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Archive for the ‘Reimbursement’ Category

When is a Referral Mandate for Employed Physicians Permitted under the Stark Law?

Monday, June 4th, 2018

When Employed Physicians be Required to Make Referrals for Designated Health Services

Referral Requirements Employed PhysiciansThe Stark Law Regulations include a provision that dictates the conditions under which an employer of a physician may mandate referrals for designated health services.  Certain specific conditions must be met if an employer wishes to require its employed physicians to make referrals to the employer’s designated health services.  Many institutions assume that an employer may always require an employed physician to make referrals to its ancillary services.  That assumption is not correct.

The Stark regulations provides that a physician’s compensation from a bona fide employer or under a managed care contract or other contract for personal services may be conditioned on the physician’s referrals to a particular provider, practitioner, or supplier.    There are a number of specific requirements that must be present to permit referral requirements including:

  1.  The required referrals can only relate to the physician’s services covered by the scope of the employment or the contract.
  2. The referral requirement must be reasonably necessary to effectuate the legitimate business purposes of the compensation arrangement.
  3. The physician’s compensation must be set in advance for the term of the agreement requiring referrals.
  4.  The physician’s compensation must be consistent with fair market value for services performed (that is, the payment may not take into account the volume or value of anticipated or required referrals).
  5. The arrangement must otherwise comply with an applicable exception under Sec. 411.355 or Sec. 411.357.
  6.  The requirement to make referrals to a particular provider, practitioner, or supplier is set forth in a written agreement signed by the parties.
  7. The requirement to make referrals to a particular provider, practitioner, or supplier may not apply if the patient expresses a preference for a different provider.
  8. The referral requirement may not apply to cases where the patient’s insurer determines the provider, practitioner, or supplier;.
  9. The referral requirement may not apply where the referral is not in the patient’s best medical interests in the judgment of the referring physician.
  10. There can be no requirement that an employed physician make referrals that relate to services that are not provided by the physician under the scope of his or her employment or contract.

This scenario most commonly applies in cases where a hospital or health system employs a physician and requires direction of referrals to the system’s designated health services.  It is not uncommon to see a health system contractually require employed doctors to refer to the hospital or ancillary services of the hospital.  The Stark Law permits the employing hospital to require referrals subject to these conditions.  It is also common to see referral requirements without including in the contract the various conditions that must be present to permit the direction of referrals.  The Stark Law would cast a shadow over a compensation arrangement with an employed physician that requires referrals without subjecting the referrals to the conditions set forth in the Stark regulations.  Failing to subject the required referrals to the Stark Law conditions would seem to make the compensation arrangement illegal.  Any referral made to the hospital’s designated health services may be tainted and reimbursement arising from the illegally required referrals would be prohibited.

Stark Law Provisions Relating to Referral Requirements of Employed Physicians

The following is the exact wording of the portion of the Stark Law that established the various conditions that must be met in order to permit the provider of designated health services to require employed physician’s to refer to its DHS.

42 C.F.R. § 411.354(d)(4)

(4) A physician’s compensation from a bona fide employer or under a managed care contract or other contract for personal services may be conditioned on the physician’s referrals to a particular provider, practitioner, or supplier, provided that the compensation arrangement meets all of the following conditions. The compensation arrangement:
(i) Is set in advance for the term of the agreement.
(ii) Is consistent with fair market value for services performed (that is, the payment does not take into account the volume or value of anticipated or required referrals).(iii) Otherwise complies with an applicable exception under §411.355 or §411.357.(iv) Complies with both of the following conditions:

(A) The requirement to make referrals to a particular provider, practitioner, or supplier is set forth in a
written agreement signed by the parties.

(B) The requirement to make referrals to a particular provider, practitioner, or supplier does not apply if the patient expresses a preference for a different provider, practitioner, or supplier; the patient’s insurer determines the provider, practitioner, or supplier; or the referral is not in the patient’s
best medical interests in the physician’s judgment.

(v) The required referrals relate solely to the physician’s services covered by the scope of the employment or the contract, and the referral requirement is reasonably necessary to effectuate
the legitimate business purposes of the compensation arrangement. In no event may the physician be required to make referrals that relate to services that are not provided by the physician under the scope of his or her employment
or contract.

Whistleblower Settlements Increase Compliance Risk for Providers

Wednesday, May 16th, 2018

Recent Fraud Settlements Emphasize Risk of Whisttleblowers

Dermatology Risk Areas Fraud and AbuseOne of the reasons why compliance officers and health care attorneys read fraud settlements is to identify the issues that the government is focused on.  The cases that the government decides to pursue are very indicative of the areas of fraud enforcement that they feel are important.  These are not the only issues that should be considered, but government enforcement actions certainly tell us what types of arrangements the government considers important.

The misfortune of the defendants involved in these cases hold a potential learning experience for everyone else.  Others have an opportunity to focus on their own operations to identify whether they are at risk in any of the areas involved in these cases.

An ancillary lesson that these settlements hold is that each was initially raised by a whistleblower.  The False Claims Act gives whistleblowers a portion of the settlement in cases where the government decides to intervene.  This in effect creates a universe of potential claimants that can include almost anyone with original knowledge of the alleged practice.

Common whistleblowers include former or disgruntled employees.  It really does not matter of the employee is or was the worst employee in the world, they can still bring an action as a whistleblower.  Not only are they protected by a host of laws, they can also profit greatly if the claim is eventually decided in their favor.  Whistleblowers often receive awards in the millions of dollars.  This makes the area ripe for plaintiff’s attorneys who often take these cases on a contingency fee basis.  This makes it a relatively low-cost proposition for a whistleblower to bring a case forward, at least from the perspective of attorney fees.

Health Law Firm Opens Green Bay Office

Tuesday, May 1st, 2018

Green Bay Health Care Lawyer – Opening Office in Green Bay Wisconsin

I just wanted to let readers of our health care blog know that Ruder Ware will be opening a Green Bay office and that three Green Bay attorneys will be joining our firm. This will provide us with a presence in the Green Bay/Appleton Markets that will enhance our community presence and enable us to better serve our client in eastern Wisconsin. Our health care and compliance practice with be greatly enhanced as a result of this move.

This move will provide a local platform through which we can better serve our health care clients.

Health Care Law Practice – Green Bay Health Lawyers Ruder Ware

Ruder Ware has a long history of representing health care clients.  The firm recognizes that the highly regulated and complex nature of the industry demands the attention of a team of attorneys who, as a group, monitor constantly evolving laws and regulations and their impact on our health care clients.  At Ruder Ware, we offer a full-service solution to clients as our focus team consists of health care, business, employment, and litigation attorneys with knowledge of the health care industry.   As a result, we are able to take best practices from other industries and apply them to the health care industry, thereby increasing the ability to respond promptly to the rapidly changing health care environment.

Members of the focus team have served on the governing bodies of various health care organizations.  This service has provided our attorneys with the opportunity to counsel the health care community.  

Our dedicated team of attorneys represents health care providers in various matters including:

 Health Care Business Transactions and Corporate Law

Our attorneys have substantial expertise representing various health care providers such as:

Below is the official press release:

Media Contact:
Jamie Schaefer
COO
Ruder Ware, L.L.S.C.
P: 715.845.4336
E: jschaefer@ruderware.com

For Immediate Release

Attorneys Ronald Metzler, Christopher Pahl, and Chad Levanetz to join
Ruder Ware at its new Green Bay Office

WAUSAU, WI – April 27, 2018 – Ruder Ware is pleased to announce the opening of its Green Bay office and that Attorneys Ronald Metzler, Christopher Pahl, and Chad Levanetz will be joining the firm. The new office will be located at 222 Cherry Street, Green Bay, Wisconsin, which is the current location of Metzler, Timm, Treleven, S.C.

Attorney Ron Metzler – Having practiced law for over 30 years, Ron is a well-respected and well-known commercial attorney with close ties to the banking industry.

Attorney Chris Pahl – With his strong ties to the Green Bay community, Chris has built his practice around real estate development and condominium law as well as commercial transactions and estate planning.

Attorney Chad Levanetz – A seasoned litigation attorney, Chad counsels clients in the areas of real estate, construction, and general business disputes.

Stew Etten, Ruder Ware managing partner, stated, “Ruder Ware is always looking for outstanding attorneys to join our firm. With the opportunity to add Attorneys Metzler, Pahl, and Levanetz, the time was right to open a Green Bay office. We’re very excited to have attorneys of their caliber join our team of professionals.”

About Ruder Ware
Founded in 1920, Ruder Ware is the largest law firm headquartered north of Madison. With offices in Wausau, Eau Claire, and Green Bay over 40 attorneys provide legal and business advice to clients with operations of all sizes. Areas of practice include: Employment, Benefits & Labor Relations, Litigation & Dispute Resolution, Business Transactions, Trusts & Estates, and Fiduciary Services. Ruder Ware, Business Attorneys for Business Success. www.ruderware.com

Media Contact:
Jamie Schaefer
COO
Ruder Ware, L.L.S.C.
P: 715.845.4336
E: jschaefer@ruderware.com

CMS Position On Texting Physician Orders

Monday, January 29th, 2018

Texting of Physician Orders : CMS Statement Clarifies Position on Texting

Physician Order Texting RegulationsThe CMS Center for Clinical Standards and Quality/Survey & Certification Group recently released a Memorandum clarifying its position regarding texting of health care information. In S&C 18-10-ALL, dated December 28, 2017, CMS clarifies the following issues:

  • Texting of PHI Within Health Care Team.  CMS says that this is permissible on a secure platform.  Providers should develop policies covering texting among the care team.  Providers may want to consider special conditions, or even limiting or prohibiting this practice.  CMS, HIPAA and other standards need to be considered when developing provider specific policy.  State laws may differ and certain types of information may be subject to special restrictions.
  • Texting of Patient Orders.  Even though texting communication between care team members is permissible, CMS clarifies that texting patient orders is always prohibited; even on a secure platform.
  • Preferred Use of CPOE.  CMS clarifies that Computerized Provider Order Entry (CPOE) is the preferred method for a provider to enter a patient order.  Providers should review their policies regarding acceptable order platforms.  Special attention should be paid to texting practices.  Verbal orders are also an area of significant compliance and liability concerns.  Over-use of verbal orders and non-compliance with authentication requirements is very common and is a significant risk area.

You can reference the CMS Texting Guidance Letter on this issue directly.

I have been posting a series of articles on compliance issues relating to physician orders that you can also reference for additional guidance.  And as always, if you have additional questions, please do not hesitate to contact me thhrough the contact form on this blog or directly through contact information on my law firm web site.

 

Physician Orders Legal and Regulatory Article Series

Physician Order Reimbursement Issues

Physician Orders – Why Are They So Important?

The Verbal Order Minefield

Authenticating Verbal Orders : Compliance Requirements

Third Party Authentication of Verbal Orders

Physician Order – CMS Guidelines on Texting Physician Orders

 

Verbal Orders Documentation and Authentication

Wednesday, January 24th, 2018

The Verbal Order Minefield

Authenticating Verbal OrdersPhysicians often provide orders over the telephone in cases where action must be taken immediately. For example, verbal orders must be given by a physician who is on call or off duty but an issue arises that requires staff to take immediate action. Physician orders are generally effective when they are given, subject to appropriate documentation. Verbal orders are effective when provided verbally, but must be properly recorded in the medical records and authenticated or signed by the ordering physician.

Verbal Order Policies and Procedures

Normally, the facility will have policies in place that provide guidance on how staff should handle verbal orders. Those policies will define who is authorized to receive a verbal order from a physician as well as the process for taking a verbal order. Many facilities use a “read-back” requirement that requires the provider who receives the order to read the order back to the physician and receive confirmation. The receiving provider is required to document the receipt of the verbal order in the chart.

Over-use of Verbal Orders

Medicare policy (and many state laws) clarifies that verbal orders are not to be used as common practice. Verbal orders are not to be used for the convenience of the physician, but only when the patient’s condition or status requires immediate attention and when it is impossible or impractical to enter the order without creating unacceptable delays in needed treatment. Even though verbal orders are to be used infrequently under Medicare policy, their use has become very commonplace in many facilities. Frequent use of verbal orders increases risk in a variety of ways. Verbal orders leave room for error. This can be mitigated by using a read-back process, but risk of misinterpretation or incorrect fulfillment will be enhanced when verbal orders are used. Verbal orders contribute significantly to the risk of medication error and a variety of other potential adverse patient incidents.

Another significant risk of using verbal orders relates to the need to meet authentication requirements. CMS rules direct medical reviewers to disregard orders that are not properly authenticated. All orders, including verbal orders, are required to be dated, timed, and authenticated promptly by the ordering practitioner.

Authentication of Verbal Orders by Ordering Physician

In terms of timing, Medicare guidance requires the ordering physician to sign the verbal order promptly. Some states, such as Wisconsin, require the ordering physician to sign the order within 24 hours of providing the verbal order. Medicare ties into state law requirements in this area. This is an area of significant potential risk for a facility where physician’s routinely use verbal orders during off-shift times. It can be days before the physician is back at the facility. It used to be that reviewers provided a lot of slack on the followup physician signature requirement. With the integration of electronic medical records and the use of electronic signatures, the timing requirements for physician signatures on verbal orders are enforced strictly.

CMS has gotten a bit more lenient on certain delayed medical record entries. Amendments, corrections, and delayed medical record entries are now given credit in medical review. This leniency does not apply with respect to certain types of physician orders. For example, late or corrected entries to support orders for inpatient admission or outpatient observation services are not accepted and are treated as they do not exist on medical review. Again, failure to properly and timely authenticate an “order” in contrast to an “entry,” has reimbursement implications. This makes it critical to assure that orders are completely documented. Verbal order use should be limited to appropriate cases. Verbal orders are over-used in many facilities. When verbal orders are used, prompt authentication requirements should be enforced. Strict time limitations may exist under state law. For example, Wisconsin requires verbal orders to be be signed by the ordering provider within 24 hours.

Physician Orders Legal and Regulatory Article Series

Physician Order Reimbursement Issues

Physician Orders – Why Are They So Important?

The Verbal Order Minefield

Authenticating Verbal Orders : Compliance Requirements

Third Party Authentication of Verbal Orders

Physician Order – CMS Guidelines on Texting Physician Orders

Physician Orders – Definition and Reimbursement Implications

Wednesday, January 24th, 2018

Physician Orders – Big Implications but Few Definitions

Physician Ordering Services Physician OrdersI wanted to talk a bit about physician orders. Physician orders hold a great deal of significance in health care. The root purpose of a physician order is to direct other providers to furnish certain services. Services ordered by a physician might include things like therapy services, skilled nursing services, home health, diagnostic testing, and a variety of other therapeutic and/or diagnostic services that might flow from the physician’s examination of the patient.

In addition to the practical application of directing care, health care payors look to physician orders to make payment determinations. The Medicare program places a great deal of importance on physician orders to support claims for ancillary and diagnostic services. Certain services require a physician’s order as a prerequisite to payment on a claim for service. In other cases there may be no direct, fee-for-service payment implication to a physician’s order, but they are still critical to patient safety and to communicate matters that may impact care and treatment of patients.

A few weeks back, my trials and tribulations as a health care compliance lawyer resulted in my need to locate a definition of what constitutes a physician’s order. I looked in the Medicare regulations and was surprised to find that there is no statutory or regulatory definition of what constitutes the order of a physician. This seemed odd given the importance of physician orders as conditions for payment of many Medicare claims. There are references throughout the regulations that require physician orders. I was finally able to locate a definition in a CMS Policy Manual. But if push comes to shove in the context of a case, these policy manuals are not binding on the interpretation of regulatory terms. CMS may define physician orders internally, but that does not necessarilly mean that a court will uphold that definition.

Some states do a better job than Medicare at defining what constitutes a physician’s order. Medicare policy sometimes defers to state law, particularly regarding some of the technical aspects of physician orders such as what constitutes a valid electronic signature. State law should always be referenced when determining issues relating to physician orders, attestation, signatures, and other issues. This does not always provide clarification and, in fact, sometimes it causes confusion. But it is necessary for a full analysis and identification of where there may be uncertainty.

So no I am inspired to do some further exploration on physician orders. When are they necessary? When are they required? What technical requirements apply? Stay tuned to this blog for additional articles and hopefully some fairly comprehensive coverage of physician orders.

Physician Orders Legal and Regulatory Article Series

Physician Order Reimbursement Issues

Physician Orders – Why Are They So Important?

The Verbal Order Minefield

Authenticating Verbal Orders : Compliance Requirements

Third Party Authentication of Verbal Orders

Physician Order – CMS Guidelines on Texting Physician Orders

Medicare’s New Low Volume Settlement Process

Tuesday, January 23rd, 2018

Expressions of Interest Can Lead to Medicare Settlement for Eligible Appellants

The Centers for Medicare and Medicaid Services recently announced that beginning February 5, 2018, it will begin accepting what it terms as “expressions of interest” for a limited settlement from providers who have fewer than 500 appeals pending at the Office of Medicare Hearing and Appeals and the Medicare Appeals Council.  The option is made available to certain Medicare fee-for-service providers, physicians and suppliers.  The new administrative settlement process will be to settle portions of pending appeals that involve $9,000 or less total billed amounts.  The trade-off would be a timely partial payment of 62% of the net new amount that is approved by Medicare.

Providers and suppliers who meet qualifications can commence the process by submitting an Expression of Interest (EOI) using the process established by CMS.

Eligible appellants include Medicare Part A and Part B providers, physicians, and suppliers that have less than than 500 appeals pending.  Some appellants are ineligible for participation in the program.  Ineligible appellants include beneficiaries, enrollees, their family members, or estates. State Medicaid Agencies, Medicare Advantage Organizations (Medicare Part C), those that filed for bankruptcy or expect to file for bankruptcy, some appellants who may have had False Claims Act problems or other program integrity issues.

The details of the program and various forms and guidance are included on the CMS website.  Medicare Low Volume Appeal Program

Exercising Reasonable Care to Identify and Address Potential Overpayments

Monday, July 17th, 2017

When the Center for Medicare and Medicaid Services (CMS) finally issued final regulations under the 60-day repayment rule, it implemented a new standards that requires a provider to affirmatively exercise reasonable diligence to identify potential overpayments.  This was a change from the proposed regulations that held providers to a much lower affirmative duty to exercise diligence to find potential overpayments.  Now, when a provider receives “credible information” that indicates a potential overpayment, affirmative steps must be taken in a timely and good faith manner to investigate.  Failure to meet the standard of reasonable diligence can result in significant penalties under the False Claims Act.  In some cases criminal liability can attach as well; particularly when evidence strongly indicates a problem might exist and a deliberate decision is made not to investigate or repay amount due.

By now most health care providers are at least generally aware of the 60-day repayment rule.  That rule originated as part of the Affordable Care Act in 2010.  The rule provides that the failure to repay a known overpayment within 60 days after discovery results in potential penalties under the False Claims Act.  This means that a simple overpayment is multiplied by a factor of three.  Additionally, penalties can be assessed in amounts ranging from a minimum of $11,000 and a maximum of approximately $22,000 per claim.  Financial exposure under the FCA can be very substantial; particularly when there is a systematic billing error that impacts a large number of claims over a significant period of time.  The lookback period for imputed False Claims is 6 years, which amplifies the potential exposure when the “tip of the iceberg” is discovered in a current year audit.

The initial statutory provision left some ambiguity regarding application of the 60 day repayment rule.  One significant ambiguity related to when the 60 day time period begins to run.  The statute states that the 60 day period commences upon “identification” of the overpayment but included no clarification of when a provider is deemed to have identified an overpayment.  It was not clear whether identification occurred when there was an allegation that an overpayment exists, when an amount of overpayment was calculated, when the existence of the overpayment was verified, or at some other time.  It was also unclear whether actual knowledge of an overpayment was required or whether knowledge could be imputed in certain circumstances.

CMS provided clarification on the issue of identification in the final regulations, but the clarification places significant burdens on providers.  Under the final rules, the provider is deemed to have identified an overpayment, not when actual knowledge is obtained, but rather when the provider “should have” identified the overpayment through the exercise of “reasonable diligence.”  The new standard requires providers to conduct a timely and good faith investigation when it receives credible information that an overpayment might exist.  Failing to take reasonable steps to investigate will result in imputed knowledge and deemed “identification” of the overpayment.  In other-words, the 60 day clock starts to run when the investigation should have commenced.

It is useful at this point to mention what constitutes and overpayment that invokes the statutory requirement.  An overpayment exists when the provider receives any funds to which they are not entitled.  There is no amount threshold, substantiality or materiality requirement.  Any overpayment invokes the statute and becomes a potential false claim if not repaid within the 60 day period.  There are situations where the amount of overpayment is so small that the provider might determine it not to be worth the resources to identify, quantify and repay.  When making this determination, it should be kept in mind that the False Claims Act will apply if a whistleblower case is brought or a government investigation is commenced and finds the overpayment.  False Claims Act liability can result in large penalties; particularly where there are multiple claims involved.  It should also be kept in mind that criminal statutes impose felony penalties for the willful failure to return known overpayments.

Overpayments that are self-discovered and repaid before they become false claims are relatively easy to manage.  Once the False Claims Act potentially attaches, these situations become increasingly complicated to manage.  The OIG Self Disclosure process should be considered where the potential for significant penalties is present.  The SDP permits resolution at a minimum of 1.5 times the amount of the overpayment.  Full disclosure of the facts and investigation is required as part of the self-disclosure process.  Only civil penalties are subject to settlement under the protocol.  The wrong facts disclosed as part of the SDP process can lead to criminal charges against the entity or individuals.  Criminal charges cannot be settled using the SDP.

Where amounts are smaller, a provider may decide to repay without going through the protocol process.  A determination of which option is right in the specific situation should be made with the involvement of legal counsel that has experience with these issues.

Proper operation of a compliance program is the best defense to mitigating exposure under the 60 day rule.  Prompt investigation should be conducted whenever there is a credible allegation of an overpayment.  Compliance risk identification and proactive auditing can also help mitigate risk be identifying problems early and by demonstrating that compliance process is being effectively operated.  This will help avoid allegations that overpayments should have been discovered sooner through the exercise of a reasonable compliance program.  Most importantly, ignoring alleged overpayments is never an answer that mitigates risk.  All credible allegations must be investigated and appropriate repayment should be made using one of the available methods.  The requirements of the final rule should be baked into compliance program policies and procedures and staff should be educated on the need to investigate and return overpayments within required timeframes.

“Incident to” Billing Rules Clarified by CMS for 2016

Thursday, September 1st, 2016

Recent Changes to Medicare “Incident To” Billing Rules

incident to billing rules supervision requirementMedicare permits a physician to bill for certain services that are furnished by a nurse practitioner or other auxiliary personnel under what is referred to as the “incident to” billing rules.  The “incident to” rules permit services or supplies furnished as an integral, although incidental, part of the physician’s personal professional services in the course of diagnosis or treatment of an injury or illness to be reimbursed at 100% of the physician fee schedule, even if the service is not directly furnished by the billing physician.

A significant requirement to permit the services of physician extenders to be billed as “incident to” services requires direct personal supervision by the physician. The supervising physician does not necessarily need to be present in the same room where the procedure is being performed.  The “direct supervision” standard requires the supervising physician to be “physically present in the office suite and immediately available to furnish assistance and direction” during the time when the  auxiliary personnel is providing the service.

The 2016 Medicare physician payment rule provided some clarification on how the direct  supervision requirement under the “incident to” billing rules operates.  The new rule clarifies that the physician who directly supervises the applicable auxiliary personnel is the only party that can bill the service of the auxiliary personnel as “incident to” his or her service.  CMS considers this to be a clarification of its longstanding policy, but many providers will see this as a new restriction on the application of the “incident to” rules.

To understand the significance of this “clarification,” it is useful to note that more than one physician is often involved in the care of a patient.  It is not uncommon for one physician to visit the patient and order a test or procedure that is supervised by another physician.  Prior to this “clarification,” the physician that originally ordered the service might have billed the service as “incident to” even though another physician actually supervised the performance of the service.  The revised regulatory language clarified that this is not permitted and that only the physician that is actually present in the office suite and supervises the service can bill for the service as “incident to” their service.  When making a claim for services billed “incident to” a physician’s services, the billing number of the physician that actually supervises the performance of the service must be used rather than that of the ordering physician.

CMS clarifies the reasoning behind this rule as follows: “[B]illing practitioners should have a personal role in, and responsibility for, furnishing services for which they are billing and receiving payment as an incident to their own professional service.”

In view of this regulatory clarification, providers may wish to reexamine their billing process and procedures to clarify the correct billing for “incident to” services.  Staff should also be trained on the proper supervision of services that are billed under the “incident to” rules.

False Claims Act Liability – Conditions of Participation and Conditions of Payment

Friday, June 24th, 2016

7th Circuit Law on False Certification Completely Changed Overnight

False claims act supreme courtUp until June 16, 2016, the law in the 7th Circuit was very clear; violations of conditions of participation did not support a potential False Claims Act claim.  Only violation of a specific condition of payment could support potential liability.

That all changed with a decision of the United States Supreme Court that was issued on June 16, 2016.  In a case arising out of the Massachusetts Medicaid program, the Supreme Court held that under the right circumstances, the violation of a condition of participation can give rise to False Claims Act liability.  Universal Health Services v. United States ex rel. Escobar, http://www.scotusblog.com/case-files/cases/universal-health-services-v-united-states-ex-rel-escobar/

In rejecting the distinction between conditions of payment and conditions of participation.  Instead, in the Court’s opinion “what matters is not the label that the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.”

When evaluating the FCA’s materiality requirement, the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive.  A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular requirement as a condition of payment.  Nor is the government’s option to decline to pay if it knew of the defendant’s noncompliance sufficient for a finding of materiality.  Materiality also cannot be found where the noncompliance is minor or insubstantial.

The net effect of the decision is to case uncertainty over the false certification analysis.  At least in the 7th Circuit, prior to the Court’s decision, we at least knew that only failures in condition of payment could support potential False Claims Act liability.  Simple violation’s of conditions of participation could not support such a claim.  Now we are told that violation of a condition of participation can result in a False Claim if it is “material” to the Government’s payment decision.  The standard no requires analysis of each situation under the “materiality” requirement.

People in the health care industry know that violations of conditions of participation happen frequently.  Facilities often receive citations, and must correct deficiencies.  When those deficiencies can result in False Claims is now quite nebulous.

John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
500 First Street, Suite 8000
P.O. Box 8050
Wausau, WI 54402-8050

Tel 715.845.4336
Fax 715.845.2718

Ruder Ware is a member of Meritas Law Firms Worldwide

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