Government Issues

More and more judges are rejecting settlements negotiated between federal regulators and companies accused of corporate fraud. Two recent examples illustrate this trend.

1. WakeMed

In January of 2013, a judge in North Carolina rejected a settlement reached between the Department of Justice and WakeMed Health and Hospitals, an 870-bed hospital system. WakeMed was accused…

Cyber security is on everyone’s mind.  President Obama signed an executive order in February aimed at increasing protection of our nation’s critical infrastructure, while HHS released its new HIPAA mega rule in January (effective in March) in an effort to strengthen the security of electronic health records.  As providers work to update their HIPAA policies…

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.

On January 31, 2013, the Centers for Medicare & Medicaid Services (CMS) announced the health care organizations selected to participate in the Bundled Payments for Care Improvement initiative (“BPCI”).  BPCI was created by the Affordable Care Act (“ACA”) healthcare reform law to assess whether bundling payments for services in a single episode of care can…

A recent report by the Office of Inspector General for the Department of Health and Human Services (OIG) concluded that in Fiscal Year 2010, 61% of Medicare providers that appealed CMS payment decisions were fully successful in their respective appeal.  In other words, these providers persuaded the Administrative Law Judge (ALJ) handling the appeal to completely overturn previous adverse payment decisions made by CMS and its contractors.  Notably, of the 61% of providers that were successful, those appealing Part A and B claims had the most success, 67% and 59% respectively.

The Medicare overpayment appeal process consists of four levels.  At the first level of appeal, which is available after an initial overpayment determination, the individual or entity (appellant) appeals the overpayment decision to CMS’s Medicare Administrative Contractor.  If the appellant is unsuccessful, the next appeal is administered by CMS’s Qualified Independent Contractor (QIC).  The third level of appeal is administered by the ALJ, and the fourth level is administered by the Medicare Appeals Council.  OIG’s report contrasted the high success rate at the ALJ level to the low 20% success rate at the QIC level.  While there are many reasons for the difference, OIG’s report found that the main reason is that ALJs tend to view Medicare’s reimbursement and coverage policies less strictly than CMS’s contractors.  OIG also found that CMS participated in only 10% of all ALJ appeals, which resulted in the ALJ overturning CMS’s decision in 60% of these cases.

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.

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…

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.