The FCA Insider

The FCA Insider

Insights and updates on False Claims Act Litigation

Defense Arguments, FCA Litigation

Tenth Circuit Affirms an Award of Attorneys’ Fees for a Successful FCA Defendant

On June 11, 2019, the Tenth Circuit affirmed an award of $92,592.75 in attorneys’ fees to the defendants in Pack v. Hickey, 776 F. App’x 549 (10th Cir. 2019). Pack had appealed the district court’s entry of summary judgment and related orders in favor of Defendants Maureen Hickey (“Hickey”) and Cloud Peak Initiatives, Inc. (“Cloud Peak”) on Pack’s claims under the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733.  The Wyoming District Court also granted the defendants’­­ motion for attorneys’ fees on April 6, 2018, Case No. 15-CV-185.

Summary:

Under the whistleblower provisions of the FCA, Pack served as a qui tam relator in a suit against Defendants Cloud Peak and Hickey.  Cloud Peak is a private mental health facility.  Hickey was Cloud Peak’s President, owner, and sole shareholder.  The individual parties in the lawsuit were allegedly in a prior relationship and it was alleged that Hickey had terminated Pack as CEO of Cloud Peak and had also terminated their romantic relationship.  This background is relevant because the Tenth Circuit’s opinion noted these details in finding that the defendants deserved attorneys’ fees because Pack’s suit was frivolous and motivated by personal animus.

Pack alleged that Hickey was the sole person responsible for reviewing and submitting bills to Medicaid and that she committed Medicaid fraud based upon three types of purportedly false billing: improperly billing skills groups as therapy groups, improperly billing group therapy sessions as individual therapy sessions, and billing of unauthorized direct targeted case management without necessary medical documentation, all in violation of the FCA.

Pack had submitted an affidavit in connection with the District Court proceeding, but the District Court struck portions of the affidavit on multiple grounds, including issues of personal knowledge, hearsay, and impermissible beliefs, opinions, and conclusions.

On appeal, Pack failed to address the district court’s specific findings and failed to identify by number any of the paragraphs from his affidavit that were at issue. Instead, Pack relied on what Judge Briscoe called “generalized propositions, lengthy string cites, and conclusory statements.” Id.

In addition to Pack’s lack of personal knowledge, the court found the absence of evidence supporting the scienter element required for an FCA claim to be striking.

Award of attorneys’ fees to Defendants:

The False Claims Act permits an award of attorneys’ fees in favor of the Defendants where the Defendants prevailed in the litigation and the relator had asserted a claim that was “clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.”  31 U.S.C. § 3730(d)(4).

In this case, the district court awarded the Defendants $92,592.75 in attorneys’ fees and the appellate court affirmed the award, finding “no reversible error.”  Pack, 776 F. App’x at 558. The court based its ruling on, among other things, Pack’s failure to adduce evidence of false billing claims, the failure to satisfy the scienter requirement of an FCA claim by not deposing Hickey and others, the lack of documentary evidence and reliance on hearsay and speculation, and the proposal of a settlement offer which “tended to show [Pack] brought the action for an improper purpose.” Pack, 776 F. App’x at 559.

Conclusion:

In light of the high standard, it is rare that defendants in FCA suits are able to recover attorneys’ fees.  Further, relators in qui tam suits do not typically have deep pockets, and courts are sympathetic to a private citizen bringing an action on the government’s behalf.  However, the Pack case provides an outline of some of the considerations that a Court will view as appropriate to justify an award of attorneys’ fees for the Defendant.  We expect that Defendants will continue to evaluate the possibility of recovering attorneys’ fees in the future, particularly in situations where a relator brings claims that are motivated entirely by personal animus or where the claims were knowingly brought despite a lack of merit.

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HHS to Ease Fraud and Abuse Rules Part 4: Proposed Revisions to the Stark Law

As discussed in a previous McGuireWoods alert, on Oct. 9, the Department of Health and Human Services announced two proposed rules to significantly amend the Physician Self-Referral Law (Stark Law), the federal Anti-Kickback Statute (AKS) and the Civil Monetary Penalties (CMP) Law. This client alert, the fourth in McGuireWoods’ summary series on these proposed rules, focuses on the Centers for Medicare & Medicaid Services’ (CMS’) proposed revisions to ease certain requirements under the Stark Law by adding: (1) a new exception for limited monetary compensation; (2) changes to the group practice definition, particularly on physician profit-sharing; (3) definitional clarification for interpreting the regulations; and (4) other clarifications to ease compliance.

The proposed rules stem from HHS’ Regulatory Sprint to Coordinated Care (discussed in a Sept. 26, 2018, client alert), intended to incentivize value-based arrangements and patient care coordination by expressly permitting certain activities that could be deemed problematic under current law. The proposed rules, respectively released by CMS and the HHS Office of Inspector General (OIG), would add new value-based exceptions to the Stark Law and additional safe harbors under the AKS.

Although the proposed changes are likely to provide greater flexibility under the Stark Law, CMS does not intend to increase program risk. Accordingly, CMS provided additional clarification and bright-line rules in the proposed rule, based in part on knowledge gained from overseeing more than a thousand Self-Referral Disclosure Protocol filings. The industry will likely welcome changes to a strict liability statute that otherwise prohibits a physician referring designated health services (DHS) when a financial relationship does not meet an exception. This alert outlines CMS’ proposed changes to modernize its Stark Law regulations and provides seven key takeaways to assist healthcare providers in navigating these potential revisions.

1. CMS proposed a new exception for limited monetary physician compensation, under $3,500 per year. CMS seeks to add a new non-monetary compensation exception, which would allow physicians to be paid $3,500 or under per calendar year (adjusted for inflation), in the aggregate, without a signed writing or compensation set in advance. CMS, however, would still require that the compensation (a) not take into account the volume or value of referrals or other business generated, (b) not exceed fair market value, and (c) be commercially reasonable.

CMS noted that, through the Self-Referral Disclosure Protocol, it regularly encountered arrangements it deemed non-abusive but which failed to meet the requirements for a Stark Law exception (e.g., where a hospital paid a physician fair market value and had a legitimate need for physician services, yet failed to satisfy an exception because the arrangement was not in writing). CMS requested comment on whether a $3,500 limit would be workable and appropriate.

Note, importantly, the $3,500 limit, as proposed, would not apply to compensation for items or services outside of these arrangements if that compensation is itself protected under a different exception. CMS also suggested this exception might allow compliance at the outset of an arrangement before being replaced by another exception.

2. Changes to the group practice definition may necessitate certain revisions to a group’s compensation plan. The nuanced, technical definition of “group practice” is a critical concept under the Stark Law, as Congress created certain exceptions for referrals within group practices, including the in-office ancillary services exception, understanding that internal DHS referrals are commonplace and foster continuity of care and patient convenience. Therefore, even minor changes to the group practice definition can have significant impacts necessitating changes to physician compensation. Here, most significantly, CMS proposed to change limits placed on acceptable profit-sharing and productivity bonuses that do not directly vary based on the volume or value of DHS referrals and still meet the group practice definition.

First, CMS proposed a new, deemed-compliant profit-sharing methodology for group practices participating in a value-based enterprise (discussed below). Current law provides three deemed-compliant methodologies that the agency considers to be not directly based on the volume or value of DHS referrals. This new proposal would add another deemed-approved methodology for remuneration paid to a physician based on his or her DHS referrals in the context of value-based arrangements.

Second, CMS proposed several clarifying revisions to the profit-sharing rules. Perhaps the most important clarification is CMS’ continuing intention that “overall profits” means the profits derived from all the DHS in aggregate and not categories of DHS (i.e., the group cannot assign physicians into separate or overlapping imaging, physical therapy and outpatient prescription drug pods). CMS also appeared to prohibit a common approach — to split different DHS categories within a single pod in different compliant manners (i.e., within the same pod, using pro rata for imaging, and basing physical therapy on personal production). Commenters are likely to provide what they consider non-abusive examples of such approaches. We will be watching to see if CMS states explicitly that this clarification will be prospective only for enforcement purposes, despite its statement that the move is consistent with its intention all along.

3. CMS clarified key terms to simplify compliance. CMS, recognizing that common elements of numerous Stark Law exceptions are not always understood, sought to clarify a number of terms.

  • “Commercially Reasonable” Element. CMS proposed to finally define this term utilizing the key determining question of “whether the arrangement makes sense as a means to accomplish the parties’ goals.” From this basic question, CMS proposed two alternative definitions, where the particular arrangement: (i) “furthers a legitimate business purpose of the parties and is on similar terms and conditions as like arrangements” or (ii) “makes commercial sense and is entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty.” CMS requested comments on these alternatives and specifically asked whether parties could make these proposed comparisons. Commenters may request additional clarification, but we expect many will welcome clarification that this definition is not a valuation question and an arrangement does not need to be profitable.
  • “Volume or Value” and “Other Business Generated” Bright-Line Standards. CMS proposed special rules for each of the “volume or value” and the “other business generated” standards to create more bright-line, objective tests.
    • Compensation from an entity to a physician would be considered to take into account the volume or value of referrals or business generated only if the physician “receives additional compensation as the number or value” of the physician’s referrals or business generated to the entity increases.
    • Compensation from a physician to an entity would be considered to take into account the volume or value of referrals or business generated only if the physician “pays less compensation as the number or value of the physician’s” referrals or business generated to the entity increases.
    • Fixed-rate compensation would also be considered to take into account the volume or value of referrals or business generated if “there is a predetermined, direct correlation between the physician’s prior” referrals or business generated (e.g., a hospital bases its fixed amount for medical director services on exceeding a past patient admissions threshold).

We expect commentators will appreciate the proposed objective, bright-line tests. To provide these tests, CMS believes it needs to revise certain exceptions by expressly referencing that any referral requirements will not contradict patient choice or a patient’s best interest. CMS specifically asked if the academic medical center exception needs this change too.

  • “Fair Market Value” and “General Market Value” Definitions. CMS proposed to provide three separate definitions for “fair market value” that will apply separately to equipment rentals, to office space rentals, and to all other arrangements generally. The definitions do not appear to substantively alter the statutory definition; however, the proposed definitions specifically include that “fair market value” means the “value in an arm’s-length transaction, with like parties and under like circumstances, of like assets.” CMS further proposed to amend the definition of “general market value” to be more in line with the valuation industry’s usage relating “to the value of an asset or service to the actual parties to a transaction that is set to occur within a specified timeframe.” This latter change would allow a particular, in-demand orthopedic surgeon sought by professional athletes to, for example, be paid more than a salary survey would suggest, although it may mean less pay for locations with a lower cost of living.

4. Additional Clarifications to Ease Compliance. CMS also made numerous other changes and proposals to ease certain Stark Law burdens.

  • Definitional Changes. CMS proposed to revise the following definitions, among others.
    • Designated Health Services. For inpatient hospital services, CMS proposed to carve out from “DHS” any furnished service that does not affect Medicare’s payment to the hospital under the inpatient prospective payment system (IPPS), such as an X-ray that is ordered after the IPPS rate has been established by the relevant payment rules. CMS requested comment on similar changes for hospitals not paid under the IPPS.
    • Remuneration. The current definition of “remuneration” carves out certain items, devices or supplies used solely to collect, transport, process or store specimens for the entity providing it. Under current law, CMS does not protect surgical items in this carve-out; however, CMS proposed to allow surgical items if used solely for one of the six statutory purposes. Notwithstanding this change, CMS continues to believe things like sterile gloves, essential to the specimen collection process, are fungible and therefore cannot qualify for this remuneration carve-out.
    • Transaction. The term “transaction” is used in the isolated financial transaction exception for one-time sales of property or a practice. CMS noted that some have used this exception beyond its intended scope to cure noncompliance retroactively. Therefore, CMS proposed to establish an independent definition of “isolated financial transaction” and clarify that it “does not include payment for multiple services provided over an extended period, even if there is only one payment for such services.”
  • Writing and Signature Requirements. CMS proposed to codify electronic signature approval for exceptions requiring a signed writing and to allow the 90-day grace period for unsigned writings to be used to satisfy the writing requirement.
  • Non-exclusive Rental Arrangements. Under current law, CMS requires a lessee to have exclusive use of an office or equipment being rented. CMS proposed to clarify that the exclusive use is only against the lessor, such that healthcare providers will have greater freedom to enter into non-exclusive leases, including multiple lessees at the same time.
  • Expanding Relevance of Three Existing Exceptions. CMS proposed to liberalize three exceptions that past rulemaking significantly limited. First, at §411.357(g), CMS proposed a significant rewrite for remuneration unrelated to DHS from hospitals to protect more arrangements. Second, at §411.357(i), CMS proposed to expand the reach of the payments by a physician exception by allowing its use even if another regulatory exception could apply (statutory exceptions still cannot). Finally, CMS proposed to allow the fair market value exception at §411.357(l) for short-term equipment and office space rentals under one year in length.
  • Physician Recruitment. CMS proposed to modify the signature requirement for physician recruitment arrangements so a physician practice has to sign the writing only if it is receiving a financial benefit from the arrangement, but not if the practice merely serves as a pass-through to the recruited physician.
  • Remuneration for Non-physician Practitioner (NPP) Patient Care Services. CMS proposed to revise an exception allowing a hospital, federally qualified health center or a rural health clinic to assist a physician in hiring an NPP, previously discussed in a Sept. 1, 2015, client alert. CMS clarified numerous service area questions, including that the NPP could remain in his or her community and receive this support after first becoming a nurse practitioner. CMS also proposed to require that the NPP and physician arrangement begin on or after the commencement of the assistance arrangement.
  • Ownership or Investment Interests. CMS raised two topics with respect to its definition of ownership or investment interests. First, CMS proposed that a titular ownership or investment would not be considered ownership. This may be beneficial for some corporate practice of medicine arrangements, although in many cases, the in-office ancillary services exception already protects the relationship. In addition, CMS asked for comments on whether it should also remove employee stock ownership plans, or ESOPs, from its meaning of ownership.
  • Decoupling the AKS from the Stark Law. CMS proposed to remove certain requirements for exceptions that entail AKS or other related law compliance. Although the practical effect may be small, providers will appreciate that this would remove ambiguity from complying with a strict liability statute by meeting an intent-based criminal statute with more limited safe harbors. CMS noted the AKS separately remains a “backstop” for problematic arrangements that would no longer be restricted under the Stark Law.

5. CMS proposed to replace its “period of disallowance” rule with a general standard. For purposes of the DHS referral prohibition, CMS has called the period when a referral cannot be made a “period of disallowance.” CMS has now proposed to replace its current complex rule to determine a period of disallowance, with a general principle that the period of disallowance “should begin on the date when a financial relationship fails to satisfy all requirements of any applicable exception and end on the date that the financial relationship ends or satisfies all requirements of an applicable exception.” Providers would determine the ending date on a case-by-case basis. While commenters will likely appreciate the deletion of the overly prescriptive period of disallowance rules, and certain guidance that may allow providers to cure noncompliance without triggering this period, the general guidance provided in the proposed rule will likely lead to further legal development and consideration in the industry, particularly since the guidance may provide additional opportunities to cure past conduct.

6. CMS proposed a new exception and modifications to the EHR exception to extend protections for cybersecurity technology. CMS has amended the EHR exception several times, avoiding sunsetting the exception as initially codified. In the proposed rule, CMS introduced various potential changes to the Stark Law exception, consistent with OIG’s AKS proposals. Specifically, CMS’ proposed revisions would: (i) allow cybersecurity technology donations, (ii) update interoperability provisions and (iii) remove the existing sunset date. CMS separately proposed a new cybersecurity technology exception. More information regarding CMS’ proposed modifications were presented in a recent McGuireWoods alert.

7. CMS proposed a new, value-based exception. As will be discussed in greater depth in a forthcoming McGuireWoods alert, CMS, in an effort to foster a greater emphasis on value-based care, also proposed creating a new Stark Law exception, in conjunction with OIG’s proposed safe harbors to the AKS. Specifically, CMS proposed an exception focused on remuneration exchanged between or among participants in certain value-based arrangements (e.g., care coordination arrangements designed to improve quality, health outcomes and efficiency). CMS would structure the requirements for this exception around whether the value-based arrangement (a) has full financial risk, (b) has meaningful downside financial risk or (c) has other criteria, which would come with the most significant regulatory burden. In adding this exception, CMS also proposed a new value-based enterprise definition that would allow multiple entities to come together to collaborate to achieve value-based purposes.

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Through these proposed changes, CMS sought to be balance a need for innovation with the potential for improper inducements prohibited by the Stark Law, by removing certain burdens while clarifying others and adding new exceptions. Consistent with its changes to the Stark Law advisory opinion process (discussed in an Aug. 26, 2019, client alert), CMS seems to be loosening its rules. Overall, many providers will support these proposed changes, notwithstanding that existing arrangements may need to be adjusted, reformed or terminated to comply with the proposed rule.

The proposed changes are subject to a public comment period, open until Dec. 31, 2019. Please do not hesitate to contact a McGuireWoods attorney or one of the authors of this alert for more information regarding these proposed rules or for assistance in preparing a comment to these rules. After the open comment period, the government will review and may finalize the rule with any desired changes to reduce Stark Law burdens on providers as soon as early 2020.

Given the significance of these proposed changes, McGuireWoods plans to provide additional analysis and summaries on these proposals in the coming weeks. To review additional guidance on the proposed rules, click on the links at the bottom of McGuireWoods’ Oct. 10, 2019, alert.

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HHS to Ease Fraud and Abuse Rules Part 3: Flexibility for EHR Items and Services, Donated Cybersecurity Tech

As discussed in a previous McGuireWoods alert, on Oct. 9, the Department of Health and Human Services announced two proposed rules to significantly amend the Physician Self-Referral Law (Stark Law), the federal Anti-Kickback Statute (AKS) and the Civil Monetary Penalties Law. This client alert, the third in McGuireWoods’ summary series on these proposed rules, focuses on (i) proposed changes to the electronic health records (EHR) items and services exception to the Stark Law and EHR safe harbor to the AKS, and (ii) a proposed new exception to the Stark Law and safe harbor to the AKS related to the donation of cybersecurity software and services.

The proposed rules stem from HHS’ Regulatory Sprint to Coordinated Care (discussed in a Sept. 26, 2018, client alert), intended to incentivize value-based arrangements and patient care coordination by expressly permitting certain activities that could be deemed problematic under current law. The proposed rules, respectively released by HHS’ Centers for Medicare & Medicaid Services (CMS) and the HHS Office of Inspector General (OIG), would add new value-based exceptions to the Stark Law and additional safe harbors under the AKS.

In addition to those value-based arrangement changes, other proposed changes to CMS’/OIG’s regulations are likely to ease certain burdens for healthcare providers and provide greater flexibility under these federal fraud and abuse rules, particularly regarding the donation of EHR and cybersecurity items and services.

1. CMS and OIG proposed adding cybersecurity technology and services to the EHR exception and safe harbor and adding a stand-alone cybersecurity technology and related services exception and safe harbor . CMS and OIG noted that the digitization of healthcare delivery and rules designed to increase interoperability and data sharing in the delivery of healthcare create numerous targets for cyberattacks. They further acknowledged that the cost of cybersecurity technology and related services has increased dramatically, to the point where some providers and suppliers are unable to invest in, and therefore have not invested in, adequate cybersecurity measures. Accordingly, CMS and OIG proposed providing for the donation of cybersecurity items and services both within the EHR exception and safe harbor and through a stand-alone exception and safe harbor.

CMS and OIG explained that, as proposed, the new cybersecurity exception and safe harbor are broader than their EHR counterparts are, as they require fewer conditions. For example, the cybersecurity exception and safe harbor do not share the condition of a 15 percent required contribution from recipients that exists under the EHR exception and safe harbor. CMS and OIG clarified that a party seeking to protect an arrangement involving the donation of cybersecurity software and services must comply with only one exception.

As proposed, the cybersecurity exception and safe harbor allow for the donation of cybersecurity technology and related services provided that certain conditions are met, including the following:

a. The technology and services are necessary and used predominantly to implement and maintain effective cybersecurity.

b. The donor does not (i) directly take into account the volume or value of referrals or other business generated between the parties when determining the eligibility of a potential recipient for the technology or services or the amount or nature of the technology or services to be donated; nor (ii) condition the donation of technology or services, or the amount or nature of the technology or services to be donated, on future referrals.

c. Neither the recipient nor the recipient’s practice (nor any affiliated individual or entity) makes the receipt of technology or services, nor the amount or nature of the technology or services, a condition of doing business with the donor.

CMS and OIG are also considering an alternative proposal that allows for the donation of certain cybersecurity hardware when the donor has determined that the hardware is reasonably necessary based on a risk assessment of its own organization and that of the potential recipient.

2. CMS and OIG proposed modernization updates to EHR interoperability provisions . The existing rules — discussed in an April 12, 2013, client alert and a Dec. 24, 2013, client alert — prohibit a donor from taking any action to limit or restrict the use, compatibility or interoperability of EHR items or services. CMS and OIG proposed modifications in recognition of significant intervening legal updates in this area. Specifically, they proposed adopting the term “information blocking” from the 21st Century Cures Act, which generally means interfering with, preventing or materially discouraging access, exchange or use of electronic health information. CMS and OIG clarified that both engaging in information blocking related to donated items or services and using those items or services to engage in information blocking are prohibited. Further, under the existing rules, software that was once ONC-certified but is not certified at the time of donation is protected. The proposed rule would revise this provision to require that the software be certified at the time of donation to be protected. CMS and OIG noted that any changes to the deeming provision would be prospective.

3. CMS and OIG proposed changes to the EHR cost-sharing requirements . CMS and OIG requested comments on whether to eliminate or reduce the 15 percent cost-sharing requirement within the EHR exception and safe harbor for small or rural physician organizations, or, alternatively, to reduce or eliminate this requirement for all physician recipients. CMS and OIG are additionally considering eliminating or reducing the percentage for updates to previously donated software or technology (i.e., requiring a contribution for the initial investment only). These considerations are based on comments that CMS and OIG received describing the 15 percent contribution requirement as burdensome and preventative to some recipients in adopting EHR technology.

4. CMS and OIG proposed to allow donation of replacement technology . The current EHR exception and safe harbor do not protect the donation of replacement technology when the replacement is for “equivalent items or services.” In the 2013 EHR final rule comments, one commenter asserted that the current exceptions lock physicians into vendor agreements by forcing a choice between paying full price for a new system or continuing to pay 15 percent of the cost for substandard technology. The 2019 proposal by CMS and OIG, if adopted, would allow donations of replacement EHR technology.

5. CMS and OIG proposed to either eliminate or extend the EHR exception and safe harbor sunset provisions . The EHR exception and Anti-Kickback Statute safe harbor concerning EHR items and services were originally scheduled to sunset on Dec. 31, 2013. In 2013, both CMS and OIG extended the sunset date to Dec. 31, 2021, but retained the idea that this exception would be obsolete once EHR technology was universal and would then be eliminated. If adopted, these proposed rules would eliminate the sunset date, expressing CMS’ and OIG’s continued interest in promoting EHR technology adoption. OIG explained that a need for this protection persists as new parties enter medical practice and EHR technology ages. Alternatively, CMS and OIG could simply extend the sunset date, and they are seeking comments on this matter.

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Through these proposals, CMS and OIG seek to remove burdens on providers, without creating substantial risk of increased fraud and abuse. While CMS and OIG acknowledged that any donation of valuable technology poses risks of fraud and abuse, the need to protect the “weak links” in a healthcare system outweigh these concerns due to the threat of cyberattacks. Overall, many providers will likely support these proposed changes, notwithstanding that existing provider arrangements may need to be adjusted, reformed or terminated to comply with the proposed amendments.

The proposed changes are subject to a public comment period, open until Dec. 31, 2019. Please do not hesitate to contact a McGuireWoods attorney or one of the authors of this alert for more information regarding these proposed rules or for assistance in preparing a comment to these rules. After the open comment period, the government will review and may finalize the rule with any desired changes, to reduce Stark Law and AKS burdens on providers as soon as early 2020.

Given the significance of these proposed changes, McGuireWoods plans to provide additional analysis and summaries on these proposals in the coming weeks. To review additional guidance on the proposed rules, please click on the links at the bottom of McGuireWoods’ Oct. 10, 2019, alert.

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HHS to Ease Fraud and Abuse Rules Part 2: Civil Monetary Penalty Law Changes, In-Home Dialysis Telehealth

As discussed in a previous McGuireWoods alert, on Oct. 9, the Department of Health and Human Services (HHS) announced two proposed rules to significantly amend the Physician Self-Referral Law (Stark Law), the federal Anti-Kickback Statute (AKS) and the Civil Monetary Penalties (CMP) Law. This client alert, the second in McGuireWoods’ summary series on these proposed rules, focuses on proposed revisions to the statutory exception for furnishing telehealth technologies to certain in-home dialysis patients, as well as CMP Law beneficiary inducement changes.

The proposed rules stem from HHS’ Regulatory Sprint to Coordinated Care (discussed in a Sept. 26, 2018, client alert), intended to incentivize value-based arrangements and patient care coordination by expressly permitting certain activities that could be deemed problematic under current law. The proposed rules, respectively released by HHS’ Centers for Medicare & Medicaid Services and the HHS Office of Inspector General (OIG), would add new value-based exceptions to the Stark Law and additional safe harbors under the AKS.

In addition to those value-based arrangement changes, other proposed changes to OIG’s regulations are likely to ease certain burdens for healthcare providers and provide greater flexibility under these federal fraud and abuse rules, particularly regarding the furnishing of telehealth technologies to certain in-home dialysis patients. The following outlines these changes, intended to reduce the burdens of the CMP Law, which imposes penalties against any person offering or transferring remuneration to a federal healthcare program beneficiary that is likely to influence the beneficiary’s selection of a particular provider.

The HHS proposed rule includes several amendments related to the beneficiary inducements CMPs, including (1) changes to the definition of “remuneration” to add an exception for “telehealth technologies” furnished to certain in-home dialysis patients; and (2) a new safe harbor for patient engagement and support arrangements and modifications to the existing local transportation safe harbor, which would, by operation of law, serve as exceptions to the beneficiary inducements CMP prohibition’s definition of “remuneration.” These proposals are discussed below.

Statutory Exception for Telehealth Technologies for In-home Dialysis

The proposed rule aims to amend 42 CFR §1003.110 to formally implement the Budget Act of 2018 amendments to the beneficiary inducements CMP definition of “remuneration.” Pursuant to the terms of the proposed rule, there would be “an exception for the provision of certain telehealth technologies related to in-home dialysis services to the definition of ‘remuneration.’” The intent of the proposed rule is to allow end-stage renal disease (ESRD) patients who receive home dialysis to obtain monthly ESRD-related clinical evaluations via telehealth technologies, so long as certain other conditions are met.

According to the proposed rule, “telehealth technologies” would be defined as “multimedia communications equipment that includes, at a minimum, audio and video equipment permitting two-way, real-time interactive communication between the patient and distant site physician or practitioner used in the diagnosis, intervention or ongoing care management, paid for by Medicare Part B, between a patient and the remote healthcare provider. Telephones, facsimile machines, and electronic mail systems do not meet the definition of ‘telehealth technologies.’” Although, note, OIG said it would not consider smartphones to be “telephones” if they have two-way video conferencing applications.

To take advantage of this new exception to the definition of “remuneration” in the beneficiary inducements CMP, the ESRD patient must receive the telehealth technology after Jan. 1, 2019; the ESRD patient must be receiving home dialysis that is paid for under Medicare Part B; and the technologies must be furnished by the patient’s provider or dialysis facility. As clarification of the statute stating that the technologies must be furnished by the patient’s provider or dialysis facility, OIG plans to require that any such technologies come from the provider or facility that is then-providing services like home dialysis, telehealth visits, or other ESRD care to the patient. The intent is to prevent someone from attempting to steer a patient to a particular provider or supplier to form a clinical relationship through such telehealth technology.

In addition, the proposed rule mirrors the statute to require that “(i) the telehealth technologies are not offered as part of any advertisement or solicitation; [and] (ii) the telehealth technologies are provided for the purpose of furnishing telehealth services related to the individual’s end stage renal disease.” Providers should be aware that OIG proposes to also require that any provided telehealth technology (a) significantly add to the provision of the beneficiary’s telehealth services in connection with his or her ESRD; (b) not be of excessive value (e.g., cannot provide a $600 smartphone when a $300 smartphone would adequately run the technology); and (c) not be “duplicative of technology that the beneficiary already owns if that technology is adequate for the telehealth purposes.”

Other safeguards OIG is considering in connection with this proposed rule, and for which it solicited comments, include the following:

  • Whether to require providers and dialysis facilities to provide telehealth technology consistently, either to all Medicare Part B ESRD patients or to all who meet certain criteria
  • Whether to limit the provision of telehealth technology to only those patients who do not currently have the kind of technology necessary for telehealth services
  • Whether to require an explanation to patients, in writing, about why they are receiving the technology and any “hidden” fees related to the technology
  • Whether to require providers and dialysis facilities that provide telehealth technology to “advise patients when they receive such technology that they retain the freedom to choose any provider or supplier of dialysis services and to receive dialysis in any appropriate setting”

New Safe Harbor and Modification to an Existing Safe Harbor

OIG also proposed a new safe harbor for patient engagement and support arrangements (42 CFR § 1001.952(hh)) and proposed modifications to the local transportation safe harbor (42 CFR § 1001.952(bb)), which function as exceptions to the definition of “remuneration” in the beneficiary inducements CMP prohibition, as well as safe harbors to the AKS.

  • New Safe Harbor ─ Arrangements for Patient Engagement and Support to Improve Quality, Health Outcomes and Efficiency

OIG proposed to establish a new safe harbor at 42 CFR § 1001.952(hh) to “protect certain arrangements for patient engagement tools and supports to improve quality, health outcomes, and efficiency furnished by VBE [value-based enterprise] participants … to specified patients.” This new “patient engagement and support safe harbor” is intended to help providers keep patients involved in their care and help patients take steps to make informed healthcare decisions and to maintain or improve their health, without AKS and beneficiary inducements CMP barriers.

Specifically, under the proposed safe harbor, “remuneration” under AKS “would not include in-kind patient engagement tools or supports … furnished directly by a VBE participant … to a patient in a target patient population … that are directly connected to the coordination and management of care …, provided that all of the conditions of proposed [42 CFR §] 1001.952(hh) are satisfied.” However, there may be limitations on those who could offer such patient engagement tools or supports, those who could receive such tools or supports, and on what could be offered.

  • Modifications to Safe Harbor ─ Local Transportation

OIG acknowledged in the proposed rule that transportation plays a significant role in patients’ “access to care, quality of care, healthcare outcomes, and effective coordination of care for patients, particularly for patients who lack their own transportation or who live in ‘transportation deserts.’” Therefore, as discussed in an Oct. 28, 2019, McGuireWoods alert, OIG is taking this opportunity to reconsider certain provisions of the existing local transportation safe harbor (currently codified at 42 CFR § 1001.952(bb)) and, in conjunction with this, proposing the new patient engagement tools and support safe harbor, which could also include certain transportation services.

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Through these proposals, OIG seeks to remove key CMP Law burdens on providers, without creating substantial risk of increased fraud and abuse. Overall, many providers will likely support these proposed changes, notwithstanding that existing provider arrangements may need to be adjusted, reformed or terminated to comply with the proposed amendments.

The proposed changes are subject to a public comment period, open until Dec. 31, 2019. Please do not hesitate to contact a McGuireWoods attorney or one of the authors of this alert for more information regarding these proposed rules or for assistance in preparing a comment to these rules. After the open comment period, the government will review and may finalize the rule with any desired changes to reduce CMP Law burdens on providers as soon as early 2020.

Given the significance of these proposed changes, McGuireWoods plans to provide additional analysis and summaries on these proposals in the coming weeks. To review additional guidance on the proposed rules, click on the links at the bottom of McGuireWoods’ Oct. 10, 2019, alert.

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HHS to Ease Fraud and Abuse Rules Part 1: Proposed Revisions to Existing Anti-Kickback Statute Safe Harbors

As discussed in a previous McGuireWoods alert, on Oct. 9, 2019, the Department of Health and Human Services announced two proposed rules to significantly amend the Physician Self-Referral Law (Stark Law), the federal Anti-Kickback Statute (AKS) and the Civil Monetary Penalties Law. This client alert, the first in McGuireWoods’ summary series on these proposed rules, focuses on the HHS Office of Inspector General’s (OIG’s) proposed revisions to ease certain requirements under existing AKS safe harbors related to: (i) electronic health records (EHR) arrangements, (ii) warranties, (iii) local transportation and (iv) personal services and management contracts.

The proposed rules stem from HHS’ Regulatory Sprint to Coordinated Care (discussed in a Sept. 26, 2018 client alert), intended to incentivize value-based arrangements and patient care coordination by expressly permitting certain activities that could be deemed problematic under current law. Collectively, the proposed rules, respectively released by HHS’ Centers for Medicare & Medicaid Services (CMS) and the OIG, would add new value-based exceptions to the Stark Law and additional safe harbors under the AKS, as well as revise existing safe harbors under the AKS (as described in more detail throughout this alert).

The proposed changes are likely to reduce burdens for healthcare providers and other stakeholders within the healthcare industry and provide greater flexibility under these federal fraud and abuse rules while, at the same time, ensuring that the revisions are not misused to perpetrate fraud and abuse. The following alert outlines the OIG’s proposed changes to existing AKS safe harbors and provides five key takeaways to assist healthcare providers in navigating these potential revisions.

  1. Among other changes, the proposed modifications to the EHR safe harbor would extend protections for cybersecurity technology. Since the EHR safe harbor’s creation in 2006, the OIG has amended it several times. In the proposed rule, the OIG introduced various potential changes to the AKS safe harbor. Specifically, the OIG’s primary proposed revisions would: (i) add protections for certain cybersecurity technology, (ii) update provisions regarding interoperability and (iii) remove the existing sunset date. More information regarding OIG’s proposed modifications will be presented in a forthcoming McGuireWoods alert.
  2. Proposed revisions to the warranty safe harbor would expand the scope of protected warranties. The OIG proposed several key revisions to the warranties safe harbor, including but not limited to: (i) extending coverage for bundled warranties (as described in more detail below); (ii) capping the amount of warranties and prohibiting terms that condition warranties on exclusive use or minimum purchase requirements, which the OIG considers improper inducements; (iii) addressing clinical outcome-based warranties on conditions that will be forthcoming (i.e., comments were solicited to develop this provision); and (iv) developing a definition of “warranties” that incorporates items or services critical to the healthcare industry but which are not currently encompassed by other statutes or case law.

    In the proposed revisions, the parameters around bundled warranties received considerable attention. Prior guidance from the OIG had effectively limited the safe harbor to warranties for single items, thereby excluding warranty arrangements that pertain to bundled items and services. To promote beneficial and innovative arrangements, the OIG proposed expanding the safe harbor to protect bundled items and services. The proposed rule demonstrates OIG’s caution with respect to this proposal and includes various safeguards that could practically limit the use of this safe harbor on a broader level. For example, the OIG proposed that all federally reimbursable items and services in a bundled warranty arrangement be reimbursed by the same federal healthcare program and in the same payment. The OIG also proposed that (i) the bundled arrangement include at least one item in the bundle (i.e., cannot bundle only services); (ii) the remuneration a manufacturer or supplier may pay to any party (other than a beneficiary) must be limited to the cost of the warrantied items or services; (iii) manufacturers and suppliers must not be allowed to condition bundled warranties on the exclusive use of such items or services; and (iv) manufacturers and suppliers not be allowed to impose minimum-purchase requirements.

    The OIG further clarified that the proposed modifications would not protect free or reduced-priced items or services that sellers provide either as part of a bundled warranty agreement or ancillary to a warranty agreement. The OIG specifically requested responses from commentators on the conditions and safeguards that should be included in a final rule with respect to the warranty safe harbor to ensure flexibility and use of this safe harbor while simultaneously mitigating fraud and abuse risks.

  3. The OIG proposed to ease rural mileage and other restrictions under the local transportation safe harbor. In recognizing the importance that transportation often plays in patient access to care, quality of care and care coordination, the OIG proposed to modify certain conditions that currently limit use of the local transportation safe harbor. Specifically, the OIG proposed to: (i) increase the distance patients residing in rural areas may be transported, from 50 miles to 75 miles; and (ii) remove all mileage limits on transporting a patient from a healthcare facility from which the patient has been discharged to the patient’s place of residence. In connection with these proposals, the OIG requested from commenters information regarding patients within the commenters’ communities who cannot obtain care within the existing mileage restrictions and whether eliminating the distance limitation on transporting discharged patients should be extended to cover any destination of such patient’s choice.

    In addition to these proposed revisions, the OIG explicitly clarified that this safe harbor historically has applied to ride-sharing services. Lastly, in recognizing that transportation for non-medical purposes may help improve patients’ health, the OIG expressed a willingness to potentially expand the safe harbor to permit transportation for certain non-medical purposes (e.g., transportation to apply for food stamps or housing assistance) as a means to foster innovative arrangements that could improve health outcomes. In weighing this consideration, the OIG requested that commenters provide insight as to whether such expansion should be limited to certain beneficiary populations.

  4. The proposed rule would add flexibility to the personal services and management contracts safe harbor by eliminating and modifying existing restrictions and potentially extending protections to outcomes-based payments. The OIG proposed several modifications to the personal services and management contracts safe harbor in an effort to remove barriers to care coordination and value-based arrangements. Specifically, the OIG proposed to: (i) remove the requirement that contracts for part-time arrangements specify the schedule, length and exact charge for the intervals of time worked under the arrangement; (ii) substitute the requirement that aggregate compensation paid under an arrangement be set in advance, with a new requirement that only the methodology for determining compensation be set in advance; and (iii) permit outcomes-based payments under an arrangement if certain conditions are met.

    Notably, the proposed removal of the part-time arrangement restrictions would permit providers to receive safe harbor protection for services provided on an as-needed basis and more closely align the safe harbor with the personal arrangements exception to the Stark Law. Similarly, the proposed modification of the “set-in-advance” compensation requirement would more closely align with the Stark Law in that the parties would no longer be required to specify the total compensation to be paid over the duration of an arrangement. If finalized, these changes would provide regulatory protection (assuming all other elements are met) to providers that need periodic management and personal services arrangements but are unable to predict the exact frequency (e.g., call coverage).

    The proposal to permit outcomes-based payments would align the personal services and management contracts safe harbor with the current evolution of payment models for healthcare. While the outcomes-based payments proposal opens the door for rewarding agents for improving patient or population health, or reducing payor costs while improving quality of care, the proposed safe harbor would exclude arrangements that relate solely to achievement of internal cost savings for the principal. The OIG, however, proposed to limit the scope of this protection, specifically excluding pharmaceutical manufacturers; manufacturers, distributors and suppliers of durable medical equipment, prosthetics, orthotics and supplies; and laboratories. The OIG is also considering, but requested comment regarding, whether to also exclude pharmacies (including compounding pharmacies), wholesalers and distributors of pharmaceutical products, and pharmacy benefit managers from this safe harbor.

  5. In addition to modifications of existing safe harbors, the OIG proposed creating new, value-based safe harbors. As will be discussed in greater depth in a forthcoming McGuireWoods alert, the OIG, in an effort to foster a greater emphasis on value-based care, also proposed creating several new AKS safe harbors. Specifically, the OIG proposed: (i) three new safe harbors for remuneration exchanged between or among participants in certain value-based arrangements (e.g., care coordination arrangements designed to improve quality, health outcomes and efficiency); (ii) a new safe harbor for certain patient engagement and support arrangements; (iii) a new safe harbor for remuneration provided in connection with a CMS-sponsored mode; and (iv) a new safe harbor for donations of cybersecurity technology and services. In proposing these new safe harbors, the OIG hoped to strike an effective balance in achieving its goals of clarity, objectivity, flexibility, necessary safeguards and ease of implementation.

* * * * *

In an era of increased government enforcement and whistleblower activity, situations where new care-delivery models conflict with precise adherence to safe harbor conditions create uncertainty. Through these proposed changes, the OIG attempted to balance a need for innovation with the potential for improper inducements, by removing some elements while adding safeguards for others. Providers and industry stakeholders examining new models of care delivery, outcomes-based metrics and enhancement of access to care will find value in these changes, if finalized.

The proposed changes are subject to a public comment period, which is open until Dec. 31, 2019. Please do not hesitate to contact a McGuireWoods attorney, including any of the authors of this alert, for more information regarding these proposed changes to existing AKS safe harbors or for assistance in preparing a comment to these rules. After the open comment period, the government will review and may finalize the rule with any desired changes to reduce AKS burdens on providers as soon as early 2020.

Given the significance of these proposed changes, McGuireWoods plans to provide additional analysis and summaries on the various key proposals in the coming weeks. To review additional guidance on these proposed rules, click on the links at the bottom of McGuireWoods’ Oct. 10, 2019, alert.

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HHS Proposed Rules Seek to Remove Stark Law, Anti-Kickback Burdens on Providers

On Oct. 9, the Department of Health and Human Services announced two proposed rules to significantly amend the Physician Self-Referral Law (Stark Law), the federal Anti-Kickback Statute (AKS) and the Civil Monetary Penalties (CMP) Law. The proposed rules intend to further incentivize value-based arrangements and patient care coordination by expressly permitting certain activities that could be deemed problematic under current law. The proposed rules, respectively released by HHS’ Centers for Medicare & Medicaid Services (CMS) and the HHS Office of Inspector General (OIG), would add new value-based exceptions to the Stark Law and additional safe harbors under the AKS.

These proposals stem from HHS’ Regulatory Sprint to Coordinated Care. 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. As part of this effort, HHS committed to examining federal regulations that impede coordinated care efforts. This effort has generated widespread interest. In response to a June 2018 request for public comments on the need for revisions to the Stark Law, CMS received 375 responses, and in response to an August 2018 request for comments on the need for revisions to the AKS, OIG received 359 responses.

HHS stated yesterday that these proposed rules “provide greater certainty for healthcare providers participating in value-based arrangements and providing coordinated care for patients” and would “ease the compliance burden for healthcare providers across the industry, while maintaining strong safeguards to protect patients and programs from fraud and abuse.” Indeed, for value-based arrangements, CMS and OIG respectively propose 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. For example, value-based arrangements where participants take full financial risk will have fewer regulatory requirements, while more regulatory requirements will be imposed on arrangements where only substantial financial risk downside (i.e., not just upside rewards) is accepted. The most significant regulatory burden will be imposed on other care coordination models where participants do not take any financial risk.

OIG’s proposed AKS and CMP rule provides for two other value-based arrangement safe harbors. OIG proposes a new 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. OIG also proposes a new safe harbor for financial arrangements between providers in connection with CMS-sponsored payment models. OIG proposes additional changes to the AKS, including the following:

  • Cybersecurity Technology and Services. Providing a new safe harbor for donations of cybersecurity technology and services.
  • Personal Services and Outcomes-Based Payments and Part-Time Arrangements. Modifying the existing personal services and management contracts safe harbor to add flexibility with respect to outcomes-based payments and part-time arrangements. In addition, OIG proposes to revise the meaning of set-in-advance to no longer necessitate that total payments be determined when entering into the arrangement, which makes this more consistent with the Stark Law.
  • Warranties. Modifying the existing safe harbor for warranties to revise the definition of “warranty” and provide protection for bundled warranties for one or more items and related services.
  • Local Transportation. Modifying the existing 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 inpatient facilities.

OIG proposes the following with respect to the CMP Law:

  • Accountable Care Organization Beneficiary Incentive Programs. Codifying a statutory exception related to Accountable Care Organization Beneficiary Incentive Programs for the Medicare Shared Savings Program.
  • Telehealth for In-Home Dialysis. Interpreting and incorporating a new statutory exception to the prohibition on beneficiary inducements for “telehealth technologies” furnished to certain in-home dialysis patients.

CMS noted that, in addition to the Regulatory Sprint, its proposed Stark Law rule stems from its Patients Over Paperwork initiative discussed in a July 8, 2019, client alert. From these initiatives, CMS proposes the value-based arrangements discussed above, as well as modifying its existing exception for electronic health records items and services. CMS proposes to add protections for financial arrangements related to cybersecurity technology, to update interoperability requirements and to remove the electronic health records exception’s sunset date. OIG also proposes to update 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 $3,500 per calendar year in exchange for items or services actually provided by the physician.
  • Cybertechnology. The donation of cybersecurity technology and related services to a referring provider, similar to the AKS safe harbor proposed by OIG.

The proposed Stark Law rule promises to provide “critically necessary” guidance for industry stakeholders whose financial relationships are governed by the Stark Law. Some of the most helpful guidance appears to be revising or adopting new definitions for key terms used throughout various Stark Law exceptions — including “commercially reasonable,” “volume or value” standards, “other business generated” standards and the “fair market value” definition — to include discussion of “general market value.”

In addition, changes are proposed with respect to periods of disallowance for billing when there is a noncompliant arrangement, grace periods for signatures and writing during the first 90 days of an arrangement, and clarifications of exclusive use under the rental exceptions. Finally, CMS proposes to clarify that group practices have to pool all DHS profit in profit share pools (either the entire group or subsets of five or more physicians), and not create separate pools for different DHS categories. Note that these proposals come on the heels of proposed revisions to the Stark Law advisory opinion process, as discussed in an Aug. 26, 2019, alert.

* * * * *

Through these two proposed rules, HHS seeks to remove Stark Law and AKS key burdens on providers, without creating substantial risk of increased fraud and abuse. Both CMS and OIG noted the “close nexus” of the two laws, and synchronized requirements between the two laws where they could, but also noted that the AKS often acts as a “backstop” to the Stark Law such that some of OIG’s proposals are stricter. Overall, many providers will likely support these proposed changes, notwithstanding that existing provider arrangements may need to be adjusted, reformed or terminated to comply with the amendments.

Given the significance of these proposed changes, McGuireWoods plans to provide additional in-depth analysis on these proposals in the coming weeks. The proposed changes are subject to a public comment period, open until Dec. 31, 2019. Please do not hesitate to contact a McGuireWoods attorney or one of the authors of this alert for more information regarding these proposed rules or for assistance in preparing a comment to these rules.

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OIG Releases Its 2019 Top Recommendations for Health and Human Services Department to Reduce Fraud

Last month, the U.S. Department of Health and Human Services’ (HHS) Office of Inspector General (OIG) released its annual Solutions to Reduce Fraud, Waste, and Abuse in HHS Programs: OIG’s Top Recommendations. This publication outlines the OIG’s top 25 unimplemented recommendations that, in OIG’s view, would most positively affect HHS programs in terms of cost savings, program effectiveness and efficiency, and public health and safety. These recommendations stem from OIG audits and evaluations and suggest changes coming to the federal healthcare programs that may impact healthcare facilities in the future. The OIG’s recommendations outline where providers could focus their own compliance program to prepare for any further government scrutiny.

The OIG also identified certain recommendations from HHS’ 2018 report and described the successful progress made by certain HHS operating divisions — i.e., the Food and Drug Administration and the Centers for Medicare & Medicaid Services (CMS) — with respect to HHS’ past recommendations. It is likely that the 2019 recommendations will receive the same push toward implementation.

This year, the OIG directed two-thirds of its top recommendations to CMS. The OIG intended the CMS items to “reduce improper payments, prevent and deter fraud, and foster economical payment policies.” With the trust fund for Medicare Part A (inpatient hospital insurance) projected to be depleted by 2026, policymakers likely will look to these areas to save costs, even if CMS does not implement all of these policies. Similar savings are projected for Part B (medical insurance), Part C (Medicare Advantage), Part D (drug plans) and Medicaid. Several of these recommendations may impact healthcare providers, if implemented.

A full list of the OIG’s 25 recommendations is included at the end of this alert; however, a few key recommendations for CMS are highlighted here:

  1. Revising Three-Night Counts for SNFs. The OIG reports that beneficiaries have varying access to and cost-sharing obligations with respect to skilled nursing facilities (SNFs), depending on whether the beneficiary had hospital outpatient or inpatient post-hospital care. Therefore, the OIG recommends that CMS analyze the potential impacts of counting time spent at a hospital outpatient facility toward the three-night requirement for SNF services so beneficiaries receiving similar hospital care have comparable access to these services.

Additionally, the OIG noted that a review of a sample of SNF claims revealed that many SNFs incorrectly used a combination of inpatient and non-inpatient hospital days to determine whether the three-night requirement was met, leading CMS to improperly pay an estimated $84.2 million between 2013 and 2015. CMS’ Office of the Actuary is conducting an analysis to determine whether, and to what extent, this problem persists. SNFs could see further review of their billing here, particularly as hospitals increasingly use observation beds before admission, which may lead patients to believe they have met coverage requirements.

  1. Surety Bonds for HHAs. The OIG previously recommended that CMS should require surety bonds for home health agencies (HHAs), similar to the surety bonds for durable medical equipment, prosthetic and orthotic suppliers. The OIG estimated that at least $39 million in uncollected overpayments between 2007 and 2011 could have been collected from HHAs had they held surety bonds. Policymakers previously made certain changes specifically with respect to HHAs, including implementing change-of-ownership requirements that are different from other providers’ requirements (i.e., limiting ownership changes within 36 months of a previous change) and capping outlier payments in 2010. The OIG’s focus on HHAs in this report suggests further changes and emphasis for HHA compliance will continue.
  2. Revise the Hospital Wage Index. The OIG recommends that CMS seek legislative authority to comprehensively reform the hospital wage index system, which is used to determine, in part, the amount Medicare pays for hospital inpatient services. The OIG noted that because contractor reviews do not always identify inaccurate wage data and CMS lacks authority to penalize hospitals that submit inaccurate or incomplete wage data, significant vulnerabilities exist in the system. Additionally, the OIG noted that the wage index may not always accurately reflect local labor prices, so Medicare payments to hospitals and other providers may not be appropriately adjusted to reflect the prices. CMS stated that it is considering whether to recommend wage index system reform, including these statutory proposals, in the upcoming president’s budget. Hospitals should monitor any such hospital wage reforms, as such changes would have winners and losers, particularly if changes were used in a manner to reduce overall spending.
  3. Least Costly Alternative Policies for Part B Drugs. The OIG noted in the report that CMS “has not made any legislative proposals” to seek authority to pay for Part B drugs based on a “least costly alternative” approach. Under this approach, utilized by CMS until 2010, reimbursement for Part B drugs was based on the payment rate for the least costly product determined clinically comparable to the applicable Part B drug. Previous OIG reports found that a “least costly alternative” policy would reduce Medicare expenditures by $33.3 million annually for certain prostate cancer drugs.

A broader policy could have larger implications, applying to more drugs than those treating cancer. Many drug treatments have various options with different costs particularly where new medical treatments are being developed. An expansive policy could reduce prices, but effectively mandate certain drug selection to be fully covered and limit the adoption of new drugs entering into the market.

  1. Data Collection From Medicare Advantage and Drug Plan Sponsors. For Medicare Parts C and D, the OIG recommends that CMS collect comprehensive data from plan sponsors, including data on potential fraud and abuse, to improve its oversight of plan sponsors’ efforts to identify and investigate these problems. Although plan sponsors may voluntarily report this data to CMS, they are not currently required to do so. The OIG noted that more than half of Part D plan sponsors did not report such data from 2010 to 2012, and, that as of December 2017, only 60 percent of Part C and D plan sponsors have even requested access to CMS’ electronic system for reporting potential fraud and abuse.

The OIG reported that CMS intends to require plan sponsors to report data on potential fraud and abuse and corrective actions taken and will work with plan sponsors to implement the requirement. Depending on implementation, providers should expect plan sponsors to require new provider reporting, similar to certain fraud and abuse training and reporting created by past Parts C and D changes.

  1. Provider Identifiers in Encounter Data. The OIG recommends that CMS require Medicare Advantage plans to include ordering and referring provider identifiers in encounter data. The OIG noted that tracking the quality of patient care by National Provider Identifiers is an important way to assess whether ordering or referring providers have determined that services were appropriate for patients. Although CMS has not reported any progress on this recommendation, the report notes that CMS would consider implementing it. The execution of this change with respect to encounter data could also be used to revise referral rules for Medicare Advantage patients.
  2. Facilitate Medicaid Enrollment Through Medicare Data. State Medicaid agencies have numerous federal requirements for screening new providers, many comparable to what Medicare collects. State Medicaid agencies believe it would be helpful to compare what providers submit to Medicare to what providers make available to state Medicaid agencies, and the OIG agrees.

CMS claims to have made progress here by sharing information in the Provider Enrollment, Chain and Ownership System and implementing a data exchange system with state Medicaid agencies. The OIG believes more could be done to facilitate a more seamless process so state Medicaid agencies can more easily identify providers it must terminate from the Medicaid program, pursuant to law. Depending on enrollment data-sharing implementation, providers could also see a benefit. Currently, providers often have to search multiple systems to ensure their employees and vendors are not excluded — a centralized Medicaid and Medicare exclusions and sanctions list could reduce administrative hurdles with further centralization.

The OIG’s list included many other recommendations to CMS and other HHS divisions. We include a full list of the OIG’s top 25 unimplemented recommendations below. The foregoing seven recommendations, however, are places where OIG would like CMS to focus its future efforts to reduce fraud, waste and abuse, so providers should be aware of them and prepare for any future changes that may impact the industry.

Please consult one of the authors if you have questions about any of the OIG recommendations or how such policy changes could impact your business.


25 Recommendations from Report:

CMS–Medicare Parts A & B

  1. CMS should analyze the potential impacts of counting time spent as an outpatient toward the 3-night requirement for SNF services so that beneficiaries receiving similar hospital care have similar access to these services.
  2. CMS should implement the statutory mandate requiring surety bonds for HHAs that enroll in Medicare and consider implementing the requirement for other providers.
  3. CMS should continue to ensure that medical device-specific information is included on claim forms and require hospitals to use certain condition codes for reporting device replacement procedures.
  4. CMS should seek statutory authority to establish additional remedies for hospices with poor performance.
  5. CMS should seek legislative authority to comprehensively reform the hospital wage index system.
  6. CMS should reevaluate the inpatient rehabilitation facility (IRF) payment system, which could include seeking legislative authority to make any changes necessary to more closely align IRF payment rates and costs.
  7. CMS should periodically review claims for replacement positive airway pressure device supplies and take remedial action for suppliers that consistently bill improperly.
  8. CMS should consider seeking legislative authority to implement least costly alternative policies for Part B drugs under appropriate circumstances.

CMS—Medicare Parts C & D

  1. CMS should collect comprehensive data from plan sponsors, including data on potential fraud and abuse, to improve its oversight of their efforts to identify and investigate potential fraud and abuse.
  2. CMS should require Medicare Advantage plans to include ordering and referring provider identifiers in their encounter data.
  3. CMS should strengthen oversight of Part D payments for compounded topical drugs to prevent fraud, waste, and abuse while maintaining appropriate access.

CMS—Medicaid

  1. CMS should ensure that national Medicaid data are complete, accurate, and timely.
  2. CMS and the Health Resources and Services Administration should ensure that States can pay correctly for 340B-purchased drugs billed to Medicaid, by requiring claim-level methods to identify 340B drugs and sharing the official 340B ceiling prices.
  3. CMS should require States to either enroll personal care services (PCS) attendants as providers or require PCS attendants to register with their State Medicaid agencies and assign each attendant a unique identifier.
  4. CMS should facilitate State Medicaid agencies’ efforts to screen new and existing providers by ensuring the accessibility and quality of Medicare’s enrollment data.
  5. CMS should improve managed care organizations’ (MCOs’) identification and referral of cases of suspected fraud or abuse.
  6. CMS should develop policies and procedures to improve the timeliness of recovering Medicaid overpayments and recover uncollected amounts identified by OIG’s audits.
  7. CMS should re-evaluate the effects of the healthcare-related tax safe-harbor threshold and the associated 75/75 requirement to determine whether modifications are needed.

Administration for Children and Families (ACF)

  1. ACF should develop a comprehensive strategy to improve States’ compliance with requirements related to treatment planning and medication monitoring for children prescribed psychotropic medication.

FDA

  1. FDA should ensure effective and timely processes related to food facility inspections and food recalls.

Indian Health Service (IHS)

  1. IHS should implement a quality-focused compliance program for IHS hospitals.
  2. IHS should assess the continuity of operations programs for all IHS facilities and ensure that each facility has a tested and viable program to respond to and recover from a range of disasters.

National Institutes of Health (NIH)

  1. NIH should require security training and security plans for principal investigators and entities and verify that they have fulfilled these requirements before granting them access to genomic data.

General Departmental

  1. HHS should address issues of non-compliance with the Improper Payments Information Act, as amended, for various programs deemed susceptible to significant improper payments.
  2. HHS should ensure that all future web application developments incorporate security requirements from an industry recognized web application security standard.
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“Health Care Fraud Impacts Everyone”: Miner Emphasizes DOJ’s Ongoing Dedication to Combatting Fraud

Matthew S. Miner, Deputy Assistant Attorney General of the Criminal Division at the U.S. Department of Justice, gave the keynote speech at the 29th Annual National Institute of Health Care Fraud, held in New Orleans, LA.

In his speech, Miner, who supervises the Criminal Division’s Fraud and Appellate Sections, emphasized the DOJ’s continued commitment to combatting health care fraud, including utilizing carefully coordinated “takedowns” that have yielded “historic” results. In 2017, the DOJ conducted a takedown that resulted in the prosecution of 400 defendants, 56 of whom were doctors. In 2018, more than 600 defendants were charged, including 76 doctors. In 2019, the DOJ began to target telemedicine fraud, with recent takedowns of telemedicine company executives, owners of durable medical equipment companies, and medical professionals, for their participation in health care fraud that led to losses of over $1.2 billion.

Miner also emphasized the need for clear enforcement policies for institutional actors such as businesses and non-profits, opining that “clear enforcement policies can help influence decision‑making.” Miner indicated that the DOJ has strived in recent years to be increasingly transparent about its enforcement policies through changes in the Justice Manual which outline corporate cooperation expectations and guidance as to voluntary self-disclosure credit. Miner pointed to the newly announced Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters as an example. The Guidelines set forth the factors DOJ lawyers will consider (and the credit available) when a company or individual voluntarily discloses misconduct that could result in FCA liability or an administrative remedy.

Miner also noted that the criminal division and the civil division are beginning to take similar approaches to voluntary self-disclosures, and offered the following comments: “For those tracking the Department’s approach to voluntary self-disclosure in the civil and criminal health care fraud arenas, there is a remarkable degree of symmetry, and that is no accident. Although our criminal and civil enforcement tools are separate and often run along different tracks with different investigative teams, the reality is that a company facing a self-disclosure dilemma does not have multiple tracks. It must factor different risks, legal considerations, and potential outcomes into its analysis and reach a decision in the best interests of the company and its shareholders. At the Department, we understand that we need to be as clear as reasonably possible about our approach to those who voluntarily self-disclose, if we hope to influence the rational decision‑makers when they face self-disclosure dilemmas.”

Lastly, Miner addressed corporate compliance programs, noting that “prosecutors understand that compliance is not and cannot be one-size-fits-all.” Miner indicated that compliance monitors are not necessary where a corporation’s compliance program and controls are demonstrably effective and appropriately resourced at the time of resolution, and that monitors are generally disfavored unless there is a demonstrated need for one.

Miner’s keynote speech helps provide clarity and guidance to the FCA bar on a number of important and constantly evolving issues. We will continue to monitor for more policy and position statements from the DOJ.

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DOJ’s Travel Act Prosecution Yields Convictions for Kickbacks Involving Private Payers

As detailed in our prior entry, on April 9, 2019, a Forest Park, Texas jury found seven individuals guilty of various charges related to a scheme engaged in by Forest Park Medical Center (“FPMC”). The physician-owned surgical hospital paid more than $40 million in bribes and kickbacks to induce surgeons to use FPMC to perform their services, while collecting more than $200 million in billings. These convictions came at the tail end of DOJ’s indictment of twenty-one FPMC founders and investors, other hospital executives, physicians, surgeons and nurses in a case called United States vs. Beauchamp, et al.[1]

The Beauchamp case is significant because two of the defendants were convicted for violating the federal Travel Act[2], which punishes the use of various means of interstate commerce for the purposes of carrying on unlawful activity under another statute, in this case the Texas Commercial Bribery Statute (“TCBS”)[3]. The government alleged that co-conspirators used email instructions and a Federal Reserve Bank’s computer network to send bribes and kickback payments constituting “unlawful activity” to a shell company, which in turn paid the kickbacks to physicians who referred patients to the FPMC. Many of the alleged bribes were facilitated through commercial or marketing contracts that purportedly provided free advertising for the physicians in return for their patient referrals.

The Travel Act, passed in 1961, establishes the illegality of committing unlawful acts across state lines – which can occur via email or other electronic means. The Travel Act has not historically been used in the healthcare context; rather it was used to curtail the activities of organized crime. The Travel Act gives the government the ability to “federalize” state law crimes, and consider whether private, commercial insurance arrangements comply with federal criminal law. Patient referral cases involving private insurance have traditionally escaped this prosecutorial scrutiny, since most federal enforcement actions focused on federal healthcare programs, and used as authority the federal fraud and abuse laws such as the Anti-Kickback Statute (“AKS”), the Physician Self-Referral Law (“Stark”) and the False Claims Act (“FCA”).

In Beauchamp, the government used the Travel Act because the allegedly fraudulent commercial and marketing arrangements between FPMC and the referring physicians fell under the safe harbors of the federal AKS, thus making them lawful under AKS. This was expanded on in the surgeon defendants’ briefs which argued, among other theories, that: (i) the TCBS, as the predicate state law violation needed to sustain a charge under the Travel Act, was preempted by AKS, since the alleged conduct was lawful under various exceptions and safe harbors; (ii) the TCBS conflicts with a later-enacted and more specific Texas law, the “Solicitation of Patients Act,” which mirrors AKS, incorporates its safe harbors, was intended to provide a single comprehensive statutory scheme regulating health care providers in Texas, and applies to both federal and private payers.

In its ruling, the U.S. District Court for the Northern District of Texas rejected these arguments and held that the TCBS was not preempted under federal law and could support the Travel Act charges because the two statutes “address different types of conduct performed by different potential actors.” The court also held that TCBS was valid under Texas law, as the state’s general bribery provision, and unlike the Solicitation of Patients Act, it applies to all persons, rather than just healthcare providers. Finally, the court held that the Travel Act’s use of the phrase “facilities of interstate commerce” encompasses purely intrastate uses of such interstate facilities.

The Beauchamp case has had a substantial impact on the healthcare space. The Department of Justice has long made healthcare fraud enforcement a priority and is devoting substantial resources to its efforts to curtail and prosecute fraud in the healthcare industry, both that of federal healthcare programs and private commercial plans. The Travel Act changes the rules in that even a health care provider who conducted itself in compliance with the standards of the federal AKS and its state law counterparts could still be prosecuted under the expansive reach of this off-label use of the federal criminal statute.

This reinforces the need for healthcare providers to re-evaluate their financial and other arrangements to ensure compliance with all applicable laws. The arrangements should include services that are bona fide, commercially reasonable, and actually performed. Most importantly, unlike the arrangements in Beauchamp, these arrangements must not take into account the volume and value of referrals, and should not track referrals as a metric.

Finally, healthcare providers cannot simply rely on compliance with the AKS and Stark Law, but should consider the applicable state laws, especially state commercial bribery statutes. Arrangements that do not involve federal program reimbursement, mainly Medicare and Medicaid, should not be assumed to be out of the federal government’s reach. As the use of the Travel Act suggests, the DOJ is taking an increased interest in private commercial health plans, thus these arrangements must be re-evaluated for compliance with the Travel Act.

[1] U.S. v. Beauchamp, et al., No. 3:16-cr-00516-JJZ-3 (N.D. Tex. Aug. 18, 2018).

[2] 18 U.S.C. § 1952.

[3] Texas Penal Code §32.43.

Uncategorized

Diligence and Documentation in Private Equity Healthcare Transactions — Five Key Points

The healthcare private equity market continues to see high transaction multiples and unprecedented competition for transactions. These trends, along with continued growth in False Claims Act or qui tam cases, create interesting dynamics for investors performing diligence and documenting transactions, as discussed during a panel presentation at McGuireWoods’ 6th Annual Healthcare Litigation and Compliance Conference on May 21.

Panel members included McGuireWoods healthcare lawyers Tim Fry  and Holly Buckley; John Brock, managing director for Berkeley Research Group LLC; and Matthew Logan, general counsel for Experity. Brock provided expertise on the financial aspects of the diligence review of target companies, while Logan shared real-world experiences from his company’s recent merger and his past transactional legal practice. Fry and Buckley addressed the legal aspects of transaction diligence and drew examples from numerous recent private equity healthcare transactions.

Here are five key points drawn from that panel discussion.

  1. Organizational culture and workforce behavior constitute the most important factor determining whether a company can operate in a compliant manner — both in understanding historic liabilities and in go-forward post-closing operations. While the most important factor, it can also be one of the most difficult to evaluate from a diligence perspective. If an organization doesn’t have a top-down approach to compliance, open lines of communication, and a culture that rewards and incentivizes reporting of potential issues, maintaining compliance and defending allegations of noncompliance will be more difficult. Panel members discussed how they evaluate an acquisition target by interviewing key constituents and studying the compliance plan elements.
  2. With high transaction multiples stemming from private equity deal competition, buyers face more pressure on their investment thesis. This can create longer and more involved financial due diligence review, with more emphasis on understanding if the target’s operations need to change. Any such change can affect the purchase price or the investor’s ability to obtain a return on investment. In other words, if a buyer identifies a billing and coding issue, there will be discussion around refunding the overpayment from a compliance perspective and a question on whether the difference impacts the purchase price. Buyers also may need to support a more robust financial and back-office operation post-closing, which often must be factored into the price.
  3. Buyers are not necessarily turned off by targets who are in the midst of a False Claims Act case, government investigation or corporate integrity agreement. This is a change from a few years ago, when such status could make a deal difficult to complete. However, buyers will conduct extra diligence on the target and may retain experts to investigate alongside the government to gain confidence in the target’s historic operations. While such legal/compliance issues may create more work for buyers, they also may reduce the purchase price, creating more upside opportunities.
  4. Buyers frequently require or mutually agree with sellers that a self-disclosure is necessary as a condition to closing or as a post-closing covenant . These self-disclosures are most commonly to the Office of Inspector General for Anti-Kickback issues or Centers for Medicare & Medicaid Services for Stark Law issues. The panelists noted that such self-disclosures have become common in the marketplace and are easier to navigate when both parties have sophisticated legal counsel. Parties may also consider refunds to third party payors for billing issues without such a disclosure.
  5. There are opportunities for health systems and private equity funds to partner . However, it is important for both parties to recognize their own priorities as well as the priorities of the other party. For example, health systems generally will not relinquish control over decisions related to tax-exempt status, clinical quality and reputation in the community, while private equity funds will need to ensure they have the ability to exit, to create return on investment and to scale. Expect more exploration in this space in the next few years.

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