the public health emergency.

6. Restructuring of Existing Recruitment Arrangements With Income Guarantees. CMS negatively responded to inquiries asking whether the blanket waivers address the extension or other restructuring of existing physician recruitment arrangements, but suggested an alternative approach. Specifically, CMS pointed to its 2007 advisory opinion, CMS-AO-2007-01, to explain that hospitals could not extend an income guarantee under an existing physician recruitment arrangement. CMS rationalized that a Stark Law-compliant recruitment arrangement should not be amended after the recruited physician has already relocated.

However, CMS made it clear that hospitals (or other entities) had alternative avenues under the blanket waivers to assist a recruited physician experiencing financial difficulties due to the public health emergency. For example, a hospital could utilize blanket waiver No. 5 to reduce rental charges below FMV or blanket waiver No. 10 to give a loan to the recruited physician with an interest rate below FMV or on terms that are unavailable from a lender. In both cases, the other requirements of the blanket waiver or the applicable exception would need to be maintained, but it may allow a hospital to continue support to recently recruited physicians without violating the recruitment arrangement exception.

DOJ April 22, 2020

DOJ Puts Collection of Civil Penalties on Hold in Response to COVID-19

By Christina Egan, David Pivnick, Austin R. Shepard and R. Andrew Austria

In a pair of recent memoranda from the Executive Office for United States Attorneys (“EOUSA”) issued on March 31, 2020, and April 13, 2020, the United States Department of Justice (“DOJ”) has effectively halted enforcement actions and the collection of civil penalties. Included in this temporary suspension is the collection of civil penalties incurred in suits under the False Claims Act (“FCA”). The FCA is the federal government’s primary tool for recourse against false or fraudulent claims made against government programs.

In the FCA context, this suspension has implications for key government programs in light of the current coronavirus outbreak, including Medicare and Medicaid. Pursuant to this new guidance, U.S. Attorney’s Offices will temporarily suspend enforcement activity on civil debt levied against health care providers who billed the government insurance programs for goods and services that were not rendered, were substandard, and/or medically unnecessary. The temporary suspension will also affect enforcement activity on civil debt levied against other government contractors.

This moratorium on the collection of civil debt is effective until at least May 31, 2020, and may potentially be extended either by legislation or administrative action. The temporary suspension applies broadly to collection activity on civil debts, including debts in active repayment. The memoranda direct the U.S. Attorney’s Offices not to pursue new enforcement actions, and payments scheduled under active payment plans will not be considered in default if left unpaid. However, interest may accrue depending on the type of civil debt, and affected parties may continue to make voluntary payments on interest or their full penalties. The April 13, 2020, memorandum from the EOUSA clarifies that the collection of debts pursuant to voluntary settlement agreements may continue, since they are appropriately considered “voluntary payments.”

Although affirmative civil debt collection and enforcement actions are temporarily suspended, U.S. Attorneys may continue to investigate claims, file complaints, litigate cases to judgment, settle any affirmative civil enforcement matter, and pursue preparatory collection actions and other measures to protect the government’s interests. This temporary suspension does not apply to ongoing litigation, appeals, or cases not subject to a final, non-appealable judgment, and the government’s remedies for breach of any settlement agreement remain intact at this time.

In addition, this temporary suspension does not extend to the collection of criminal penalties, including fines and restitution that are the result of a criminal conviction or plea and entered pursuant to a court order or judgment under a criminal statute.

Entities and individuals currently making payments to the federal government who wish to take advantage of the temporary suspension should ensure they fall within the parameters of the memoranda. Before delaying payments, entities and individuals should seek legal guidance from their existing counsel or retain counsel to discuss their potential options, including possible outreach to the relevant authorities.

Please contact the authors for additional guidance on how these issuances and other COVID-19 considerations will affect federal enforcement actions and the related rules. McGuireWoods has published additional thought leadership related to how companies across various industries can address crucial coronavirus-related business and legal issues.

OIG, Regulatory April 13, 2020

OIG Requests Inquiries on Enforcement Related to COVID-19 Arrangements

By Timothy Fry, Brett Barnett and Jon Steinberg

On April 3, 2020, OIG issued a process for inquiries to be submitted to OIG about the application of administrative enforcement authorities against certain arrangements directly connected to the 2019 novel coronavirus (COVID-19). OIG particularly asked for inquiries related to the Federal anti-kickback statute and civil monetary penalties prohibition on beneficiary inducements, where enforcement discretion may allow the healthcare system to function during this pandemic. OIG responses, including its first two responses described below, will be publicly available through a frequently asked questions (FAQ) posting on the OIG COVID-19 portal.

This initiative continues OIG’s efforts to simplify provider compliance during the COVID-19 pandemic. Last month, OIG issued a letter outlining its general perspective on enforcement during the COVID-19 crisis and this new process is intended to clarify OIG’s position. Questions can be submitted to OIGComplianceSuggestions@oig.hhs.gov with sufficient facts to allow for an understanding of the key parties and terms of the arrangement. OIG will not review questions related to the Federal Stark Law (providers can ask the Centers for Medicare & Medicaid Services for a waiver here) or the False Claims Act, and any feedback provided is limited to arrangements in existence during the COVID-19 public health emergency.

Currently OIG’s FAQs consists of two responses to public inquiries:

Providers assisting long-term care providers. The first question was whether health care providers and practitioners can provide services for free or at a reduced rate to long-term care providers that are facing staffing shortages due to COVID-19. OIG opined on two fact-specific scenarios that fit within the broader question. The first scenario involves a hospice vendor that is already providing services to patients at a skilled nursing facility providing additional free basic care services, within its scope of practice, to clients at the facility that are not the hospice’s patients in order to help mitigate staffing shortages. The second scenario involves a skilled nursing facility fulfilling patient care needs that are unmet due to staffing shortages, by using community dentists or podiatrists who are not working at full capacity and are willing to offer services for free or at a reduced rate. Typically providing services to such facilities could be seen as an inducement to refer care that is more specialized. In both cases, OIG opined that the fraud and abuse risk is low during the COVID-19 outbreak so long as the following four conditions are met. First, the services being offered are necessary to meet patient care needs that are a result of staffing shortages directly connected to the COVID-19 outbreak. Second, the services being offered are being provided for free or at a reduced cost only when necessary because of the COVID-19 outbreak. Third, the services being offered are limited to the period during the COVID-19 public health emergency declaration. Fourth, the services being offered are not contingent on referrals for any items or services that may be reimbursable in whole or in part by a Federal health care program, whether during or after the COVID-19 public health emergency declaration.
Hospitals assisting independent physicians on medical staff. The second question was whether a hospital may provide free access to an existing web-based telehealth platform to independent physicians on the hospital’s medical staff. In this scenario, the hospital would receive no payment from either the independent physicians receiving access or any payor for services provided through the telehealth platform by the independent physicians. Likewise, the physicians would not receive any remuneration from the hospital beyond access to the telehealth platform, would be responsible for maintaining any required records for patients seen through the platform, and must independently bill and receive reimbursement for any professional services provided. OIG opined that such an arrangement would pose low risk of fraud and abuse so long as the following four conditions are met. First, the platform must only be provided for free in order to facilitate medically necessary services. Second, the platform must only be provided only when necessary because of the COVID-19 outbreak, and only during the period of the public health emergency. Third, access to the platform must not be contingent on the physicians’ past or anticipated volume or value of referrals to the hospital for items or services that may be reimbursable by a Federal health care program. Fourth, access must be offered to all physicians on the medical staff on an equal basis, even if not all accept the offer.

McGuireWoods will continue to monitor OIG’s release of further FAQs as additional providers utilize this inquiry mechanism. Providers may welcome the flexibility provided by OIG exercising enforcement discretion during the COVID-19 pandemic assuming that OIG’s FAQ responses continue to provide additional flexibility to providers during COVID-19. OIG will likely require such relationships to end at the end of the COVID-19 public health emergency declaration, and therefore, providers seeking to utilize these statements in care to their communities should plan to terminate the relationship at the end of the pandemic.

OIG, Regulatory April 7, 2020

OIG Follows the Stark Law COVID-19 Waivers for Anti-Kickback Statute

By Gretchen Townshend, Timothy Fry, Brett Barnett and Erica Jewell

On April 3, 2020, the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) issued a policy statement announcing that the OIG will exercise its enforcement discretion not to impose administrative sanctions under the federal Anti-Kickback Statute (AKS) for remuneration related to the 2019 novel coronavirus (COVID-19). OIG’s announcement follows the recent blanket waivers issued by the HHS with the Centers for Medicare & Medicaid Services (CMS) to protect certain specified financial relationships and referrals otherwise sanctioned by the Physician Self-Referral Law (Stark Law), as long as they pertain to at least one COVID-19 purpose. The blanket waivers were discussed in an April 3, 2020, client alert.

The OIG will exempt additional arrangements that do not satisfy the safe harbor requirements so long as they satisfy one of the permissible forms of remuneration allowed under the Stark Law blanket waivers.

The AKS is an intent-based statute broadly prohibiting the offer or exchange of anything of value to induce or reward the referral of federal healthcare program business. Because of the AKS’ breadth and because the statute subjects violators to criminal sanctions, the OIG previously issued a series of voluntary safe harbors to protect relationships that do not pose a high risk of fraud or abuse. The April 3 policy statement takes this one step further, explaining that beyond these safe harbors, the OIG will exempt additional arrangements that do not satisfy the safe harbor requirements so long as they satisfy one of the permissible forms of remuneration allowed under the Stark Law blanket waivers (specifically, Section II.B(1)-(11) of the blanket waivers). To be clear, the policy statement does not cover all of CMS’ Stark Law enumerated blanket waivers related to referral relationships (specifically Section II.B(12)-(18) of the blanket waivers)

OIG’s decision not to enforce certain administrative sanctions against arrangements that may otherwise implicate the AKS is another way HHS is giving providers more flexibility during the COVID-19 pandemic. In a recent letter, OIG stated specifically its desire to minimize burdens on providers during the crisis. Here, too, OIG is providing enforcement discretion related to the AKS to ensure flexibility for providers that meet the Stark Law blanket waivers. OIG also made it clear that it was extending its non-enforcement discretion to referrals for all federal healthcare program beneficiaries stemming from the arrangement.

In releasing the policy statement, OIG stated that all conditions and definitions that apply to the blanket waivers would need to be satisfied for a provider to receive this enforcement discretion. The conditions include: (i) the providers are acting in good faith to provide care in response to the COVID-19 pandemic, (ii) the government does not determine that the financial relationship creates fraud and abuse concerns, and (iii) providers seeking protection under this policy statement maintain sufficient documentation. For more information on these conditions, view the McGuireWoods April 3, 2020, client alert.

On the other hand, recognizing the differences between the AKS and the strict liability Stark Law, OIG diverted from the blanket waivers in some material ways:

The Policy Statement Protects Only Remuneration. Unlike the blanket waivers, which provide protections for certain enumerated remuneration as well as certain referral relationships, the policy statement protects only the permissible forms of remuneration specified in the blanket waivers. Therefore, the policy statement would not protect the following, even though they are protected under the blanket waivers with respect to the Stark Law:
1. Referrals by owners of physician-owned hospitals temporarily expanding their capacity
2. Referrals by owners of ASCs that temporarily convert to hospitals
3. Referrals by owners in home health agencies to their HHA
4. Referrals for in-office ancillary services provided at additional locations, although most physician group intra-practice referrals will still be protected through either the existing AKS group practice investment safe harbor or the employee safe harbor
5. Referrals of patients located in rural areas to immediate family members
6. Waiving in-writing requirements of the Stark Law exceptions
It is important to reiterate that, unlike the strict liability Stark Law, absence of the applicability here of specific blanket waivers does not mean the relationship violates the AKS or that the OIG would take enforcement action. First, another AKS safe harbor may apply. Second, the relationship may not have the intent to induce or reward referrals, which is required to demonstrate a violation.
No Retroactive Effective Date. Where the blanket waivers retroactively apply to arrangements entered into as of March 1, 2020, the policy statement applies only to conduct occurring on or after April 3, 2020. Though OIG does not explain its reasoning for not aligning entirely with the blanket waivers here, pursuant to the statements above about the applicability of the AKS, parties would still be able to argue for protection from AKS sanctions absent an improper motive to induce or reward referrals.
No Protection for Pharmaceutical or Device Manufacturers. OIG states that the policy statement has “no bearing” on arrangements that may implicate the AKS and are not covered by the blanket waivers. As a result, direct financial relationships with pharmaceutical companies or device manufacturers are not protected by the policy statement since they were not included in the blanket waivers, and should be reviewed under the existing AKS framework. Furthermore, because the blanket waivers cover only provider relationships involving physicians, a provider arrangement involving non-physician providers (e.g., nurse practitioners or physician assistants) might not receive the OIG enforcement discretion discussed herein. While this appears to be the official position of OIG based on the policy statement, the blanket waivers would likely still be influential to determining if such non-physician provider relationships had an improper intent, and may be structured with physician groups to cover such relationships as well.

Though OIG does not adopt the blanket waivers verbatim, its policy statement follows CMS to allow providers to pursue certain financial relationships that would allow treatment in the face of the COVID-19 pandemic that may otherwise implicate the AKS. Further, since protections under the policy statement expire at the end of the public health emergency, providers will need to perform a compliance review of their various relationships to ensure each relationship falls within an AKS safe harbor, much as they would need to do regarding the blanket waivers.

Please contact the authors for additional information on the policy statement, the applicability of the Stark Law blanket waivers to the AKS and their availability to various financial relationships. McGuireWoods has published additional thought leadership on how companies across various industries can address crucial coronavirus-related business and legal issues. The firm’s COVID-19 response team stands ready to help clients navigate urgent and evolving legal and business issues arising from the COVID-19 pandemic.

The FCA Insider

Insights and updates on False Claims Act Litigation