HEALTHCARE FRAUD & ABUSE REVIEW 2021 10 TH ANNUAL
A LOOK BACK … A LOOK AHEAD
ISSUES TO WATCH
FALSE CLAIMS ACT UPDATE
STARK LAW/ANTI-KICKBACK STATUTE
MANAGED CARE/MEDICARE ADVANTAGE
PHARMACEUTICAL AND MEDICAL DEVICE DEVELOPMENTS
APPENDIX — 2021 NOTABLE SETTLEMENTS
Hospitals and Health Systems Hospice and Home Health Skilled Nursing Facilities and Nursing Homes Pharmaceutical and Device Pharmacy Services
Laboratory, Pathology, Radiology and Diagnostics Behavioral Health and Substance Abuse Treatment Specialty Care and Other Provider Entities Individual Providers Other
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tam lawsuits under the False Claims Act (FCA) has continued to drive civil enforcement, and the U.S. Department of Justice’s (DOJ) strike force model has been the main driver of the government’s criminal enforcement efforts. During 2021, we marked the 35th anniversary of the 1986 amendments to the FCA, which reinvigorated that Civil War-era statute after a long period of dormancy. Over the last 10 years, the government has recovered more than $25 billion in civil fraud settlements and judgments involving the healthcare industry, including $5 billion in FY2021. 1 For their part, qui tam relators have received nearly $4 billion in relator share payments, including more than $200 million in FY2021, as a reward for their efforts in bringing healthcare industry-related FCA lawsuits on behalf of the government during that same time period. We also marked the fifth anniversary of the Supreme Court’s landmark decision in Universal Health Services v. U.S. ex rel. Escobar . 2 In that pivotal case, the Supreme Court addressed the FCA’s materiality requirement, describing it as rigorous and demanding, and set forth a number of nonexclusive considerations to guide the materiality inquiry. Those important considerations primarily focus on the government’s actual conduct with respect to payment of purportedly false claims. Five years later, the Court’s discussion of materiality continues to have a profound impact on the manner in which FCA allegations are pleaded in complaints, investigated by the government and litigated by parties. The Court’s opinion has also been the impetus of
A LOOK BACK … A LOOK AHEAD
efforts to amend the FCA because of the perception by certain lawmakers that Escobar “has made it all too easy for fraudsters to argue that their obvious fraud was not material simply because the government continued payment.” 3 No doubt, healthcare providers defending against creative theories of FCA liability urged by relators or the government where the conduct at issue seemingly has had little or no impact on the government’s reimbursement decisions would disagree with that sentiment. Beyond the FCA’s materiality requirement, key FCA issues – particularly those involving FCA pleading standards and the requirement of pleading and proving
The filing of qui tam lawsuits under the False Claims Act has continued to drive civil enforcement, and the U.S. Department of Justice’s strike force model has been the main driver of the government’s criminal enforcement efforts.
We are pleased to bring you our 10th annual Healthcare Fraud and Abuse Review . We began the Review a decade ago with the intention of providing comprehensive coverage of the most significant civil and criminal enforcement issues facing healthcare providers each year. During that time, we have endeavored to cover key enforcement initiatives, analyze important case developments and document healthcare fraud settlements across the industry and to present those topics in a readily digestible format for our readers. While the healthcare industry has dealt with a decade of unprecedented change and challenges, the government’s healthcare fraud enforcement efforts have remained consistent. To be sure, areas of enforcement focus have shifted from time to time in order to address public health crises, fraud vulnerabilities within the healthcare industry or the need to prioritize resources. But the foundation has remained the same. The filing of qui
1 https://www.justice.gov/opa/press-release/file/1354316/download; https://www.justice.gov/opa/pr/ justice-department-s-false-claims-act-settlements-and-judgments-exceed-56-billion-fiscal-year. During that same time period, the government has recovered more than $37 billion in total civil fraud enforcement settlements and judgments, including $5.6 in FY2021. 2 https://www.law360.com/articles/1396615/where-fca-litigation-stands-5-years-after-escobar. 3 https://www.grassley.senate.gov/news/news-releases/senators-introduce-of-bipartisan-legislation-to- fight-government-waste-fraud.
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CIVIL FRAUD RECOVERIES FY 2017-2021 ($BILLIONS)
To no one’s surprise, we have begun to see enforcement results stemming from fraud schemes associated with the trillions of dollars of pandemic-related relief. At year’s end, the U.S. Secret Service warned of “potential fraudulent activity nearing $100 billion.”
scienter – are winding their way through the federal court system. 4 And, there is a distinct possibility that the Supreme Court will take up one or more of these issues in the coming years. To no one’s surprise, we have begun to see enforcement results stemming from fraud schemes associated with the trillions of dollars of pandemic-related relief. At year’s end, the U.S. Secret Service warned of “potential fraudulent activity nearing $100 billion.” 5 Along the way, we saw DOJ announce a number of significant Coronavirus Aid, Relief, and Economic Security (CARES) Act and COVID-19-related enforcement results. There is no question we will continue to see the government focus its efforts on uncovering and prosecuting relief-related fraud in the coming years. If the last decade of closely following healthcare fraud and abuse developments have taught us anything, we know that each year will pose new enforcement challenges for those involved in the healthcare industry. We trust that our firm’s annual Healthcare Fraud & Abuse Review will assist healthcare providers in better anticipating those challenges and understanding how those challenges can be best navigated in an ever-changing world.
4 See, e.g. Estate of Helmly v. Bethany Hospice & Palliative Care LLC , 853 F. Appx. 496 (11th Cir. 2021) (affirming dismissal for failure to plead FCA claims in accordance with Rule 9(b)), petition for writ of certiorari pending No. 21-462; U.S. ex rel. Schutte v. SuperValu Inc. , 9 F.4th 455 (7th Cir. 2021) (affirming dismissal of FCA claims because defendants were alleged to have acted in accordance with an objectively reasonable interpretation of the applicable regulations precluding a determination of scienter under the FCA). 5 https://www.wsj.com/articles/thefts-of-covid-19-relief-funds-total-at-least-100-billion-secret-service- says-11640202072.
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In May 2021, U.S. Attorney General Merrick B. Garland announced the establishment of a COVID-19 Fraud Enforcement Task Force to “marshal the resources of the Department of Justice” through partnership with other government agencies to enhance enforcement efforts against pandemic fraud. 7 The Attorney General emphasized that the Task Force will augment existing mechanisms within DOJ to pursue these matters and noted that Task Force members include civil and criminal DOJ attorneys, the Federal Bureau of Investigation (FBI), Department of Labor, Department of Treasury, Homeland Security, the Small Business Administration, the newly created Special Inspector General for
CARES Act enforcement actions in 2021 targeted the alleged misappropriation of funds beyond authorized uses for COVID-19 funding, obtaining multiple loans beyond limitations imposed during funding phases, and making false statements to obtain COVID-19 funding.
Pandemic Recovery (SIGPR) 8 and the Pandemic Response Accountability Committee (PRAC), 9 and others. In short, for the largest distribution of economic funding by the government in our history, DOJ will have far more resources to review and investigate the eligibility and use of COVID-19-related funding than typically available for civil and criminal investigations. CARES Act enforcement actions in 2021 targeted the alleged misappropriation of funds beyond authorized uses for COVID-19 funding 10 , obtaining multiple loans beyond limitations imposed during funding phases 11 , and making false statements to obtain COVID-19 funding. 12 While only one of these involved a healthcare provider, we anticipate an increase in FCA healthcare investigations related to COVID-19 funding for years to come, as the government is just beginning its review and focus on specific uses of COVID-19 funding. September 2021 marked some of the first reporting deadlines for funding recipients with subsequent deadlines scheduled through 2023, depending on the date COVID-19 funding was received. 13 The final distribution of $9 billion in COVID-19 relief funds to healthcare entities was released on December 14, 2021, with corresponding reporting obligations scheduled for 2023. 7 https://www.justice.gov/opa/pr/attorney-general-announces-task-force-combat-covid-19-fraud. 8 The Special Inspector General for Pandemic Recovery (SIGPR), was created by the CARES Act to conduct, supervise, and coordinate audits and investigations related to any program or funding under portions of the CARES Act, and includes broad subpoena power. See , https://www.sigpr.gov/. 9 The Pandemic Response Accountability Committee (PRAC) was created by the CARES Act to support and coordinate independent oversight of the more than $5 trillion pandemic relief spending. See , https://www. pandemicoversight.gov/. 10 https://www.justice.gov/opa/pr/owner-jet-charter-company-settles-false-claims-act-allegations-regarding- misappropriation. 11 https://www.justice.gov/usao-edva/pr/Virginia-company-agrees-settle-civil-fraud-allegations-paycheck- protection-program. 12 https://www.justice.gov/usao-edca/pr/bakersfield-medical-practice-agrees-resolve-false-claims-act- allegations-involving. 13 https://www.hrsa.gov/provider-relief/reporting-auditing.
ISSUES TO WATCH There are a number of key issues that will have a significant impact on how healthcare fraud matters are prosecuted and defended in the coming year. CARES ACT/COVID-19 RELIEF DOJ has scrutinized the receipt and use of the historic and unprecedented CARES Act funding and civil and criminal enforcement actions have followed. As anticipated in last year’s Review, pandemic-related fraud has become an enforcement priority with the government devoting significant personnel and resources to this effort and investigations and settlements increasing. In his presentation at the Federal Bar Association’s Qui Tam Conference in February, Acting Assistant Attorney General Brian M. Boynton highlighted DOJ’s top priority areas for enforcement, noting that the “inevitable fraud schemes” stemming from COVID-19-related funding would likely include false representations related to eligibility, misuse, and false certifications, all of which constitute the type of misconduct the FCA “has long been used to address.” 6
6 See presentation of Acting Assistant Attorney General, DOJ Civil Division, at Federal Bar Association’s Qui Tam Conference (Feb. 17, 2021) (highlighting DOJ’s top priority areas for FCA enforcement in 2021), https://www.justice.gov/opa/speech/acting-assistant-attorney-general-brian-m-boynton-delivers-remarks- federal-bar.
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In September 2021, the U.S. Department of Health and Human Services (HHS) announced that it had retained several accounting and consulting firms to conduct audits of COVID-19 relief payments made to healthcare providers. 14 Additionally, the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) stated that it would audit COVID-19 funding uses 15 and, more specifically, whether payments made by Medicare for COVID-19 inpatient discharges billed by hospitals complied with federal requirements. 16 Furthermore, HHS-OIG has expressed program integrity concerns regarding persons and entities that took advantage of the Centers for Medicare & Medicaid Services (CMS) relaxation of rules during the pandemic, such as laboratories performing “add-on” tests to confirm or rule out diagnoses other than COVID-19. 17 We expect to see a wave of whistleblower qui tam lawsuits stemming from the receipt of pandemic-related relief, which will generate numerous additional COVID-19 funding investigations. These will be fueled not only by the typical financial incentives provided by the FCA, but also as a result of issues raised by funding recipients’ attempts to adhere to the hastily-issued and ever-evolving guidance provided by the government during the rush of COVID-19 funding amidst the global pandemic crisis. As DOJ’s Boynton stated at the Federal Bar Association’s Qui Tam Conference, the “False Claims Act will play a significant role in the coming years as the government grapples with the consequences of this pandemic.” THE FUTURE OF THE FALSE CLAIMS ACT For a law that has been on the books for well over 150 years, it has only been relatively recently that the FCA has been the government’s primary civil enforcement tool and a statute relied upon by private parties (relators) to bring suit on behalf of the government through the FCA’s qui tam provisions. The 1986 FCA amendments paved the way for the statute as
Claims Amendments Act of 2021, the proposed amendments would “clarify[y] the current law following confusion and misinterpretation of the Supreme Court decision in [ Escobar ], which has made it all too easy for fraudsters to argue that their obvious fraud was not material simply because the government continued payment.” 18 Late last year, the proposed amendments were approved by the Senate Judiciary Committee for consideration by the full Senate. It remains to be seen whether the Senate will take up the proposed amendments, but there can be no question that efforts to strengthen the FCA enjoy bipartisan support and will continue in the future.
The government continues to tout the FCA and, in particular, the FCA’s qui tam provisions, as vital tools in its civil fraud enforcement toolbox as it relates to uncovering fraud in the healthcare industry.
The Supreme Court may very well have the opportunity to evaluate other key legal questions involving the FCA in the coming year. There have been a number of instances in prior years where parties have urged the Supreme Court to take up the pleading standards applicable to FCA claims under Rule 9(b) of the Federal Rules of Civil Procedure (FRCP). Until now, the Supreme Court has declined to take up that issue, but there is a possibility that may change as a result of the petition for writ of certiorari pending following the Eleventh Circuit’s decision in Estate of Helmly v. Bethany Hospice & Palliative Care, LLC , to affirm the district court’s dismissal of FCA claims for failure to meet Rule 9(b)’s pleading requirements. 19 In October 2021, the Supreme Court requested a response to the petition for writ of certiorari and the petition was distributed for conference earlier this year. Finally, the government continues to tout the FCA and, in particular, the FCA’s qui tam provisions, as vital tools in its civil fraud enforcement toolbox as it relates to uncovering fraud in the healthcare industry. And perhaps they are. But the FCA certainly is not the most efficient way to uncover actual healthcare fraud, as FCA investigations of allegations made in qui tam lawsuits often drag on for years, with resolutions driven as much by the possibility of crippling damages and per claim penalties or massive defense costs as by an evaluation of the actual merits. As regulators continue to evaluate how to move away from the pay-and-chase model of healthcare fraud enforcement and toward more proactive approaches, whether the FCA retains its place of prominence in the enforcement toolbox certainly must be considered as well.
we know it today by increasing the damages and penalties available to the government for recovery, increasing the percentages of recovery for qui tam relators and implementing protections for whistleblowing activity, among other things. Since the 1986 FCA amendments, there have been other amendments intended to strengthen the FCA by addressing court decisions perceived to have weakened the FCA’s effectiveness. As the Supreme Court’s decision in Escobar continues to give rise to fierce legal disputes concerning the FCA’s materiality requirement, there were efforts last year to amend the FCA in an attempt to cabin Escobar ’s impact. Titled the False
We expect to see a wave of whistleblower qui tam lawsuits stemming from the receipt of pandemic- related relief, which will generate numerous additional COVID-19 funding investigations.
14 https://www.beckershospitalreview.com/finance/hhs-taps-4-firms-to-audit-provider-relief-fund-grants.html. 15 https://oig.hhs.gov/coronavirus/. 16 https://oig.hhs.gov/reports-and-publications/workplan/summary/wp-summary-0000515.asp. 17 See “Trend Analysis of Medicare Laboratory Billing for Potential Fraud and Abuse with COVID-19 Add-on Testing,” at https://oig.hhs.gov/reports-and-publications/workplan/summary/wp-summary-0000489.asp.
18 https://www.grassley.senate.gov/news/news-releases/senators-introduce-of-bipartisan-legislation-to- fight-government-waste-fraud. 19 853 F. App’x 496 (11th Cir. 2021) (affirming dismissal for failure to plead FCA claims in accordance with Rule 9(b)), petition for writ of certiorari pending No. 21-462.
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in disclosures and reporting purportedly impacted by data security; (2) the Federal Trade Commission for violations of Section 5 of the Federal Trade Commission Act 23 related to consumer protection; (3) HHS for violations of HIPAA privacy and security rules; and class action suits brought by patients and other individuals, or state attorneys general pursuant to state privacy, security; and/or (4) consumer protection laws. OPIOID ENFORCEMENT Amidst the pandemic, combating the opioid epidemic remains a major enforcement priority for the government, as DOJ has noted the ongoing opioid epidemic seems to have been “exacerbated by the pandemic.” 24 Attorney General Garland has acknowledged that “[a]gainst the backdrop of the COVID-19 pandemic, the nation is experiencing a precipitous rise in opioid and stimulant misuse and overdoses.” 25 According to the Centers for Disease Control and Prevention, “there were an estimated 100,306 drug overdose deaths in the United States during the 12-month period ending in April 2021, an increase of 28.5% from the 78,056 deaths during the same period the year before.” 26 In response, DOJ has committed to “employ every tool at our disposal to address the opioid addiction crisis” and has promised to “aggressively prosecute anyone who is illegally peddling
CYBER FRAUD ENFORCEMENT RISK In October 2021, DOJ announced a new Civil Cyber-Fraud Initiative to pursue FCA liability against government contractors in the cybersecurity space. The initiative seeks to “hold accountable entities or individuals that put U.S. information or systems at risk by knowingly
providing deficient cybersecurity products or services, knowingly misrepresenting their cybersecurity protocols, or knowingly violating obligations to monitor and report cybersecurity incidents and breaches.” 20 The Civil Cyber-Fraud Initiative follows several significant cyberattacks, which are only becoming more prevalent. The new initiative is the first formal step DOJ has taken to combat attacks by focusing on the preventative cybersecurity efforts of government contractors. The implications for healthcare entities are noteworthy. Health Insurance Portability and Accountability Act (HIPAA) covered entities and business associates are already subject to
In October 2021, DOJ announced a new Civil Cyber-Fraud Initiative to pursue FCA liability against government contractors in the cybersecurity space.
opioids for profit.” 27 While the primary target of DOJ’s opioid enforcement actions has been pharmaceutical companies, DOJ has committed to investigating those in the opioid distribution chain, including pharmacies, clinics and individual doctors who prescribe and dispense unnecessary opioids. 28 In its 2021 annual healthcare fraud takedown, DOJ announced that it brought opioid-related charges against 19 defendants, including several medical professionals, who had prescribed over 12 million doses of opioids and submitted $14 million in false billings. 29 Although criminal enforcement actions have often been the focus of DOJ opioid enforcement efforts, DOJ’s Civil Division has also used multiple tools at its disposal,
a complex web of privacy and security requirements. But, the Civil Cyber-Fraud Initiative raises additional enforcement concerns to healthcare entities with the statutory threat of treble damages and staggering statutory penalties under the FCA. Moreover, the initiative is likely to encourage whistleblowers to be more creative and aggressive in bringing qui tam suits under the FCA in asserting that companies are not honoring their cybersecurity obligations. Indeed, some whistleblower practice groups have already put out calls to arms, and Acting Assistant Attorney General Boynton highlighted the role of whistleblowers in his address at the Cybersecurity and Infrastructure Security Agency (CISA) 4th Annual National Cybersecurity Summit. 21 Boynton noted DOJ’s reliance on the “inside information” of whistleblowers and their “new and evolving fraud schemes that might otherwise remain undetected.” 22 DOJ has pointed to at least three “common cybersecurity failures” that could result in FCA enforcement: (1) knowing failures to meet cybersecurity standards; (2) knowing misrepresentations of security controls and practices; and (3) failing to timely report suspected breaches, which DOJ views as critical for government agencies to respond, remediate any vulnerabilities, and limit the resulting harm. Additionally, investigations related to cybersecurity can lead to investigations and enforcement actions by other state and federal agencies and litigation, including: (1) U.S. Securities and Exchange Commission investigations related to the accuracy of information 20 https://www.justice.gov/opa/pr/deputy-attorney-general-lisa-o-monaco-announces-new-civil-cyber-fraud- initiative. 21 https://www.natlawreview.com/article/calling-all-cybersecurity-whistleblowers-doj-wants-you-to-report- cyber-fraud. 22 https://www.justice.gov/opa/speech/acting-assistant-attorney-general-brian-m-boynton-delivers-remarks- cybersecurity-and.
Amidst the pandemic, combating the opioid epidemic remains a major enforcement priority for the government, as DOJ has noted the ongoing opioid epidemic seems to have been “exacerbated by the pandemic.”
23 https://www.ftc.gov/news-events/media-resources/protecting-consumer-privacy/privacy-security- enforcement. 24 https://www.justice.gov/opa/speech/acting-assistant-attorney-general-brian-m-boynton-delivers-remarks- federal-bar. 25 https://www.justice.gov/opa/pr/department-justice-awards-more-300-million-fight-opioid-and-stimulant- crisis-and-address. 26 https://www.justice.gov/opa/pr/department-justice-awards-more-300-million-fight-opioid-and-stimulant- crisis-and-address. 27 https://www.justice.gov/opa/video/assistant-attorney-general-kenneth-polite-jr-delivers-remarks-health- care-enforcement. 28 https://www.justice.gov/opa/speech/acting-assistant-attorney-general-brian-m-boynton-delivers-remarks- federal-bar. 29 https://www.justice.gov/opa/pr/national-health-care-fraud-enforcement-action-results-charges-involving- over-14-billion.
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contained in the specific provisions of a contract. Noncompliance with guidance, therefore, may not be treated as a violation of a regulation or statute unless explicitly authorized by law. The HHS final rule is consistent with DOJ’s earlier Brand Memo, which provided that DOJ attorneys “may not use its enforcement authority to effectively convert agency guidance documents into binding rules.” 34 Not surprisingly, the change in administrations led to a different approach toward the weight given to regulatory guidance. In a Memorandum issued July 1, 2021, Attorney General Garland rescinded the Brand Memo, describing it as “overly restrictive,” and a discouragement to the “development of valuable guidance,” and noted that it generated collateral disputes and hampered DOJ’s litigation of cases. 35 DOJ attorneys now will be provided with internal guidelines for utilizing agency guidance and guidance may be used in any “appropriate and lawful circumstances,” such as for advancing agency deference and persuasive weight for the meaning of the applicable legal requirements. The Memo noted that guidance documents can “serve as an important tool to promote transparency, fairness, and efficiency” and directed that the Justice Manual be revised accordingly. In October 2021, less than a year after formalizing its final rules on use of guidance, HHS published a proposed rule that would repeal regulations issued by the Trump administration that limited HHS’s use of guidance documents. 36 Comments related to the proposed rule were
including the FCA, in concert with DOJ’s criminal enforcement remedies. 30 DOJ has highlighted the FCA’s treble damages and penalty provisions as crucial to “return funds to strapped federal health care programs and serve to deter those who seek to profit from the opioid crisis.” 31 As the opioid crisis worsens in the shadow of the COVID-19 pandemic, DOJ will almost certainly continue to utilize both criminal and civil enforcement actions in an effort to stem the tide. THE CONTINUED IMPACT OF ALLINA In 2019, the Supreme Court held in Azar v. Allina Health Servs. that HHS must comply with notice and comment requirements pursuant to administrative rulemaking processes when issuing any new substantive legal standards. 32 The Supreme Court’s decision may very well impact healthcare fraud enforcement decision-making from the government’s perspective, as well as the defenses available to healthcare companies facing allegations of a failure to comply certain alleged billing requirements. Allina involved a challenge by hospitals to a retroactive Medicare rate calculation posted on the internet as guidance, which the Supreme Court determined effectively described and established a new substantive legal standard. Because that new legal standard had not been subjected to the required agency notice and comment rulemaking process, the Supreme Court determined that the standard had been impermissibly imposed by HHS. In January 2021, at the end of the Trump administration, HHS issued formal rules setting forth the proper use of guidance documents. 33 The rules prohibited the government’s use of guidance as a means of creating requirements or prohibitions unless authorized by law or 30 https://www.justice.gov/opa/speech/acting-assistant-attorney-general-brian-m-boynton-delivers-remarks- federal-bar. 31 https://www.justice.gov/opa/speech/acting-assistant-attorney-general-brian-m-boynton-delivers-remarks- federal-bar. 32 Azar v. Allina Health Servs ., 139 S. Ct. 1804 (2019). 33 86 Fed. Reg. 3010 (Jan. 14, 2021), codified in 45 C.F.R. Part 1; https://hhs.gov/about/news/2021/01/12/hhs- improves-agency-procedures-relating-transparency-fairness-civil-enforcement-actions.html. While the primary target of DOJ’s opioid enforcement actions has been pharmaceutical companies, DOJ has committed to investigating those in the opioid distribution chain, including pharmacies, clinics and individual doctors who prescribe and dispense unnecessary opioids.
due to HHS in November of 2021. The proposed rule stated that previous guidance created “unnecessary hurdles” to bringing enforcement actions, as well as other limitations, and frustrated HHS’s ability to operate as needed, making operations too “cumbersome and burdensome.” The government’s evolving view on the extent of the use and impact of agency guidance in connection with FCA enforcement will continue to be an issue to watch in the highly regulated healthcare industry.
The government’s evolving view on the extent of the use and impact of agency guidance in connection with FCA enforcement will continue to be an issue to watch in the highly regulated healthcare industry.
34 https://www.justice.gov/file/1028756/download. The Brand Memo was codified in the DOJ Justice Manual at https://www.justice.gov/jm/1-19000-limitation-issuance-guidance-documents-1. 35 https://www.justice.gov/opa/page/file/1408606/download. The Attorney General also rescinded the earlier Sessions Memo from 2017, which prohibited DOJ from creating and enforcing policies through guidance documents. 36 86 Fed. Reg. 58042-53 (Oct.20, 2021); https://www.federalregister.gov/ documents/2021/10/20/2021-22503/department-of-health-and-human-services-proposed-repeal-of-hhs- rules-on-gidance-enforcement-and.
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COMPARISON OF RECOVERIES (FY 2021) HEALTHCARE RECOVERIES V. ALL OTHER RECOVERIES $600 Million
ALL OTHER RECOVERIES HEALTHCARE RECOVERIES
Newly-filed qui tam complaints accounted for the vast majority of new civil fraud matters initiated in FY 2021, which is also typical of recent years. Whistleblowers filed 589 new qui tam lawsuits, which represented a substantial decrease over the prior year and is the lowest number of new qui tam lawsuits since 2010. Qui tam lawsuits accounted for more than $1.6 billion of the $5.6 billion recovered in civil enforcement matters. 39 The Appendix to our Healthcare Fraud & Abuse Review contains a detailed breakdown of key settlements from the past year, many of which are referenced below. HOSPITALS AND HEALTH SYSTEMS Hospitals and health systems resolved several notable cases, many of which related to alleged violations of the Stark Law or the Anti-Kickback Statute (AKS). Improper compensation arrangements with physician referral sources remained a key area of scrutiny, including arrangements where compensation allegedly exceeded fair market value (FMV) or accounted for the volume or value of physician referrals. 40 In one such case, a hospital agreed to pay over $18 million to resolve allegations that it impermissibly took into account the volume and value of certain physicians’ referrals when it repurchased shares from physician-owners aged 63 or older and then resold the shares to younger physicians. 41
Following the trend of more than a decade, resolutions in healthcare fraud cases accounted for the vast majority of all FCA recoveries in FY 2021. Of the $5.6 billion in civil fraud settlements and judgments, recoveries from matters involving the healthcare industry amounted to $5 billion (89%). 37 This is the 13th consecutive year that recoveries in federal civil healthcare fraud matters have exceeded $2 billion and is the largest recovery since FY2014. 38
39 The balance of the total civil fraud enforcement settlements and judgments for FY2021 was comprised, in significant part, of recoveries associated with opioid enforcement efforts. See https://www.justice.gov/ opa/pr/justice-department-s-false-claims-act-settlements-and-judgments-exceed-56-billion-fiscal-year. 40 https://www.justice.gov/opa/pr/northern-ohio-health-system-agrees-pay-over-21-million-resolve-false- claims-act-allegations; https://www.justice.gov/opa/pr/prime-healthcare-services-and-two-doctors-agree- pay-375-million-settle-allegations-kickbacks. 41 https://www.justice.gov/opa/pr/flower-mound-hospital-pay-182-million-settle-federal-and-state-false- claims-act-allegations.
37 https://www.justice.gov/opa/pr/justice-department-s-false-claims-act-settlements-and-judgments-exceed- 56-billion-fiscal-year. 38 https://www.justice.gov/opa/pr/justice-department-recovers-over-22-billion-false-claims-act-cases-fiscal- year-2020.
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A number of settlements by hospitals and health systems involved the failure to adhere to reimbursement or coverage requirements, 42 including one such settlement by St. Joseph’s Hospital and an affiliated physician practice for $10 million related to alleged concurrent and overlapping surgeries. 43 Many others resolved cases related to medical necessity issues, including allegations of inappropriately billing or coding claims. 44 In the largest settlement involving a hospital or health system in FY 2021, Sutter Health and affiliated entities agreed to pay $90 million and enter into a five-year Corporate Integrity Agreement (CIA) to resolve allegations that they submitted unsupported diagnosis codes to Medicare Advantage plans to increase reimbursement. LONG-TERM CARE PROVIDERS DOJ continued its focus on the medical necessity of services rendered by long-term care providers. Multiple skilled nursing facilities (SNF), home health companies and a hospice company resolved allegations that they billed federal healthcare programs for services that
The pharmaceutical and medical device sectors of the healthcare industry continued to constitute a significant source of recovery within the healthcare industry last year Many of the larger settlements in these sectors related to product defects and many others involved allegations of AKS violations.
COMPARISON OF TOTAL RECOVERIES: INTERVENED V. DECLINED CASES SETTLEMENTS AND JUDGMENTS (FY 2017-2021)
were either medically unnecessary or not rendered at all. 45 In addition, two providers of rehabilitation services for SNF patients settled allegations that they billed Medicare for rehabilitation therapy services that were not medically necessary, reasonable or skilled. 46 Other settlements involving long-term care providers related to alleged violations of the AKS and the Stark Law. As one example, home health agency operator BAYADA Home Health Care, Inc., and several affiliated entities agreed to pay $17 million to resolve FCA allegations that they purchased two home health agencies in order to obtain referrals of Medicare beneficiaries from other retirement communities operated by the seller of the home health agencies, in violation of the AKS. 47
YEAR INTERVENED CASES DECLINED CASES
PHARMACEUTICAL AND MEDICAL DEVICE COMPANIES
The pharmaceutical and medical device sectors of the healthcare industry continued to constitute a significant source of recovery within the healthcare industry last year Many of the larger settlements in these sectors related to product defects and many others involved allegations of AKS violations.
45 https://www.justice.gov/usao-mdtn/pr/savaseniorcare-llc-agrees-pay-112-million-resolve-false-claims- act-allegations; https://www.justice.gov/usao-edca/pr/california-s-second-largest-skilled-nursing-facility- operator-pays-450000-resolve-false; https://www.justice.gov/usao-edmi/pr/usmm-and-vpa-pay-85- million-resolve-overpayment-medicare-claims-laboratory-and; https://www.justice.gov/usao-or/pr/ bend-resident-and-affiliated-residential-care-company-agree-pay-29-million-settle-health; https://www. justice.gov/opa/pr/crossroads-hospice-agrees-pay-55-million-settle-false-claims-act-liability. 46 https://www.justice.gov/opa/pr/contract-rehabilitation-therapy-providers-agree-pay-84-million-resolve- false-claims-act; https://www.justice.gov/opa/pr/interface-rehab-pay-2-million-resolve-false-claims-act- allegations. 47 https://www.justice.gov/usao-nj/pr/home-health-agency-operator-pay-17-million-resolve-false-claims-act- kickback-allegations.
42 https://www.justice.gov/usao-wdny/pr/upper-allegheny-health-system-pay-27-million-settle-false-claims- act-allegations; https://www.justice.gov/usao-mdpa/pr/geisinger-community-health-services-agrees-18- million-civil-settlement. 43 https://www.justice.gov/usao-az/pr/neurosurgical-associates-ltd-and-dignity-health-dba-st-josephs- hospital-paid-10-million. 44 https://www.justice.gov/opa/pr/ascension-michigan-pay-28-million-resolve-false-claims-act-allegations; https://www.justice.gov/opa/pr/county-medical-center-and-county-agree-pay-114-million-resolve- false-claims-act-allegations; https://www.justice.gov/usao-cdil/pr/federal-and-state-authorities-reach- settlement-blessing-hospital-over-medicare-and; https://www.justice.gov/usao-ndtx/pr/hospital-pay- more-3-million-settle-whistleblower-suit.
NOTEWORTHY SETTLEMENTS BASS, BERRY & SIMS | 8
LAB AND DIAGNOSTIC SERVICE PROVIDERS Several laboratory and diagnostic service providers settled allegations relating to AKS violations, with the alleged improper remuneration taking such forms as free report interpretation services, 53 sham research payments, 54 and salaries of employees of the referring provider. 55 Multiple other settlements in this sector of healthcare involved billing for medically unnecessary or duplicative services 56 and services provided or ordered without valid physician oversight. 57 BEHAVIORAL HEALTH Multiple behavioral health companies settled allegations related to billing for services provided by unlicensed or unqualified providers. 58 Other settlements resolved allegations of billing for medically unnecessary or upcoded services. In one such case, a healthcare company, two of its hospitals and an affiliated substance abuse treatment center agreed to pay over $10 million and enter a five-year CIA to resolve allegations that they submitted claims for medically unnecessary inpatient psychiatric admissions and claims tainted by AKS violations involving the provision of free long-distance van transportation to induce patients to use their facilities. 59 INDIVIDUAL PROVIDERS AND PRACTICE GROUPS The government continued its focus on individual actors and their roles in healthcare fraud schemes. This included a focus on credentialed healthcare providers, who the government views as important gatekeepers in relation to federal healthcare programs. In one notable case, a physician agreed to pay $2 million to resolve allegations that he prescribed controlled substances without a valid medical purpose, in violation of the Controlled Substances Act (CSA); many of those prescriptions were paid by Medicare and Medicaid, resulting in violations of the FCA. 60 That physician also pleaded guilty to related criminal charges and was excluded by CMS for at least 10 years. 53 https://www.justice.gov/opa/pr/eeg-testing-and-private-investment-companies-pay-153-million-resolve- kickback-and-false. 54 https://www.justice.gov/usao-sdca/pr/pain-management-organization-pays-51-million-settle-criminal- medicare-kickback. 55 https://www.justice.gov/usao-sc/pr/georgia-genetic-testing-laboratory-pay-200000-resolve-anti- kickback-statute-claims. 56 https://www.justice.gov/usao-ct/pr/healthcare-company-and-lab-pay-845k-resolve-federal-and-state- false-claims-act; https://www.justice.gov/usao-ma/pr/md-labs-and-its-co-founders-agree-pay-16-million- resolve-allegations-fraudulent-billing. 57 https://www.justice.gov/usao-nj/pr/california-genetic-testing-lab-agrees-pay-357584-resolve-false-claims- act-allegations; https://www.justice.gov/usao-de/pr/akumin-corporation-pay-us-over-700000-resolve- health-care-fraud-allegations; https://www.justice.gov/usao-nj/pr/virginia-diagnostic-testing-lab-agrees- pay-14-million-resolve-false-claims-act. 58 https://www.justice.gov/usao-ct/pr/connecticut-behavioral-health-clinician-group-pays-100k-settle- false-claims-allegations; https://www.justice.gov/usao-ct/pr/behavioral-health-provider-pays-273k- settle-improper-billing-allegations; https://www.justice.gov/usao-edwi/pr/milwaukee-area-community- support-program-facilities-agree-pay-390080-resolve-false; https://www.justice.gov/usao-edva/pr/ ndutime-youth-family-services-and-its-ceo-settle-false-claims-act-allegations-relating. 59 https://www.justice.gov/opa/pr/ohio-treatment-facilities-and-corporate-parent-agree-pay-1025-million- resolve-false-claims. 60 https://www.justice.gov/usao-edpa/pr/center-city-doctor-pleads-guilty-illegally-distributing-controlled- substances-and.
Three significant settlements in July 2021 reflected DOJ scrutiny of product quality and performance in the medical device space. Three medical device companies agreed to pay $22 million, $27 million and $38.75 million, respectively, to resolve claims that they had sold defective products. 48 Specifically, Avanos Medical, Inc., allegedly sold surgical gowns that did not meet the standards with which the gowns were labeled. St. Jude Medical, Inc., allegedly sold implantable defibrillators without disclosing that the devices’ batteries could lose power prematurely. And, Alere, Inc., allegedly sold defective blood coagulation monitors used by Medicare beneficiaries taking anticoagulant drugs. All three settlements highlight DOJ’s heightened attention to FCA violations that directly involve patient safety. Several significant settlements involved alleged failure to collect co-pays from Medicare beneficiaries. In May 2021, Incyte Corporation agreed to pay $12.6 million to resolve allegations that it channeled money through a foundation to fund co-pays for Medicare and TRICARE beneficiaries. 49 Incyte was the fund’s sole donor and allegedly pressured the foundation to fund co-pays for patients who were ineligible for assistance under the foundation’s own guidelines. In August, a mail-order diabetic testing supply company agreed to pay $160 million to resolve allegations that they paid kickbacks to patients by routinely waiving and failing to make reasonable efforts to collect Medicare co-payments, among other allegations. 50 The government continued to pursue cases involving alleged kickbacks. Three generic pharmaceutical manufacturers agreed to pay $447.2 million to settle allegations that they paid and received kickbacks through arrangements on price, supply and allocation of customers with other pharmaceutical manufacturers. 51 The government alleged that these arrangements were no more than price-fixing schemes. As part of the resolution, each of the companies also entered into a five-year CIA with HHS-OIG that includes unique internal monitoring and price transparency provisions. In addition, a medical device company agreed to pay $16 million to resolve FCA allegations that it made payments to a surgeon that were disguised as royalty payments for the surgeon’s contributions to two devices, but were actually made in exchange for his use and recommendation of the company’s devices, in violation of the AKS. 52
48 https://www.justice.gov/opa/pr/avanos-medical-inc-pay-22-million-resolve-criminal-charge-related- fraudulent-misbranding-its; https://www.justice.gov/usao-md/pr/st-jude-medical-agrees-pay-27-million- allegedly-selling-defective-heart-devices; https://www.justice.gov/usao-nj/pr/medical-device-companies- pay-3875-million-settle-false-claims-act-allegations. 49 https://www.justice.gov/usao-edpa/pr/pharmaceutical-manufacturer-agrees-pay-126-million-resolve- allegations-it-provided. 50 https://www.justice.gov/usao-mdtn/pr/mail-order-diabetic-testing-supplier-and-its-parent-company-agree- pay-160-million. 51 https://www.justice.gov/opa/pr/pharmaceutical-companies-pay-over-400-million-resolve-alleged-false- claims-act-liability. 52 https://www.justice.gov/opa/pr/medical-device-company-arthrex-pay-16-million-resolve-kickback- allegations.
NOTEWORTHY SETTLEMENTS BASS, BERRY & SIMS | 9
The government resolved a number of FCA cases with medical providers in which DOJ alleged that the providers misrepresented services rendered in a manner that increased the reimbursement or permitted the providers to bill for services that were not reimbursable. 61 Such cases included three providers who settled claims that they had improperly billed Medicare and Medicaid for the provision of electro- acupuncture stimulation devices as if the devices had to be implanted surgically when they were not. 62 Finally, there were multiple settlements by individuals relating to medically unnecessary services, including vascular surgeries, diagnostic testing, cardiac procedures and urinalysis testing. 63 In one such case, a cardiologist agreed to pay $6.75 million to resolve claims that he billed
Private equity firms also settled FCA allegations related to causing the submission of false claims. In one such case, H.I.G. Capital, LLC, the private equity owner of a mental health clinic operator, agreed to pay $19.95 million, and two former executives of the clinic operator agreed to pay $5.05 million, to resolve FCA allegations that they knew the clinic operator employed individuals who were unlicensed, unqualified, or otherwise providing services in violation of state Medicaid regulations, and they caused false claims to be submitted to Massachusetts Medicaid by failing to adopt recommendations to bring the operator into compliance. 66 Similarly, Ancor Holdings LP agreed to pay a portion of a $15.35 million settlement to resolve allegations that it caused an ambulatory testing provider in its portfolio to submit false claims by allowing an alleged kickback scheme it learned about through diligence to continue after entering an agreement to manage the provider. 67
The government resolved a number of FCA cases with medical providers in which DOJ alleged that the providers misrepresented services rendered in a manner that increased the reimbursement or permitted the providers to bill for services that were not reimbursable.
for ablations and stent procedures that were not needed and performed by technicians who were not qualified to administer the procedures; he was also accused of falsifying patient records to obscure those facts. 64 OTHER ENTITIES AND PROVIDERS Multiple other entities and providers settled FCA allegations related to causing the submission of false claims. In one notable settlement, electronic health record (EHR) vendor athenahealth, Inc., agreed to pay over $18 million to resolve allegations that it engaged in three marketing schemes in violation of the AKS that caused providers to submit false claims related to federal EHR incentive payments. The vendor allegedly: (1) invited customers and prospective customers to all-expenses-paid “bucket list” events; (2) entered into “Conversion Deals” whereby it paid competitors to refer customers when their products were discontinued, tied to the value and volume of business ultimately converted; and (3) paid fees to customers for each referral that signed up for the product. 65 61 See, e.g. , https://dockets.justia.com/docket/texas/txndce/3:2021cv00157/343353; https://www.justice. gov/usao-md/pr/howard-county-physician-pays-more-660000-resolve-false-claims-act-allegations- fraudulent; https://www.justice.gov/usao-wdtx/pr/healthcare-practitioners-pay-over-1-million-resolve- false-claims-act-liability-arising. 62 https://www.justice.gov/usao-mdtn/pr/united-states-and-tennessee-resolve-claims-three-providers-false- claims-act-liability. 63 https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-resolution-civil-and-criminal- healthcare-fraud-charges; https://www.justice.gov/usao-edmi/pr/cardiologist-dinesh-shah-pays-2-million- resolve-false-claims-act-allegations-relating; https://www.justice.gov/usao-cdil/pr/federal-and-state- authorities-reach-settlement-quincy-medical-group-over-medicare-and; https://www.justice.gov/opa/pr/ texas-pain-management-physicians-agree-pay-39-million-resolve-allegations-relating. 64 https://www.justice.gov/usao-mdfl/pr/orlando-cardiologist-pays-675-million-resolve-allegations- performing-unnecessary. 65 https://www.justice.gov/usao-ma/pr/athenahealth-agrees-pay-1825-million-resolve-allegations-it-paid- illegal-kickbacks.
66 https://www.mass.gov/news/private-equity-firm-and-former-mental-health-center-executives-pay-25- million-over-alleged-false-claims-submitted-for-unlicensed-and-unsupervised-patient-care. 67 https://www.justice.gov/opa/pr/eeg-testing-and-private-investment-companies-pay-153-million-resolve- kickback-and-false.
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focus on the government’s likely or actual response to the defendant’s alleged misconduct, include the following: (1) whether the government has expressly identified compliance with the relevant statutory, regulatory or contractual requirement as a condition of payment; (2) whether the government consistently refuses to pay claims in other cases based on noncompliance with the requirement; (3) whether the government has continued to pay the defendant’s claims
Five years after the Supreme Court’s watershed 2016 decision in Universal Health Services v. U.S. ex rel. Escobar , this decision continues to have a profound impact on how the FCA’s materiality element is pleaded, litigated and analyzed by courts.
with knowledge of the defendant’s noncompliance or alleged misrepresentations; and (4) whether compliance with the requirement goes to the essence of the government’s bargain, or instead is minor or insubstantial. As in years past, the application of these factors continues to play a prominent role in the resolution of FCA cases at both the pleading and summary judgment stages, yet courts have not always analyzed these factors consistently. In particular, recent cases reflect a growing disagreement about the extent to which the FCA’s materiality element requires a “holistic” review, or, on the other hand, whether one or more of the individual factors identified in Escobar – particularly the government’s continued payment of claims after learning of the alleged noncompliance – may be dispositive of the materiality inquiry on their own. Largely at the invitation of qui tam relators and the government, several courts hewed toward a more “holistic” approach to materiality, conducting detailed analyses of all (or at least most) of the Escobar factors, and weighing them against each other, to determine whether the materiality element has been satisfied. These cases have tended to reflect a hesitancy to dismiss FCA lawsuits on materiality grounds, especially because such a far-reaching analysis of multiple factors often ends in the conclusion that the allegations or evidence on materiality is mixed, and therefore the question of materiality should be determined by the factfinder. In U.S. ex rel. Bibby v. Mortgage Investors Corp. , for instance, the Eleventh Circuit cited the supposedly “holistic” nature of the materiality analysis as a reason for reversing the district court’s grant of summary judgment for the defendant mortgage lender. 69 That dismissal had been based on the immateriality of regulations that prohibited lenders from charging certain closing costs to veterans on government-insured loans. Although the Tenth Circuit acknowledged that the government had continued to guarantee loans even after learning about impermissible closing costs, it cited other Escobar factors that purportedly
FALSE CLAIMS ACT UPDATE
The FCA continues to be the federal government’s primary civil enforcement tool for pursuing liability with respect to healthcare providers that have allegedly defrauded federal healthcare programs. As in previous years, there continues to be a number of legal developments involving the FCA that will greatly impact the government’s enforcement efforts and the manner in which relators pursue FCA claims.
ESCOBAR’S “RIGOROUS” MATERIALITY REQUIREMENT
Five years after the Supreme Court’s watershed 2016 decision in Universal Health Services v. U.S. ex rel. Escobar , this decision continues to have a profound impact on how the FCA’s materiality element is pleaded, litigated and analyzed by courts. 68 In Escobar , the Supreme Court described the materiality element as “rigorous” and “demanding,” and set forth several nonexclusive factors to guide the inquiry. These factors, which mainly
579 U.S. 176 (2016).
987 F.3d 1340 (11th Cir. 2021).
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