Fraud & Abuse

The Departments of Justice and Health and Human Services released a report last week showing that the government has achieved the highest return on investment in the 16-year history of the Health Care Fraud and Abuse (HCFAC) Program.  According to the report, for every dollar spent on healthcare-related fraud and abuse investigations in the last three years, the government recovered $7.90.

The government recovered $4.2 billion from healthcare fraud enforcement efforts in FY 2012, up from $4.1 billion in FY 2011.  The government continues to focus on reducing fraud and waste in the healthcare system.

“This was a record-breaking year for the Departments of Justice and Health and Human Services in our collaborative effort to crack down on health care fraud and protect valuable taxpayer dollars,” said Attorney General Holder.　 “In the past fiscal year, our relentless pursuit of health care fraud resulted in the disruption of an array of sophisticated fraud schemes and the recovery of more taxpayer dollars than ever before.　 This report demonstrates our serious commitment to prosecuting health care fraud and safeguarding our world-class health care programs from abuse.”

The government also touted the use of fraud-fighting tools authorized by the Affordable Care Act including enhanced screenings and enrollment requirements, increased data sharing across the government, expanded recovery efforts for overpayments and greater oversight of private insurance abuses.  Screening of all 1.5 million Medicare-enrolled providers through the new Automated Provider Screening system began in FY 2012.  The report states that nearly 150,000 ineligible providers have already been eliminated from Medicare’s billing system. 

President Barack Obama signed the American Taxpayer Relief Act of 2012, often called the “fiscal cliff” agreement, on January 2, 2013. Buried in the 59 pages of the act is a seven-line amendment to Section 1870 of the Social Security Act. This section bars recovery of overpayments from providers who are “without fault” and automatically deems a provider to be without fault three years from the year in which the original payment was made (unless there is evidence of fault). The three-year “without fault” limitation provision was enacted in 1972. Without much notice, the fiscal cliff deal extended this to five years.

The push for extension of the limitation began when the Department of Health and Human Service’s Office of Inspector General (OIG) issued a report recommending to the Centers for Medicare & Medicaid Services (CMS) that it pursue legislation to extend the statute of limitations. (See OIG, Obstacles to Collection of Millions in Medicare Overpayments.) This report blamed the time limitations on reopening and recovery of payments (four years and three years, respectively) as the reason why approximately $330 million in overpayments could not be recovered by CMS. The OIG also concluded that CMS’ inadequate guidance and monitoring of contractors was to blame. The Congressional Budget Office (CBO) has issued a report estimating that $500 million would be added to the federal treasury by 2022 as a result of the statute of limitation change. (See CBO, Detail on Estimated Budgetary Effects of Title VI.)

The biggest question for providers is how to deal with this change going forward. The following illustration demonstrates how the three-year limitation period applied: Provider was notified on February 22, 2009, that it had been paid for services provided to beneficiary. On January 2, 2013, the contractor determined that provider was overpaid for these services. If there was no evidence that provider acted fraudulently, this overpayment could not be recovered because under the statute of limitations the right to do so expired on December 31, 2012. Had the contractor determined that the provider was overpaid on any date prior to December 31, 2012, it would have been recoverable. (See Medicare Financial Management Manual, Chapter 3, Section 80.1.) Accordingly, any payments made in 2009 or before were not recoverable as of January 1, 2013.

The California Supreme Court has agreed to hear a case to decide this issue (Fahlen v. Sutter Central Valley Hospitals, 208 Cal. App. 4th 557 (2012)).  The case pits the sometimes adverse interests of physicians against the interests of hospitals when employment and practice privilege issues collide.  Physicians who allege their privileges have been terminated in retaliation for blowing the whistle do not want to wait to file a whistleblower case until all administrative and judicial remedies concerning their clinical privileges are exhausted.  On the flip side, hospitals do not want to fight physicians on two fronts: in court and in the hospital’s own peer review process with the potential for judicial review.

The hospital in the case, Sutter Central Valley Hospitals, declined to renew the physician’s privileges after peer review proceedings, and that determination was upheld by the hospital’s board.  While the physician, Dr. Fahlen, might have been able to challenge that decision in court, he chose to file a lawsuit against the hospital with a number of claims, including claims under California’s whistleblower protection law (Cal. Health & Safety Code Section 1278.5, subd. (a)).  Dr. Fahlen claims that he lost his privileges as retaliation for blowing the whistle on dangerous nurses.

In its Semi-Annual Report to Congress, OIG announced that expected recoveries for FY 2012 are $6.9 billion.  The $6.9 billion consists of $923.8 million in audit receivables and $6 billion in investigative receivables.  The investigative receivables include criminal restitution, settlements pursuant to False Claims Act (FCA) cases and Civil Monetary Penalty (CMP) actions, and…

Hopefully all of our nursing home clients know by now that CMS and the OIG have psychotropic drug use by nursing home residents on their radar.  A recent case filed by the Department of Justice (DOJ)  raises another concern that nursing homes may not have considered.  A Chicago psychiatrist was charged with violating the False Claims…

In a recent advisory opinion, the OIG stated that it would not seek sanctions against a hospital-based hospice agency for providing certain volunteer services to terminally ill patients who did not qualify for the hospice benefit. The OIG recognized that the volunteer services may ultimately influence the recipients to select the hospice, which was a…

The Office of Inspector General (OIG) of the Department of Health and Human Services has concluded that a per diem payment structure between a not-for-profit hospital and specialist physicians would not result in administrative sanctions under OIG’s civil monetary penalties law that relates to prohibited remuneration by the anti-kickback statute. According to an OIG Advisory Opinion that was posted this week:

Each year, [the hospital] allocates an aggregate annual payment amount per specialty for on-call coverage payments to participating physicians based on: (1) the likely number of days per month the specialty would be called; (2) the likely number of patients a participating physician would see per call day; and (3) the likely number of patients requiring inpatient care and post-discharge follow-up care in a participating physician’s office (OIG Advisory Opinion 12-15)

Once the aggregate amount per specialty is determined, the hospital divides this amount by 365 days to create the on-call coverage per diem fee to be paid to the specialty physicians. Notably, these physicians receive the per diem fee for each day of coverage under the arrangement even if they are not contacted by the emergency department to treat a patient.

Numerous elements of the particular arrangement at issue were highlighted by OIG as minimizing the risk of fraud and abuse. First, the per diem payment was certified by an independent consultant as commercially reasonable and within the range of fair market value for actual and necessary services. It was also calculated without regard to referrals or other business generated by the participating physicians. The OIG highlighted that the per diem amount was calculated annually in advance and was uniformly administered without regard to the individual physician’s referrals.

The Sixth Circuit recently made some interesting findings related to the knowledge standard in the False Claims Act (“FCA”) and whether maximizing profits is evidence of fraud.

The knowledge standard in the FCA may create a disincentive for defendants to litigate cases brought by the government, especially considering the standard for liability can be met by the government demonstrating that the defendant acted with reckless disregard or in deliberate ignorance of the truth or falsity of the claim.   See 31 U.S.C. § 3729.  In light of this fairly low standard, it is no secret that some defendants decide it is less costly to settle a case, rather than engaging in protracted litigation with the government.  However, in one recent case the defendant, Renal Care Group, Inc. and its wholly-owned subsidiary, decided to fight back against allegations it defrauded the government of millions of dollars while providing dialysis treatments to Medicare beneficiaries suffering from end-stage renal disease.  Renal Care lost the first battle when the district court granted summary judgment in favor of the United States and awarded the government $82.6 million in damages and penalties.  On appeal, however, Renal Care secured a major victory when the court of appeals reversed the district court’s judgments on grounds that Renal Care did not act in reckless disregard under the FCA.

Without going into the specific facts alleged by the government, there are two important findings from this Sixth Circuit decision worth noting.  First, the Sixth Circuit determined that Renal Care did not act recklessly.  Per the Sixth Circuit, a defendant can be held liable under the FCA by showing that it acted with actual knowledge or constructive knowledge.  United States v. Renal Care Group, et al., No. 11-5779, slip op. at 17 (6th Cir. Oct. 5, 2012).  Constructive knowledge can be proven by demonstrating that the defendant acted in deliberate ignorance of, or with reckless disregard to, the truth or falsity.  One of the facts relied on by the court in reaching its decision on the knowledge requirement is that Renal Care sought legal counsel, who in turn sought clarification from CMS on what appears to be fairly ambiguous regulations.  The court focused on this fact, in addition to some others, in reaching its conclusion that Renal Care did not act recklessly. 

The Government Accountability Office (GAO) issued an interesting report in September that analyzed civil and criminal healthcare fraud cases.  The report is based on 2010 data from the various agencies in the federal government charged with investigating and pursuing healthcare fraud.  For purposes of this blog entry, I’m going to focus on some key numbers on the civil side. 

In 2010, the government investigated a total of 10,187 “subjects.”  Subjects included entities such as hospitals, medical clinics, and pharmacies, as well as individuals that provide services at these entities.

  • Of the 10,187 subjects investigated, 2,339 of the subjects were related to civil investigations, rather than criminal investigations.
  • Of the 2,339 civil investigations, nearly 20% of these were hospitals.  Medical centers or clinics made up another almost 18% of the total 2,339 civil investigations.
  • Of the total 2,339 civil investigations, the government actually pursued cases against 1,087.
  • Of the 1,087 civil cases the government pursued, the government either settled with, or won a judgment against, 55% of these subjects.
  • Of the 55% civil cases that either settled or resulted in a judgment for the government, 44% of these subjects were hospitals or medical facilities (medical practices or clinics).

These numbers are interesting because it shows that hospital or medical facilities make up over one third of all civil investigations and almost half of all settlements.  It is also interesting to look at the number of investigations that were based on qui tam filings.  A qui tam is a civil False Claims Act case brought by a private citizen, “relator” or “whistleblower,” on behalf of the government.  Once a case is filed, the Department of Justice and the Office of Inspector General are charged with investigating and making a determination about whether the government should pursue the case by becoming a party to the litigation.  In many cases, if the government believes the allegations have merit, the government will attempt to settle before actually litigating.