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.

******

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 Heinze 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, Ashley M. Monzel and McGuireWoods LLP

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 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.

DOJ, FCA Litigation, Plaintiff Strategies October 26, 2020

Updates on Third Party Involvement in Litigation Funding for FCA Cases

By David Pivnick and Brett Barnett

On January 27, 2020, Deputy Associate Attorney General, Stephan Cox, provided key note remarks at the 2020 Advanced Forum on False Claims and Qui Tam Enforcement. In his remarks, Mr. Cox noted that the Department of Justice (“DOJ”) recovered over $3 billion from False Claims Act (“FCA”) qui tam actions in the past fiscal year.

In his speech, Mr. Cox stated that the DOJ was “considering what, if any, interests the United States has with respect to third-party litigation financing in qui tam litigation,” also noting if it is worth seeking disclosure of qui tam litigation arrangements. Specifically, Mr. Cox was referring to the status of funding from third-parties in relation to qui tam complaints. Later this year, on June 30, 2020, Ethan Davis, the principal deputy assistant attorney general, delivered remarks on the FCA, mirroring some of the sentiments Mr. Cox had previously alluded to. A few key takeaways are as follows:

New Questions for DOJ Attorneys to ask Relators. Davis noted that since qui tam FCA cases are brought in the name of the United States, the United States has an interest in knowing who is behind those cases. For that reason, DOJ attorneys have been instructed to ask the following questions at each relator interview:

1. Whether the relator or his or her counsel has any agreement with a third-party funder. If yes, then the following questions will also be asked:
2. Identity of the funder;
3. Whether the relator has shared information relating to the qui tam allegations with the funder;
4. Whether a written agreement exists; and
5. Whether the agreement entitles the funder to exercise any direct or indirect control over the relator’s litigation or settlement decisions

The DOJ will also ask the relator to inform them if answers to the questions highlighted above changes at any point over the course of litigation.

DOJ May Dismiss Increased Numbers of Cases. The DOJ may move to dismiss qui tam actions brought by relators who have entered into agreements with third-party funders. Although the DOJ did not dismiss many qui tam actions in the past, since the publication of the January 2018 Granston Memorandum, the DOJ has been aggressive in dismissing qui tam cases if dismissal were to advance government interests, preserve government resources, and avoid adverse precedent.

OIG, Stark Law September 10, 2020

HHS Extends Timeline to finalize Stark Law Changes and CMP Inflation Rule

By Timothy Fry and Gretchen Heinze Townshend

In the last two weeks, the U.S. Department of Health and Human Services (HHS) published two notices in the Federal Register delaying the publication of certain final fraud and abuse rule reforms for up to a full year. First, in the Aug. 27 Federal Register, the Centers for Medicare & Medicaid Services (CMS) delayed the issuance of a final rule on eagerly anticipated reforms to the federal physician self‑referral law (the Stark Law) regulations. This rule has been expected to provide key clarifications to the strict liability Stark Law statue that prohibits physicians from referring certain healthcare services to an entity with which the physician has a financial relationship unless that financial relationship meets technical exceptions to the law. That delay was followed by a second notification in the Sept. 8 Federal Register continuing and extending a current interim rule for the Civil Monetary Penalties (CMP) inflation adjustment. Here are four key things for healthcare providers to know from these two HHS deadline extensions:

1. Providers will want CMS to finalize the Stark Law rule as soon as possible. CMS extended the date for publication of its Stark Law final rule until August 31, 2021, due to “the complexity of the issues raised by comments received on the proposed rule.” Healthcare providers supported many of these proposed changes as the CMS proposed changes, on balance, eased the regulatory burden on providers by revising or adopting new definitions for key terms used throughout various Stark Law exceptions, and proposing new exceptions to the law including for EHR donations, value-based arrangements and certain short-term financial relationships, as discussed in McGuireWoods Alerts dated Nov 1, 2019, Nov. 7, 2019 and Nov. 22, 2019. It is, however, important for providers to note that certain other proposed reforms, such as finalizing changes to the group practice definition profit sharing rules, could require some providers to restructure their financial relationships upon the implementation of the new rules. As such, it is hoped that CMS can finalize the rule sooner than its new deadline. While CMS found it necessary to announce a delay from their previously announced Aug. 2020 release timeframe, the notice did not state that the agency would actually take the full additional year to finalize the reforms. The federal Office of Management and Budget (OMB) has been reviewing a draft of the final rule since July (according to its regulatory dashboard), which may mean the rule is close to release notwithstanding this announcement.

It is hoped that CMS can finalize the rule sooner than its new deadline.

2. CMS’ delay likely also applies to the Anti-Kickback Statue (AKS) final rule. As discussed in an Oct. 10 client alert, HHS’s Office of Inspector General (OIG) announced its significant reforms to the AKS and CMP regulations on the same day CMS announced its amendments to the Stark Law regulations. HHS intended the proposed rules to both AKS and Stark Law to work together to incentivize value based arrangements and patient care coordination by expressly permitting certain activities that could be deemed problematic under the current laws. OIG’s proposed changes to the AKS and CMP regulations generally tracked those in the CMS proposed rule, particularly with respect to value-based arrangements, deviating only to reflect differences in the scope of the three laws. OIG and CMS have joined to discuss the proposed rules collectively with stakeholders, such as during an Oct. 24, 2019, AHLA webinar. OMB received final rules from both CMS and OIG on July 21, 2020. Therefore, while OIG has not announced an extension on its final rulemaking as discussed in 1 above, CMS’s announcement will likely mean a similar delay for the OIG final rule addressing the AKS and CMP regulations. We anticipate both final rules stemming from HHS’s Regulatory Sprint to Coordinated Care to be issued on the same day, and OMB is unlikely to approve the AKS changes to value-based arrangements without also signing off on the Stark Law changes.

3. CMP inflation extension likely will not have a substantive effect for providers. HHS and CMS also announced a one-year continuation through Sept. 6, 2021, of its interim final rule with respect to annual CMP inflation adjustments, after a similar 6-month extension earlier this year. The interim final rule was first published Sept. 6, 2016, to adjust CMP civil penalties annually for inflation as required in the Federal Civil Penalties Inflation Adjustment Act and Improvement Acts of 2015. We most recently discussed these annual inflation adjustments to the CMP civil penalties in a Nov. 18, 2019 FCA Insider post, particularly how the fines apply to various fraud and abuse conduct, such as violations of the Stark Law and AKS, beneficiary inducement violations, submission of false claims, and other prohibited conduct. HHS explained that this second continuation was necessary due to the extenuating circumstances of the 2019 novel corona virus (COVID-19) pandemic. This further extension also comes after CMS discovered that it had “inadvertently missed setting a target date for the final rule to make permanent the changes to the Medicare regulations” for CMP inflation adjustments after its 2016 interim final rule necessitating the earlier extension. Until the interim final rule is finalized, we expect CMS to announce its annual inflation adjustment in Nov. 2020 under the interim final rule. In addition, providers should remember that while such CMP civil penalties exist for government enforcement, whistleblowers continue to begin most enforcement actions under these regulations through the federal False Claims Act.

4. These extensions likely suggest continued workload burdens. Earlier this summer, we discussed how the announced Stark Law 2019 settlements continued a downward trend. In that FCA Insider post, we speculated that federal fraud and abuse regulatory staff workload may lead to a decline in Stark Law self-disclosure settlements despite a potential increase in filings, and noted, how if that was the case, COVID-19 would likely further reduce settlements in 2020. In our discussion, we noted that the reduction in announced settlements is likely due to staff shifting their focus and efforts on the Stark Law proposed reforms discussed above, a new Stark Law advisory opinion process (as detailed by McGuireWoods), as well as certain COVID-19 Stark Law waivers discussed on FCA Insider on May 2, 2020 and April 4, 2020. It is possible that the need to extend the time period for finalizing these rules suggest similar workload burdens as staff focus on necessary emergency needs with respect to COVID-19 rather than finalizing these reforms. On the other hand, as noted above, CMS and OIG have sent their reform suggestions to OMB and OMB is currently reviewing, which may suggest the rules are ready. We will continue to monitor these rulemaking processes to see if this could be part of a wider trend based on the current federal workload as regulators look to adjust fraud and abuse rules.

McGuireWoods will continue to monitor HHS and CMS rulemaking to assist clients in navigating these critical fraud and abuse rules, and will provide additional guidance as they are finalized.

OIG, Regulatory August 27, 2020

OIG Responds to Free/Discounted Lodging and Free Antibody COVID-19 Test Inquiries

By Timothy Fry and Brett Barnett

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 and a May 17 post, most recently providing guidance approving certain discounted lodging and free antibody testing arrangements:

Oncology practice may provide free or discounted lodging to certain patients. Oncology practices often attract patients from a wide catchment area—with patients traveling for chemotherapy or radiation treatment. To assist such treatment, nonprofits have developed free or discounted lodging programs near some of the largest cancer treatment facilities to assist financially needy patients, including federal health care program beneficiaries. An oncology practice questioned whether it could provide such free or discounted lodging to these beneficiaries in lieu of a nonprofit, in instances where the nonprofit has closed due to the COVID-19 public health emergency, or where the beneficiaries must travel due to treatment site closures because of the COVID-19 public health emergency. OIG opined that the oncology practice providing free or discounted lodging to financially needy Federal health care program beneficiaries posed a low risk of fraud and abuse so long as the following conditions are met:
1. The patient resides at least 50 miles from the treatment site.
2. The patient is an established patient of the oncology practice who had already scheduled treatment prior to the offer of free or discounted lodging.
3. The patient’s physician determines that provision of free or discounted lodging would facilitate access to care while the patient is receiving treatment.
4. The practice reasonably believes that the patient would have qualified for such free or discounted lodging from a nonprofit that is closed due to the COVID-19 public health emergency.
5. Payment is in-kind, made directly to a hotel or motel and only for number of nights required for treatment.
6. The hotel or motel is located in close proximity to the treatment site.
7. The practice does not advertise or otherwise use the offer of free or discounted lodging for patient recruitment.
8. The lodging is provided during the COVID-19 public health emergency.

Such limitations effectively only provides protection under the AKS and CMP to providers that are located near a pre-existing but closed nonprofit that was assisting patients with such lodging in the past. If a provider wanted to add such service during the COVID-19 public health emergency where there was not such a nonprofit, the provider would not have protection from this FAQ response. That said, such providers might have another option to structure such an arrangement. OIG noted that free or reduced-cost lodging could meet the Promotes Access to Care exception to the beneficiary inducement CMP, specifically pointing to their past guidance in OIG Advisory Opinion 17-01. Providers would still need to consider the AKS, but depending on the factual circumstances, additional flexibility max exist, particularly for oncology providers, to establish lodging programs during the COVID-19 public health emergency.

Clinical laboratories may provide free COVID-19 antibody testing to patients who are undergoing other blood tests.

A clinical laboratory asked OIG whether it could provide free antibody testing to federal health care program beneficiaries (and other payor patients) in conjunction with other medically necessary blood tests performed by the laboratory. I.e., as part of a paid for blood test panel for other necessary care, could the laboratory also screen for COVID-19 antibodies. The laboratory told OIG that it would encourage those with positive antibodies to donate blood plasma containing COVID-19 antibodies. The laboratory would also make the results available to both patients and physicians, as well as report it to the Centers for Disease Control and Prevention (CDC) and state public health agencies. OIG opined that providing free COVID-19 antibody testing to patients already undergoing other medically necessary blood tests poses sufficiently low risk of fraud and abuse so long as the following safeguards are employed:

The physicians ordering the tests do not receive remuneration from the clinical laboratory in connection with the free antibody-testing program.
The patients receiving the tests do not receive remuneration from the clinical laboratory in connection with the free antibody-testing program.
The tests are only offered to patients receiving other medically necessary blood tests.
No payor, including the patient, a commercial insurance company, or a federal health care program, is billed for the antibody tests.
The antibody tests are approved by the U.S. Food and Drug Administration (FDA) or are subject to an FDA-issued Emergency Use Authorization.

OIG further clarified that it views the provision of the free antibody testing as a sufficiently low risk of fraud and abuse because of the corresponding benefit to public health. The antibody testing would identify patients whose blood plasma contains COVID-19 antibodies, which may be donated and used for experimental treatments. Further, the reporting to the CDC and state public health agencies aids those entities in tracking the spread of COVID-19. This position suggests that OIG could negatively view a similar arrangement where the tests were not used to promote blood plasma donation or reported to the CDC or state public health agencies, even if the other safeguards are employed. In such a situation, OIG could view the antibody testing to violate the CMP as a free or discounted service to a federal health care program beneficiary.

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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.

The FCA Insider

Insights and updates on False Claims Act Litigation