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Posts Tagged ‘False Claims Act’

Dermatology Fraud Risk Areas – Impossibly Long Days

Tuesday, June 27th, 2017

Failure to Supervise and Impossibly Long Days

Payment of $302,000 and Forced Corporate Integrity Agreement – July 2016

fraud and abuse dermatologistsThe government alleged the dermatologist in this case repeatedly billed for services under the “incident to” billing rules during periods when the dermatologist was not present in the office.  Some of the services were allegedly performed when the doctor was traveling out of the country.  The government also alleged the doctor billed for impossibly long days including one day where 26 hours were billed.

This case illustrates the need to comply with the “incident to” billing rules.  Those rules permit a physician extender’s services be billed under the physician in certain circumstances.  In order to qualify to bill incident to, the physician must be physically present within the office suite at the time the extender performs the service.  The physician cannot order the procedure and then leave the office while the procedure is being performed.  There are new Medicare rules clarifying some aspects of the “incident to” billing rules.  There was a previous ambiguity that some providers interpreted as permitting the physician that ordered the service to bill for the services, even though another physician actually supervised the performance of the service.  The rules revision clarified only the supervising physician can bill the services as “incident to” his or her service.  The ordering physician can only bill the service if he or she also supervises the extender.

Credible Information Indicating Overpayment – Duty to Investigate

Tuesday, June 27th, 2017

Addressing Potential Over-payment Situations – Exercising Reasonable Care

known overpayment credible informationThe new final regulations under the 60-day repayment rule, require providers to affirmatively exercise reasonable diligence to identify potential overpayment situations. The obligations to further investigate is triggered 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 the situation further. Failing to use reasonable diligence can result in significant penalties under the False Claims Act (FCA). 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 an 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 FCA. This means 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 relates to when the 60-day time period begins to run. The statute states the 60-day period commences upon “identification” of the overpayment but included no clarification of when a provider is deemed to have identified the existence of 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 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 an overpayment that invokes the statutory requirement. An overpayment exists when the provider receives any funds to which they are not entitled. There is no requirement of an amount threshold, substantiality, or materiality. 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 worth the resources to identify, quantify and repay. When making this determination, it should be kept in mind the FCA will apply if a whistleblower case is brought or a government investigation is commenced and finds the overpayment. FCA 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 FCA potentially attaches, these situations become increasingly complicated to manage. The OIG Self Disclosure process should be considered where potential for significant penalties is present. The Self Disclosure Protocols permit 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 by identifying problems early and by demonstrating the 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.

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,

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.

60 Day Repayment Rule Affordable Care Act

Tuesday, April 22nd, 2014

Overpayments and the Affordable Care Act

The Affordable Care Act mandates providers to return overpayments within 60 days after identification.  Failure to return known overpayments within 60 days of identification subjects the provider to possible claims under the False Claims Act.  Proposed regulations implementing the 60 day repayment rule was released in February of 2012 but have not yet been finalized.  Delays in finalizing regulation does not delay the effective date of the statute.

It is suggested that providers adopt policies to operationalize compliance with the repayment rules.  Providers who act in reckless disregard of overpayments can be subject to the draconian penalties imposed by the False Claims Act.  Reasonable compliance processes that are consistently followed provide the best defense if overpayments fall through the cracks.

Comments to the proposed repayment regulations strongly suggest that providers should take reasonable steps to self examine for potential overpayments.  In order to meet its obligations to take reasonable steps to identify overpayments, providers should adopt self audit and risk identification policies.  Those policies should be systematically followed.  Even though it may not be possible to identify every potential overpayment, the systematic adherence to policies and procedures that are reasonably calculated to identify potential problems in systematically identified areas where risk may occur.

For more information on the steps that you should follow to reduce your risk under the False Claims Act and overpayment statute, feel free to contact health care compliance attorney John Fisher.

New 2013 Self Disclosure Protocols

Wednesday, April 2nd, 2014

An OIG representative spoke about the new revised self disclosure protocols at a recent HCCA seminar that I attended.  The OIG felt it was appropriate to be more transparent regarding the process for self disclosure.  A few points were highlighted in this session:

  1. The OIG held its own feet to the fire by acknowledging the 1.5 damage multiplier when the self disclosure protocol is used.  They will need to justify if they are going to ask for more.
  2. Self disclosure is not admission of liability.  However, you will be required to make a settlement and payment if you make a self disclosure.
  3. Self disclosure is not to be used to get an interpretation of whether your activity was wrongful or whether a law was violated.
  4. Decision not to self disclose leaves you open to potential whistleblower complaints.  False Claims Act potential remains for the ten-year False Claims Act statute of limitation.
  5. Repayment can go to the fiscal intermediary if there is no wrongdoing but there is still an overpayment.
  6. Self disclosure requires disclosure of how your investigation was conducted.  If the investigation was conducted under privilege, you will need to disclose privileged information on investigation under privilege.
  7. The only party that can give you a False Claims Act release is the Department of Justice (“DOJ”).  The DOJ does not have a formal process for obtaining a signoff from the DOJ.  There is an option to go to the DOJ to get a waiver of False Claims Act remedies.
  8. Protocol requires the provider to have done some level of fraud investigation before they self disclose.  OIG likes to see more work done on the front end.
  9. The OIG coordinates with the DOJ on all investigations.  The DOJ may elect to defer or to participate.  If the DOJ participates, there will also be a False Claims Act issue.
  10. Even if you enter a settlement with the OIG, you may still be open to a False Claims Act action by a whistleblower.  However, there would have been a public disclosure which may cut off a potential whistleblower.
  11. OIG does not go to DOJ until they develop the case and know what they are dealing with.
  12. Intent to make calculation of damages simpler.  They now use 100 claim sample to determine damages.  They tend to take the midpoint on damage calculations.
  13. Thirty to forty percent of self disclosures involve excluded parties.  The new protocols includes more detail on how to self disclose based on excluded parties, OIG requires exclusion checks for all providers are required before submitting a self disclosure.
  14. The self disclosure protocols include a formula for calculating damages when there is no direct billing for an excluded party.  The formula includes multiplying the total cost of employment by the payor mix percentage for federal health care programs.

Sixth Circuit Limits False Claims Act Liability

Tuesday, September 17th, 2013

 Regulatory Noncompliance Does Not Equal FCA Liability

False Claims Act Condition of PaymentIn U.S. ex rel. Hobbs v. MedQuest Associates, Inc., the Sixth Circuit recently reversed an $11 million False Claims Act judgment against Medquest, a multi-location diagnostic imaging facility, and declared that the Government’s attempt to use the False Claims Act as a tool to police “false certification” cases was inappropriate.

The Medquest case began in 2006 when a former employee filed a whistleblower suit under the FCA. The Department of Justice soon intervened and asserted two allegations:

  1. Medquest violated Medicare program requirements by allowing unapproved physicians (who were not certified in radiology) to supervise certain testing procedures; and
  2. Medquest inappropriately billed the Medicare program under the prior owner’s billing number instead of obtaining its own.

In a forceful decision that expressed “little sympathy” for Medquest, the Court found that regulations underlying Medicare certifications were not “conditions of payment” and did “not mandate the extraordinary remedies of the FCA.” The Court observed that these violations were “instead addressable by the administrative sanctions available.”

This decision could limit certain FCA cases. It is powerful evidence against those who argue every Medicare regulation enrollment agreement breach or error is a violation of an express or implied condition of payment and creates FCA liability. Instead, if there is no contractual or regulatory language making Medicare payments contingent on fulfilling Medicare enrollment or participation conditions, the Sixth Circuit appears to apply a common sense approach – that FCA’s “extraordinary penalties” should be reserved for more offensive regulatory violations.

False Claims Act Liability For Failure To Repay Overpayment

Wednesday, May 22nd, 2013

False Claims Act Basics – Known Overpayment Become False Claims

overpayment false claims act liability 60 dayThe False Claims Act (“FCA”) provides a very strong enforcement tool to the federal government. The FCA also provides the opportunity for whistleblowers to bring “qui tam” cases and collect a portion of the recovery where false claims are proved against the federal government.

FCA recovery was originally intended to provide a remedy against unscrupulous civil war profiteers. Penalties were enhanced when the FCA was dragged off the shelf in the 1980s in reaction to some of the overpricing of government contracts selling supplies to the federal government.

Recently, the FCA has become one of the government’s prime enforcement tools t o deter fraud in the federal health care programs. Historically, the FCA has been available when a health care provider falsely bills for covered services. Triple damages and an $11,000 per claim penalty provide a strong deterrent in an industry that may make hundreds of claims per day.

Recent legislation has expanded FCA liability to claims that the provider knows resulted in an overpayment if the provider does not make repayment within 60 days of obtaining knowledge of the wrongfully billed amount. Some of the potential applications of this that makes a simple overpayment a false claim has generated much discussion among health care lawyers and compliance officers alike. When an organization is deemed to have knowledge of the overpayment has been the subject of much speculation due to the ambiguities that exist in the new rule.

It may be helpful to frame this discussion by touching on the general requirements that must be met in order to prove any claim under the Federal False Claims Act. The three general elements that must be proved include:

1. The submission of a claim to the federal government. In the health care context, the claim will normally be submitted to a government health program.

2. The claim must be false.

3. The claim must have been submitted knowingly. Actual knowledge that the claim was false will always prove the knowledge requirement. However, a FCA case can also be built around the submission of a claim with “reckless disregard” for its truth or falsity.

Recent health care legislation, in particular the Fraud Enforcement Recovery Act of 2009, greatly expanded the scope of the FCA. The FCA is now applicable to a wide variety of situations that would not have previously been covered. For example, the failure to return an identified overpayment now becomes a false claim. The potential remedies that a provider may face for not promptly repaying known overpayments creates a strong incentive for health care providers to monitor and audit their claims and set up processes that will catch improper billing that could ripen into the FCA.

Reckless disregard or hiding your head in the sand like an ostrich is no longer a way to avoid massive potential FCA liability.

Compliance programs need to be amended appropriately to address the new potential legal and financial risk presented by these new penalties.

False Claims Act and Medicare Conditions of Participation

Monday, April 29th, 2013

Sixth Circuit Finds Limits to False Claims Act 

False Claims Act LimitationsThe sixth circuit court of appeals has found that there are limits to how the False Claims Act can be used to attach health care providers.  The court ruled that the future of an Independent Diagnostic Testing Facility to assure appropriately qualified providers supervised diagnostic tests could not form the basis for a claim under the False Claims Act.

The suit has been in the courts since it was filed by a qui tam complainant in 2006.  The lower court had found that the failure of the facility to assure appropriate supervision made claims for services “false claims” to which the extreme penalties of the Federal False Claims Act could be applied?

The appellate court found that even though the provider’s activities may have violated the conditions of participation for IDTFs, they did not amount to a violation of a “condition of payment.”  Based on the distinction between conditions of participation and conditions of payment, the court refused to apply the False Claims Act.

The extent that other courts will adopt similar reasoning in other types of cases is yet to be determined.  For now, providers can take some assurance in the fact that courts may be willing to find some limitation on the ability of the government to use the rather extreme penalties under the False Claims Act to prosecute every failure to comply with a condition of participation.  Had the court upheld the lower court’s ruling, it could have resulted in significant potential exposure to health care providers who could have been subject to False Claims Act exposure for every nonconformity with conditions of participation.

False Claims Act – Applying the Lincoln Law To Modern Health Care

Monday, January 23rd, 2012

The False Claims Act – Application of the Lincoln Law to the Health Care Industry

 When Congress originally passed the False Claims Act (31 USC §§ 3729-3733), no one had the health care system in mind.  The False Claims Act was also commonly referred to as the “Lincoln Law”.  The original law was focused on unscrupulous vendors who provided overpriced and often faulty supplies to the military during the Civil War.

The law was unique in several ways; not least of which was the creation of “qui tam” rights.  Qui tam provisions permit individuals to bring suit alleging false claims and to retain a portion of the award.  The amount of potential award available to a qui tam claimant depends on whether the government chooses to take over the case after it is brought.

The False Claims Act was strengthened in 1986 in response to some of the much publicized $1,000 toilet seats and other abuses with respect to companies supplying the United States military.  The 1986 amendments to the False Claims Act provided for treble damages plus civil penalties of between $5,000 and $11,000 per claim.  These legislative changes were intended to add real incentive for “qui tam” litigants to bring fraud claims.

The health care industry was never the real target of the False Claims Act.  In fact, when the original “Lincoln Law” was passed in the 1860’s, there was no federal health care program in existence.  From the inception of the False Claims Act through the 1986 amendments, the primary target had been the suppliers to the defense industry.  The defense industry generally makes claims on a monthly or other periodic basis for large amounts of supplies.  Although the 1986 amendments added substantial penalties for making false claims, the impact on the defense industry does not come close to matching the impact on health care providers.

In health care, a single hospital may make hundreds of claims to the federal government per day.  False claim allegations can cover a number of years, greatly increasing the number and value of claims that may be at issue.  When treble damages plus $5,000 to $11,000 per claim are applied on top of the actual amount of a “fraudulent” claim, the obligation amount can become staggering.

The extension of the False Claims Act liability to areas such as Stark Law and Anti-Kickback Statute liability indicate how extreme the sanctions can be.  By way of example, take one physician who is determined to have been compensated at significantly over fair market value.  Assume that the excessive compensation creates a violation of the Anti-Kickback Statute and the Stark Law.  The Affordable Care Act clarified that claims made in violation of these laws create a cause of action under the False Claims Act.  Potential damages would be three times the total value of claims attributable to services of the overpaid physician, plus between $5,000 and $11,000 per claim.  You can see that the potential damages would cause grave financial impact on the hospital.  This is the type of thing that keeps compliance officers awake at night.

Even though the False Claims Act was not originally designed to target the health care industry, there does not seem to be any momentum toward making legislative.  To the contrary, the government is quite content to leave these disproportionate penalties in place as part of its effort to reduce cost of health care (and to generate additional revenues) by assessing astronomical fines against health care providers and to hold these penalties over their heads to force health care providers to take extreme actions to prevent compliance problems.  The government is taking a “return on investment” approach to health care fraud enforcement.  The False Claims Act allows the government to put its thumb on the scale in the “return on investment” game.  The qui tam provisions provide the government with “quasi agents” who may be disgruntled employees or others who can scout out potential claims, bring them to the governments attention, and take a piece of the financial reward.

Providers have only one real way to reduce the disproportionate impact of the False Claims Act on their operations.  This is to create an effective compliance program that proactively detects problems so they can be addressed and corrected before they create excessive risk.  Compliance programs are an outgrowth of the federal sentencing guidelines that permit reduced corporate penalties for fraud if an “effective” compliance program will actually reduce the risk of a violation occurring or depending because it forces the organization to proactively look for compliance problems and correct them before they become insurmountable.  An effective compliance program will also include regular training to staff which also reduces the risk of compliance problems.

The Affordable Care Act made compliance programs mandatory for most health care providers.  Nursing homes are the first to be effected in 2013.  Other types of providers will subject to mandatory compliance programs as regulations are rolled out over the next few years.  Providers will be required to maintain an effective compliance program as a condition of participation in the Medicare program.  It is strongly recommended that all providers begin development of compliance programs now.  It will take time to tailor compliance programs to fit the specific risk areas associated with your business.  You will be required to certify not only that you have established a compliance program, but that the program is effective.

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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