On June 25, 2014, the U.S. Department of Health and Human Services’ Office of Inspector General (“OIG”) released a Special Fraud Alert addressing two increasingly common relationships between clinical laboratories and physicians that may raise fraud and abuse concerns—payments to referring physicians for (i) specimen collection and (ii) data submission/review for laboratory registries. This Special Fraud Alert is likely a response to the increasingly competitive nature of the clinical laboratory industry as a result of downward pressure on reimbursement, new health reform delivery structures and the influx of small esoteric laboratories offering limited, specialized test menus. In this environment the OIG is concerned that some laboratories may be taking steps to win business from referring physicians in potential violation of the Federal Anti-Kickback Statute. Arrangements that are the focus of Special Fraud Alerts are common targets for FCA claims.
Posted by Jaime Jones and Brenna Jenny
Three industry advocacy groups recently filed an amicus brief urging the Supreme Court to provide clear measures of proportionality between misconduct and financial liability under the FCA. See Gosselin World Wide Moving, N.V. v. United States ex rel. Bunk, U.S., No. 13–13–99, amicus brief filed 6/23/14. The Pharmaceutical Research and Manufacturers of American (“PhRMA”), the American Hospital Association (“AHA”), and the U.S. Chamber of Commerce are seeking review of a Fourth Circuit decision upholding a $24 million fine against a government contractor. The penalty was premised on the contractor’s one-time filing of a single false statement in a $3.3 million contract, which the contractor performed with no evidence of economic loss to the government. The industry stakeholders expanded on the appellant’s own arguments, which the Fourth Circuit rejected as we reported here, that this fine violates the Eighth Amendment’s Excessive Fines Clause.
The Fourth Circuit adopted a rigid approach to the imposition of penalties under the FCA, applying a separate penalty to each claim for payment that was tainted by the earlier false statement made during the contracting stage. Despite being mechanical, this approach has created great industry uncertainty. As the amici pointed out, healthcare is one of several sectors disproportionately penalized under this approach, due to the small-value, high volume nature of the claims often submitted to the government.
As the brief details, this issue presents a two-fold circuit split: not only have some courts rejected the application of the Excessive Fines Clause to FCA penalties, but those that have acknowledged Eighth Amendment-based limitations on fines have not adhered to Supreme Court precedent requiring penalties to bear a relationship to the extent of the defendant’s “clearly individualized” acts of fraud, the degree of his culpability, and the harm caused to the government.
We will continue to monitor the important developments in this case and under the Eighth Amendment, and provide updates as appropriate.