Posted by David Rody and Lauren Treadaway
New York lawmakers have sought to fill a perceived gap in the New York State False Claims Act by providing a bounty and legal protections to whistleblowers who provide information for successful claims involving financial wrongs prohibited by state law. NYS Bill No. 4362, which is modeled in part on the New York State False Claims Act, provides new incentives to employees of financial services providers who report employer violations of New York State’s banking, insurance, and financial services laws. Currently, the New York Financial Services Law does not address monetary rewards or legal protection from employer retaliation for whistleblowers who report employer misconduct. Sponsored by New York State Senators James Seward and Joseph Griffo, S4362 would strengthen the current Financial Services Law in two significant ways: (1) by providing financial rewards for employees who disclose employer violations of New York State’s banking, insurance, and financial services laws to the Department of Financial Services (“DFS”); and (2) by including a provision for legal protection against employer retaliation for employees who report such misconduct.
If enacted, S4362 would allow a whistleblower who reports original information to receive between 10 and 30 percent of the total monetary sanctions received by DFS in a successful action against defendant based on the whistleblower’s information. The bill also creates legal protections for whistleblower employees against employer retaliation that mirror the remedies provided by the New York False Claims Act. According to the bill, a whistleblower employee may seek an injunction, reinstatement, backpay, and/or special damages where an employer retaliates against the employer by demoting, suspending, terminating, or harassing the employee. The full text of S4362 can be found here.
Posted by Kristin Graham Koehler and Lauren Roth
In the continuing drama of the Allison Engine case, the Sixth Circuit, last week, revived relators’ “claims” by overturning the District Court decision and further deepening a circuit split on the issue of how to interpret the word “claims” in section 4(f)(1) of the Fraud Enforcement and Recovery Act of 2009 (FERA). Roger Sanders v. Allison Engine Company, Inc. et al., Nos. 10-3818 (6th Cir. Nov. 2, 2012).
Readers will recall that this case began its journey in 1995 with relators’ filing a False Claims Act complaint against several Navy subcontractors. The case went to trial and, at the close of relators’ case, defendants filed a motion for judgment as a matter of law, arguing that relators had failed to produce evidence that any false claim was presented to the Navy. Without evidence of presentment, defendants argued, no reasonable jury could find a False Claims Act violation. The district court agreed. On appeal, however, the Sixth Circuit held that 31 U.S.C. section 3729(a)(2) did not require presentment of a claim to the government. In a unanimous decision, the Supreme Court disagreed, and it held that a person must have intended to get a false or fraudulent claim “paid or approved by the Government” in order to be liable. Dissatisfied with this outcome, Congress revised the statute itself, removing the language from section 3729(a)(2) on which the Court had based its decision and making its revision retroactive for “all claims under the False Claims Act . . . that [were] pending on or after” June 7, 2008 (i.e., two days before the Supreme Court’s Allison Engine decision).
After FERA’s passage, the Allison Engine defendants filed a motion to preclude retroactive application of the amended provisions of False Claims Act section 3729. The district court granted the motion, finding that the retroactivity language in FERA section 4(f)(1)—which arguably had been enacted to address this very case—did not apply. The court’s rationale was grounded in an inconsistent use of terms between FERA section 4(f)(1) and 4(f)(2)—the first provision relating to pending “claims” under the False Claims Act, the second relating to pending “cases.” Among other things, the court reasoned that the differences in terminology between the two sections suggested a Congressional intent to assign different meanings to them. Interpreting “claim” to mean “any request or demand . . . for money or property” (i.e., the definition for False Claims Act section 3729, to which FERA section 4(f)(1) applies), the district court found that although the Allison Engine “case” may have been pending in June 2008, no “claims” were pending. Further, the court reasoned, even if section 4(f)(1) could be read to apply to the pending case, such application would violate the Ex Post Facto clause of the Constitution.
Sixth Circuit Decision
Back to the Sixth Circuit on appeal, the case has taken yet another turn. In its decision last week, the court reversed the district court ruling, holding that “claim” in section 4(f)(1) does mean “case.” (It also held that such application does not violate the Constitution.) While crediting the presumption that Congress uses different words to convey different meanings, the court nevertheless determined that such an argument was undermined in this case. In particular, the court was persuaded by the facts of the FERA drafting process (namely, that the two section 4(f) provisions were drafted by different chambers of Congress at different times) and the fact that other places in the False Claims Act plainly use the term “claim” to mean “civil action or case.” Because the court’s decision put it squarely on one side of a circuit split with the Second and Seventh Circuits—while the Ninth and Eleventh circuits, as well as many district courts, take the opposite view—it remains to be seen whether Allison Engine will take another ride to the Supreme Court before its journey ends.
The Federal False Claims Act (“FCA”) has undergone significant amendments in recent years, through the Fraud Enforcement and Recovery Act (“FERA”) in 2009 and the Patient Protection and Affordable Care Act (“PPACA”) in 2010. For states to remain eligible to receive a 10% bonus on Medicaid-related false claims recoveries, federal law requires in part that “the [state] law contains provisions that are at least as effective in rewarding and facilitating qui tam actions for false or fraudulent claims” as the FCA. 42 U.S.C. § 1396(h) (2012). On September 29, 2012, California Governor Jerry Brown signed into law Assembly Bill 2492, which aims to further align the California False Claims Act (“CFCA”) with the FCA and thus preserve bonuses for the state in connection with Medicaid-related false claims recoveries.
Among the new key provisions of the amended CFCA are the following:
1. Scope of Potential Whistleblowers: The previous version of the CFCA barred suits by a whistleblower based on publicly disclosed allegations, unless the whistleblower had “direct and independent” knowledge of the allegations and had provided the information that led to the public disclosure. The amended CFCA allows a whistleblower to proceed with a lawsuit based on allegations that had been publicly disclosed if the Attorney General opposes dismissal of the whistleblower’s claims, if the whistleblower had disclosed to the state or relevant political subdivision the information on which the lawsuit is based prior to the public disclosure, or if the whistleblower’s knowledge is independent of and “materially adds” to the public information and he or she voluntarily provided the information to the state or political subdivision before filing suit.
2. Involvement in Wrongful Conduct: The amended CFCA no longer bars recovery for whistleblowers who “actively participated in the fraudulent activity.” Instead, it now provides for a more lenient standard by granting a court discretion to determine whether to reduce recovery and then only for persons who “planned and initiated” the fraudulent conduct. Even a whistleblower who “planned and initiated” the scheme may receive up to 33% or 50% of the recovery, depending on whether the state intervenes in the action. The import of this change is best illustrated (albeit under a different statutory scheme) by Bradley Birkenfeld, a former UBS banker who provided information to the government that led to UBS entering into a deferred prosecution agreement for tax fraud charges and paying $780 million in penalties. As a result, Mr. Birkenfeld received a $104 million award under the IRS whistleblower program despite his participation in the underlying fraudulent conduct. Under the previous version of the CFCA, a whistleblower involved in the fraud would have been barred from any recovery and therefore without any monetary incentive to report fraudulent activity. Now, individuals who are actual participants in fraudulent activity have a considerable incentive to report false claims under the amended CFCA.
3. Enhanced Whistleblower Protections: The amended CFCA now provides for reinstatement of employment as an additional remedy for employees who suffered retaliation by their employers. Moreover, this protection now extends to employees who “engaged in efforts to stop one or more [false claims] violations” in addition to employees who acted “in furtherance” of a false claims action.
4. Increased Penalties: The amended CFCA increases the low and high end of the civil penalty range by $500, i.e. from $5000 – $10,500 to $5,500 – $11,000.
The Supreme Court this morning announced that the so-called “individual mandate,” the centerpiece of the Patient Protection and Affordable Care Act (PPACA), which requires most individuals to maintain a minimum level of health insurance, is a constitutional exercise of Congress’s power to tax. Separately, the Court held that a provision of PPACA that would penalize States that elected not to participate in the expansion of the Medicaid program by withdrawing their existing federal Medicaid funding is unconstitutional. However, the Court concluded that this violation can be cured by severing this provision from the rest of the law, leaving the remainder of PPACA standing.
Thus, those False Claims Act and Anti-Kickback Statute-related amendments enacted as part of PPACA, briefly listed here, remain standing: (1) the amendment to the AKS establishing that claims “resulting from” AKS violations that are submitted to the federal healthcare programs give rise to FCA liability (PPACA § 4204(f)(1)); (2) the further AKS amendment, clarifying that knowledge of and specific intent to violate the AKS are not necessary to establish a violation (PPACA § 6402(f)(2)); (3) amendments to the FCA’s “public disclosure bar” provision that convert it from a jurisdictional bar to an affirmative defense that can be raised by a defendant in a motion to dismiss but rejected by the government, precluding judicial resolution of the issue, and significantly limiting the types of disclosures that can give rise to the defense (PPACA § 10104(j)(2)); (4) requiring recipients of “overpayments” to report and return them, and making the failure to do so the basis of a “reverse false claim” cause of action under the FCA (PPACA § 6402(a)); and (5) creating additional civil monetary penalties that may be applied to conduct that violates the FCA (PPACA §§ 6402(d)(2), 6408(a)).
The opinion is available at http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf
On June 18, the Department of Health and Human Services Office of the Inspector General (“OIG”) announced plans to revise its Provider Self-Disclosure Protocol (“SDP”) and asked for public comment and recommendations on potential changes. The SDP, originally adopted in 1998, allows healthcare providers to disclose actual or potential fraud to the OIG in effort to expedite the resolution of any potential claims and conserve the OIG’s limited investigative resources. The SDP provides healthcare entities with guidance not only on the proper disclosure procedure, but on conducting an internal investigation, estimating the financial impact and liability, and cooperating with the OIG throughout the process.
According to the OIG, it has settled over 800 matters in the past 14 years through the SDP process, resulting in more than $280 million in recovery to the federal healthcare programs. These matters often involved healthcare entities reporting the employment of individuals excluded from the federal healthcare programs or disclosing potential kickbacks. For healthcare entities, the possible benefits of the SDP include avoiding an enforcement action under the False Claims Act, the Anti-Kickback Statute, or other relevant law; the presumption against Corporate Integrity Agreements that accompanies the SDP; and settling claims for less than may otherwise occur through civil litigation.
The OIG now hopes to revise the SDP to “address relevant issues” and “provide useful guidance to the healthcare industry.” To similar ends, the OIG previously issued three open letters in 2006, 2008, and 2009 to encourage use of the SDP, clarify its requirements, and expedite the process. This, however, will be the first revision to the SDP itself.
A copy of the OIG’s announcement can be found here. Comments are due by August 17, 2012.
The U.S . Department of Health and Human Services has released its Fiscal Year 2013 “Budget in Brief,” an overview of how HHS proposes to spend the close to $1 billion in budget authority for HHS requested in President Obama’s 2013 budget request. Program integrity is a top priority, with HHS noting that over the last three years, Health Care Fraud and Abuse Control (which comprises $610 million of the budget request) has produced a “return on investment” of $7.20 for every dollar spent. Among the key initiatives these funds will support are a continued emphasis on improper fee-for-service payments by Medicare, expansion of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) task forces, and “an increased focused on civil fraud, such as off-label marketing and pharmaceutical fraud.” (page 62).
On February 16, 2012, the Centers for Medicare and Medicaid Services (“CMS”) released a long-awaited proposed rule (“Proposed Rule“) to implement the overpayment reporting and refund provisions of the Patient Protection and Affordable Care Act (“PPACA”), which are enforceable in a “reverse false claims” action under the False Claims Act.
Under section 6402 of PPACA, providers and suppliers who have been overpaid by Medicare or Medicaid must report and return the overpayment within the later of: (1) 60 days of the date on which the overpayment is “identified;” or (2) the date any corresponding cost report is due, if applicable, or face reverse false claims liability under the FCA. Although the duty to report and return an overpayment is triggered, in the alternative, from the date the overpayment is “identified,” Congress did not define “identified.” The Proposed Rule defines the term by reference to the FCA’s scienter provisions. Specifically, the Proposed Rule would deem an overpayment to be “identified” when the person has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the overpayment, which is how the FCA defines a “knowing” violation of the Act. This standard mirrors that provided in the CMS’ Physician Payment Sunshine Act proposed rule whereby an applicable manufacturer must report payments or transfers of value to a covered recipient when the applicable manufacturer has actual knowledge of or acts in reckless disregard or deliberate ignorance of the identity of the covered recipient.
According to CMS, it incorporated the FCA’s mens rea standard to incentivize providers and suppliers “to exercise reasonable diligence to determine whether an overpayment exists.” In particular, CMS stated that the provision is designed to prevent providers and suppliers from avoiding their obligation to identify potential billing issues through, e.g., self-audits or compliance checks. The Proposed Rule does not otherwise provide guidance as to what steps providers should take to uncover potential billing issues, beyond the requirement to exercise “reasonable diligence,” and that investigations, once initiated, should be conducted “with all deliberate speed.” As evidenced by the case law interpreting the FCA’s “knowingly” standard , there is ample room for CMS and providers and suppliers to disagree regarding whether providers and suppliers have exercised “reasonable diligence” to identify potential overpayments.
Increasing the stakes for providers and suppliers in the event that they fail properly to “identify” an overpayment is the Proposed Rule’s adoption of an FCA-like 10-year “look-back” period. This provision requires providers and suppliers (and allows CMS and qui tam relators) to review any potential overpayments in the prior 10-year period (in contrast to the existing four year CMS reopening period and the three year Recovery Audit Contractor “look back” period). The 10 year look-back period obviously raises the spectre of significant financial liability for providers and suppliers.
As for how overpayments are to be reported, the Proposed Rule adopts CMS’ existing process for voluntary refunds, renamed the “self-reported overpayment refund process” set forth in Publication 100-06, Chapter 4 of the Medicare Financial Management Manual. CMS states that it intends to publish a new form specifically for reporting overpayments under PPACA.
The Proposed Rule also clarifies the relationship between the government’s various self-reporting mechanisms. First, if a provider or supplier reports a violation of the Stark Law through the Medicare Self-Referral Disclosure Protocol, this suspends the obligation to return overpayments, but not to report. In contrast, a provider’s or supplier’s report of potential fraud through the OIG Self-Disclosure Protocol1 both suspends the obligation to return overpayments once the OIG has acknowledged receipt of the submission,2 and constitutes a report for purposes of the Proposed Rule, provided such notification is consistent with the proposed deadlines.
CMS also offers guidance on what constitutes “overpayments” in the context of an alleged violation of the Federal Anti-Kickback Statute (“AKS”). The Proposed Rule notes that that while some overpayments may arise from potential violations of the AKS, third parties to the kickback arrangement do not have a duty to report or return such overpayments unless they have “sufficient knowledge of the arrangement to have identified the resulting overpayment.” In that case, the third party must report the overpayment to CMS, but only the parties to the kickback scheme would be expected to return the overpayment and not the innocent third-party provider or supplier, “except in the most extraordinary circumstances.” While the rule does not expressly apply to manufacturers, this proposed interpretation seems to establish a clear link between claims “tainted” by manufacturer kickbacks and “overpayment” liability. A separate post on this topic will be forthcoming.
While the Proposed Rule expressly applies only to Medicare Part A and B providers and suppliers, and is not final, CMS “remind[s] all stakeholders that even without a final regulation,” they “could face potential False Claims Act liability . . . for failure to report and return an overpayment.”
Comments on the Proposed Rule are due by April 16, 2012.
1 Id. at 9,182.
2 Id. at 9,183.
Posted by Patrick E. Kennell III and Ellyce R. Cooper
On January 31, 2012, the Department of Justice celebrated the 25th anniversary of the 1986 Amendments to the False Claims Act with speeches by Attorney General Eric Holder, Assistant Attorney General Tony West, and Members of Congress. The celebration also included a panel discussion entitled “$30 Billion, 25 Years: The False Claims Act in Review.” The DOJ used the occasion to celebrate its recent accomplishments and to describe its future enforcement efforts.
In press releases sent out to mark the occasion, the DOJ noted the following successes:
- “Since [the 1986] changes were enacted, the Justice Department has recovered more than $30 billion under the act.”1
- “Since January 2009, the department has recovered $8.8 billion under the False Claims Act – the largest three-year total in the Justice Department’s history, and 28 percent of all recoveries since the False Claims Act was amended in 1986.”2
- $6.6 billion of the amounts recovered since January 2009 have been from healthcare fraud recoveries.3
- “[F]or every dollar Congress has provided for healthcare enforcement over the past three years, the Departments of Justice and Health and Human Services have recovered nearly seven.”4
- “In FY 2011 alone, the Department of Justice secured more than $3 billion in settlements and judgments in civil cases involving fraud against the government.”5
- “Whistleblowers have filed nearly 8,000 actions – including a record high of 638 in the past year alone.”6
The DOJ also noted a series of key settlements including:
- $2.3 billion – Pfizer Inc. (2010);
- $1.7 billion – Columbia/HCA I & II (2000 and 2003);
- $1.415 billion – Eli Lilly and Company (2009);
- $950 million – Merck Sharp & Dohme (2011);
- $923 million – Tenet Healthcare Corporation (2006);
- $875 million – TAP Pharmaceuticals (2002);
- $750 million – GlaxoSmithKline (2010);
- $704 million – Serono, S.A. (2005).
- $650 million – Merck (2008); and
- $634 million – Purdue Pharma (2007).7
In his speech, Attorney General Eric Holder stated that the DOJ is committed to “aggressively utilizing” the FCA to combat fraud and that the past successes of the DOJ “represent a wide-ranging effort to eradicate the scourge of fraud from some of government’s most critical programs.”8 Attorney General Holder also noted that “in these challenging economic times” the DOJ’s mandate to “aggressively pursue those who would take advantage of their fellow citizens – has never been more clear or more urgent.”9 Finally, Attorney General Holder stated that “the strength of our resolve is equal to the breadth of our mandate.”10 Likewise, Assistant Attorney General for the Civil Division, Tony West indicated that “Attorney General Eric Holder, has made fighting fraud – particularly healthcare fraud – a top priority.”11
It is clear from the remarks at this celebration that the recent increase in civil and criminal FCA actions will continue for the foreseeable future.12 It also remains evident that the healthcare sector continues to be a focus of the DOJ’s enforcement efforts, although it also continues to pursue other industries. The increase of whistleblower FCA cases during this past year also evidences the increased awareness of the FCA by employees of companies that deal with government funding in some way. Corporations and individuals should continue to have extensive compliance programs in place to ensure that the DOJ does not target them as part of the DOJ’s “aggressive pursu[it]” of government fraud related actions using the DOJ’s broad mandate.
1 Press Release, United States Department of Justice, Justice Department Celebrates 25th Anniversary of False Claims Act Amendments of 1986 (Jan. 31, 2012), available at http://www.justice.gov/opa/pr/2012/January/12-ag-142.html.
3 Press Release, United States Department of Justice, Assistant Attorney General Tony West Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986 (Jan. 31, 2012), available at http://www.justice.gov/iso/opa/civil/speeches/2012/civ-speech-120131.html.
5 Press Release, United States Department of Justice, Justice Department Celebrates 25th Anniversary of False Claims Act Amendments of 1986 .
6 Press Release, United States Department of Justice, Attorney General Eric Holder Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986 (Jan. 31, 2012), available at http://www.justice.gov/iso/opa/ag/speeches/2012/ag-speech-120131.html.
7 Press Release, United States Department of Justice, Justice Department Celebrates 25th Anniversary of False Claims Act Amendments of 1986.
8 Press Release, United States Department of Justice, Attorney General Eric Holder Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986.
11 Press Release, United States Department of Justice, Assistant Attorney General Tony West Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986.
12 For a detailed accounting of DOJ Fraud Statistics, see Department of Justice, Fraud Statistics Overview (Dec. 7, 2011, 2:47 PM), http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf.
On March 26–28, 2012, the Supreme Court will hear oral argument on various challenges to the Affordable Care Act (ACA), the federal health reform legislation enacted in March 2010. Two laws comprise the ACA: the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act of 2010. While the vast bulk of the political debate surrounding the ACA involves the individual health insurance mandate and Medicaid expansion provisions, these are only two components of a law that the Eleventh Circuit Court of Appeals described in its underlying opinion as “contain[ing] hundreds of new laws about hundreds of different areas of health insurance and health care.” Florida v. DHHS, Nos. 11-11021 & 11-11067, Slip Op. at 22 (11th Cir. Aug. 12, 2011). In this light, one of the most significant issues before the Supreme Court is whether the remainder of the ACA’s provisions are severable from any provisions that may be deemed unconstitutional.
Of particular import to companies affected by the False Claims Act (FCA) and the Anti-Kickback Statute (AKS), among the ACA’s hundreds of provisions are amendments to the FCA and the AKS that expand the scope of liability and restrict the “public disclosure” defense under the FCA. For example, the ACA:
- Amends the AKS to provide that any claim submitted to a federal healthcare program for items or services “resulting from” a violation of the AKS constitutes a “false or fraudulent claim” under the FCA. PPACA § 6402(f)(1) (adding a new subsection (g) to 42 U.S.C. § 1320a-7b).
- Eliminates the need to prove specific intent and actual knowledge to establish an AKS violation. PPACA § 6402(f)(2) (adding a new subsection (h) to 42 U.S.C. § 1320a-7b).
- Limits the public disclosure bar by (a) restricting the scope of materials that qualify as public disclosure, (b) making it easier for relators to qualify as an “original source,” and (c) eliminating public disclosure as a subject-matter-jurisdictional bar and instead giving the Government veto power over any motion to dismiss based on public disclosure. PPACA § 10104(j)(2) (amending 31 U.S.C. § 3730(e)).
- Imposes an affirmative obligation on recipients of overpayments to report and return those overpayments or face liability for “reverse false claims.” PPACA § 6402(a) (adding 42 U.S.C. § 1320a-7k, including subsection (d) regarding overpayments).
- Establishes new civil monetary penalties of up to $50,000 per violation for conduct that is also actionable under the FCA. PPACA §§ 6402(d)(2) and 6408(a) (adding new CMPs under 42 U.S.C. § 1320a-7a(a)).
In the Eleventh Circuit’s 2-1 decision, the appeals court ruled that the ACA’s individual mandate is unconstitutional. Crucially, however, the court found this provision severable from the rest of the law. In so ruling, the Eleventh Circuit stated that “the lion’s share of the [ACA] has nothing to do with private insurance, much less the mandate that individuals buy insurance.” See Slip Op. at 192. Accordingly, under the Eleventh Circuit’s analysis, the rest of the ACA’s provisions could remain intact even if the individual mandate component falls.
The law’s challengers, including 26 states, do not agree; they have told the Supreme Court that the entire law must be struck if the individual mandate is held unconstitutional. Likewise, the federal government does not completely agree with the Eleventh Circuit’s view of severability, either. In its Supreme Court brief responding to the severability question, filed January 27, 2012, the federal government makes two arguments—neither of which asserts that the individual mandate provision is severable from all of the ACA’s other provisions. First, the federal government argues that the Supreme Court should not address the merits of the severability issue in this case, because the petitioners lack standing to challenge the validity of most of the law’s provisions. Should the Justices reach the merits of this issue, however, the federal government further argues that, if the individual mandate falls, so must two particular insurance reform provisions: (1) guaranteed issue, which requires insurers to provide coverage to all comers and prohibits discrimination based on preexisting medical conditions; and (2) community rating, which prohibits plans from charging higher premiums based on applicants’ experiences or characteristics, except for limited variances based on the applicant’s age, where the applicant resides, whether the applicant uses tobacco, and whether the policy covers individuals or families. Under the federal government’s position, only these two provisions—not the entire law—should be struck if the individual mandate is found unconstitutional.
To ensure that the arguments in favor of “full” severability get a full hearing, the Supreme Court appointed an attorney, who does not represent either of the parties to the case, to argue the position that the rest the ACA provisions (including guaranteed issue and community rating) can survive even if the individual mandate does not. (Another appointed attorney will address yet another question: whether the entire case is premature for judicial consideration under the Anti-Injunction Act (26 U.S.C. § 7421(a)).)
If the Supreme Court ultimately agrees with the Eleventh Circuit that the individual mandate is unconstitutional, but holds that the provision is not severable, the entire law would be struck down as unconstitutional. Such a ruling would “undo” the multitude of corollary provisions, which have received less public attention. While it also is possible that the Supreme Court will not reach the severability question in its decision later this year on the fate of the ACA, entities subject to the FCA—and, indeed, anyone affected by the ACA’s “hundreds of provisions”—should appreciate just how much is at stake in the pending decision beyond the provisions at focus in current media coverage.
President Obama recently signed into law two pieces of legislation that, together, represent the most comprehensive reform that the U.S. healthcare system has seen in decades.1 In addition to providing for sweeping changes to health insurance coverage, healthcare delivery, and healthcare funding mechanisms, these laws substantially expand the government’s investigative and enforcement authority in connection with healthcare fraud and abuse. Additionally, the new laws include increased penalties for fraud and abuse in several contexts, as well as heightened disclosure and compliance obligations for providers, manufacturers, and other entities as part of government efforts to reduce fraud and to increase transparency.
This update highlights the key provisions of the new laws pertaining to anti-fraud and pro-transparency initiatives. Several of these new enforcement risks and compliance obligations take effect immediately or within one year, so affected entities will need to familiarize themselves with these provisions and plan for their implementation accordingly.
Enhanced Enforcement of Fraud and Abuse Laws
Expanded Applicability of the False Claims Act (FCA).
The PPACA extends the scope of payments subject to the FCA in two significant ways. First, it amends the Anti-Kickback Statute (AKS) to state that any claims for items or services “resulting from” a violation of the AKS also constitute a “false or fraudulent claim” under the FCA. Second, the PPACA extends the FCA to any payments made “by, through, or in connection with” any of the state-based health insurance exchanges created by the PPACA to assist individuals in finding affordable and available coverage, if such payments include any federal funds.
Additionally, the PPACA amends the FCA’s “public disclosure” bar in several ways. First, it limits the scope of relevant disclosures in government reports or investigations to those that occur at the federal level. Second, it eliminates language that previously described public disclosure as a matter implicating the court’s subject-matter jurisdiction, and authorizes the government to permit a complaint that otherwise would violate the public disclosure bar to proceed. Third, it expands the scope of individuals who qualify as an “original source” to include any person who “has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.”
Affirmative Obligation To Report and Return Overpayments.
The PPACA imposes on recipients of overpayments an affirmative obligation to report and return the overpayment on the later of (a) 60 days after the overpayment is “identified,” or (b) the date any corresponding cost report is due, if applicable. Any overpayment retained after the applicable deadline is an “obligation” under the civil FCA statute, and therefore subject to a repayment obligation. For purposes of this requirement, the PPACA defines the term “overpayment” as “any funds that a person receives or retains under title XVIII or XIX [of the Social Security Act] to which the person, after applicable reconciliation, is not entitled under such title.”
The PPACA requires that any “person” receiving an overpayment must “report and return the overpayment to the Secretary, the State, an intermediary, a carrier, or a contractor, as appropriate, at the correct address”, and must notify the returnee “in writing of the reason for the overpayment.” The term “person” includes a provider of services, supplier, Medicaid managed care organization, Medicare Advantage organization, or Part D prescription drug plan sponsor; it does not include a beneficiary.
Lowered Intent Standard Under the Anti-Kickback Statute (AKS).
The PPACA amends the AKS to overrule court decisions holding that, in order to be criminally liable under the AKS, an individual must have actual knowledge of and the specific intent to violate the AKS. Specifically, the PPACA amends section 1128B of the Social Security Act (which includes the AKS) to state that “[w]ith respect to violations of this section, a person need not have actual knowledge of this section or specific intent to commit a violation of this section.”
Stronger Tools for Criminal Enforcement.
In addition to establishing a lowered intent requirement under the AKS, the PPACA amends the federal healthcare fraud statute (18 U.S.C. § 1347) to state explicitly that, “[w]ith respect to violations of this section, a person need not have actual knowledge of this section or specific intent to commit a violation of this section.” It also amends the definition of a “federal healthcare fraud offense” (18 U.S.C. § 24(a)) to include violations of the AKS—and also to include violations of section 301 of the Food, Drug, and Cosmetic Act (21 U.S.C. § 331) (FDCA) or section 501 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1131). As a result, an FDCA violation potentially can trigger certain enforcement-related authorities under title 18, including the use of administrative subpoenas under section 3486 and criminal forfeiture authorities under section 982, as well as providing a new basis to be prosecuted for money laundering under section 1956 or obstruction of justice under section 1518.
Additionally, the PPACA includes substantial enhancements to federal sentences for violations of healthcare fraud under the advisory U.S. Sentencing Guidelines. In particular, the law requires the U.S. Sentencing Commission to amend the federal sentencing guidelines to provide that, when a court is calculating the amount of intended loss by the defendant in an action for healthcare fraud, the “aggregate dollar amount of fraudulent bills” submitted to a government healthcare program “shall constitute prima facie evidence” of the loss amount. The PPACA also sets forth new offense-level multipliers for government losses related to federal healthcare offenses.
Expanded Administrative Remedies
New Civil Monetary Penalties (CMPs).
The PPACA also includes several provisions creating new or increased CMPs, including the following:
- A $50,000 penalty for any false statement, misrepresentation, or omission in applications, bids, or contracts to participate as a provider or supplier under any federal healthcare program. The $50,000 penalty would apply to each violation, plus up to three times the damages for such claims.
- A $10,000 penalty for any excluded individual or entity who orders or prescribes a covered item or service under a federal healthcare program during the period of exclusion, or who “knows or should know that a claim” for such item or service will be made under a federal healthcare program.
- A $10,000 penalty for any person who knows of an overpayment and does not report and return the amount due.
- A $15,000 penalty for any failure to grant timely access to the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) “for the purposes of audits, investigations, evaluations, or other statutory functions of” the OIG. The $15,000 penalty can be assessed for each day of delayed access.
- A $50,000 penalty (per violation) for conduct that is also actionable under the FCA.
New CMPs are also created under provisions of the PPACA and Reconciliation Act that establish the Medicare Part D “coverage gap discount program” starting in 2011. Under this program, manufacturers must sign an agreement with the Secretary and provide 50% discounts on covered drugs provided to beneficiaries who are in the coverage gap. As part of their participation in the coverage gap discount program, manufacturers are subject to audits by the Secretary to ensure that they are satisfying the terms of their agreements, and are subject to CMPs if they fail to provide beneficiaries with the discounts required. The penalty amount can be up to 125% of the total amount the manufacturer was obligated to provide in coverage gap discounts.
The PPACA amends section 1128(b)(2) of the Social Security Act (SSA) to authorize permissive exclusion for, among other things, obstructing an investigation or audit. Under pre-PPACA law, this provision permitted exclusion only for obstructing certain criminal investigations.
The PPACA also extends permissive exclusion authority under SSA section 1128(b) to “[a]ny individual or entity that knowingly makes or causes to be made any false statement, omission, or misrepresentation of a material fact in any application, agreement, bid, or contract to participate or enroll as a provider of services or supplier under a Federal healthcare program”, including Medicare Advantage organizations under Part C, prescription drug plan sponsors under Part D, Medicaid managed care organizations, and other “entities that apply to participate as providers of services or suppliers in such managed care organizations and such plans.”
To enhance Medicaid integrity, PPACA requires states to terminate individuals or entities from their Medicaid programs if the individual or entity has been terminated from Medicare or from the Medicaid program of another state. Further, the PPACA requires Medicaid agencies to exclude individuals or entities from Medicaid participation for a specified period of time if the entity or individual “owns, controls, or manages an entity that (or if such entity is owned, controlled, or managed by an individual that)” is suspended, excluded, or terminated, or is “affiliated with” an individual or entity that has been excluded, suspended, or terminated.
Suspension and Withholding of Payments.
Substantially expanding the authority of the Secretary of the Department of Health and Human Services (HHS), the PPACA permits the Secretary to “suspend payments to a [Medicare] provider of services or supplier . . . pending an investigation of a credible allegation of fraud against the provider of services or supplier, unless the Secretary determines there is good cause not to suspend such payments.” The Secretary is required to consult with the HHS Office of Inspector General (OIG) in determining whether there is a “credible allegation of fraud” against a provider of services or supplier, and to issue implementing regulations to carry out this provision.
Further, the Reconciliation Act allows the Secretary to withhold payments to new suppliers of durable medical equipment (DME) for up to 90 days if the Secretary determines the supplier is operating in an area with significant levels or risks of fraud and abuse among DME suppliers. The Reconciliation Act refers to this 90-day withholding period as an “enhanced oversight” period.
Revocation of Enrollment.
Effective as of January 1, 2010, the PPACA allows the Secretary to revoke enrollment for up to one year for any home health provider or DME supplier that fails to maintain documents substantiating claims for items or services, or that fails to provide the Secretary with access to such documentation upon request. This provision applies to orders, certifications, and referrals made by physicians, home health providers, and DME suppliers.
Enhanced Authority and Access for the OIG and Department of Justice (DOJ).
The PPACA requires the HHS Secretary to maintain an “Integrated Data Repository” with claims and payment data for all major federal healthcare programs, including Medicare Parts A, B, C, and D; Medicaid; the Children’s Health Insurance Program (CHIP); and any health-related programs administered by the Departments of Veterans Affairs and Defense, the Social Security Administration, and the Indian Health Service. Further, this section expressly provides that the OIG and DOJ shall have access to this data “[f]or purposes of conducting law enforcement and oversight activities”, to the extent that such access is consistent with regulations promulgated under the Health Insurance Portability and Accountability Act of 1996.
In addition, the PPACA specifies that the OIG’s authority to obtain information extends to any person or entity who “directly or indirectly provides, orders, manufactures, distributes, arranges for, prescribes, supplies, or receives medical or other items or services payable by any Federal healthcare program (as defined in [SSA] section 1128B(f)) regardless of how the item or service is paid for, or to whom such payment is made.” In connection with this authority, the OIG is authorized to access any documents necessary to validate claims, including medical records and any other “records necessary for evaluation of the economy, efficiency, and effectiveness of” federal healthcare programs.
The PPACA also expands the government’s subpoena power by allowing for physical access by DOJ to any institution, and its books and records, where the institution “is the subject of an investigation under [the Civil Rights of Institutionalized Persons Act (42 U.S.C. § 1997 et seq.)] to determine whether there are conditions which deprive persons residing in or confined to the institution of any rights, privileges, or immunities secured or protected by the Constitution or laws of the United States.”
340B Integrity Amendments
The PPACA adds a new subsection (d) to section 340B of the Public Health Service Act (42 U.S.C. § 256b). The new subsection includes important provisions regarding manufacturer compliance (including new CMPs), covered entity compliance, and the administrative dispute resolution process. These amendments to the 340B program take effect as of January 1, 2010, and apply to drugs purchased on or after that date.
The manufacturer compliance provisions are designed to prevent overcharges and other violations of the discounted pricing requirements in section 340B through various regulatory mechanisms, such as the publication of more precise guidelines by the HHS Secretary. The provisions also authorize the Secretary to conduct spot checks of manufacturers and wholesalers, and to establish procedures for manufacturers to issue refunds to covered entities in the event of an overcharge.
The 340B integrity amendments impose sanctions in the form of CMPs on any manufacturer with an agreement under 340B that “knowingly and intentionally charges a covered entity a price that” exceeds the applicable 340B ceiling price. The CMPs would be assessed “according to standards established in regulations to be promulgated by the Secretary not later than 180 days after the date of enactment” and would be capped at $5,000 per instance of overcharging a covered entity.
Covered Entity Compliance.
The provisions regarding covered entity compliance call for clarification of covered entity requirements through “more detailed guidance” from the agencies that administer the program. This section also sets forth sanctions, in the form of interest payments to manufacturers, where covered entities knowingly and intentionally violate their 340B program requirements. Further, if the Secretary determines that a covered entity’s violations are “systematic and egregious as well as knowing and intentional,” the Secretary may remove the covered entity from the 340B drug discount program and may prohibit re-entry “for a reasonable period of time”- also to be determined by the Secretary.
Dispute Resolution and “Must Offer” Language.
The PPACA also provides for the replacement of the informal and involuntary alternative dispute resolution (ADR) process established under prior guidance from the Health Resources and Services Administration (HRSA), the agency responsible for administering the 340B program, by authorizing new regulations providing for a binding ADR process to adjudicate and make final determinations regarding complaints about non-compliance by covered entities or manufacturers. Covered entities would be afforded at least some discovery during these administrative proceedings. Notably, manufacturers would still be required to conduct the rather time-consuming and cumbersome audit process under the existing HRSA guidance before proceeding with the ADR process.
Additionally, the PPACA includes language requiring manufacturers to “offer” covered outpatient drugs to 340B covered entities if such drug “is made available to any other purchaser at any price.” The Administration has indicated that the intent of this language is simply to codify existing HRSA guidance requiring manufacturers to treat 340B covered entities in a non-discriminatory manner as compared to entities that do not participate in the 340B program. It remains to be seen, however, exactly how the language will be interpreted and enforced moving forward.
&llt;P>Transparency: New Reporting and Disclosure Obligations
Physician Payments “Sunshine” Provisions.
Reflecting heightened public attention in recent months to financial relationships between physicians and industry, the PPACA requires drug, device, biological, and medical supply manufacturers to submit annual, electronic reports to HHS disclosing any “payment or other transfer of value” made to a physician and/or teaching hospital. It also requires applicable manufacturers and group purchasing organizations (GPOs) to submit annual, electronic reports regarding any ownership or investment interest (other than publicly traded securities and mutual funds) held by a physician, or immediate family member of a physician, in the applicable manufacturer or GPO.
This provision of the PPACA codifies many aspects of what had previously been introduced as a stand-alone bill sponsored by Senators Charles Grassley (R-IA) and Herb Kohl (D-WI), known as the “Physician Payments Sunshine Act” (S. 301). As enacted, the provision defines an applicable “manufacturer of a covered drug, device, biological, or medical device supply” as:
any entity which is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply (or any entity under common ownership with such entity which provides assistance or support to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological, or medical supply).
The first required “transparency reports” are due March 31, 2013, and must cover all payments or other transfers of value made, and all ownership and investment interested existing, during calendar year 2012.
These reports must include, for each payment or transfer of value:
- the name and business address of the covered recipient;
- the amount of the payment or other transfer of value;
- a description of the form of the payment or other transfer of value (e.g., cash or cash equivalent; in-kind items or services; stock, stock options, or other ownership or investment interests);
- the dates on which the payment or transfer of value was made; and
- a description of the nature of the payment or transfer of value (e.g., consulting fees, compensation for non-consulting services, grant, gift, entertainment, education, research, etc).
For payments or other transfers of value related to marketing, education, or research specific to a particular covered drug, device, biological, or medical supply, the report also must include the name of the covered product. Additionally, the statute permits the Secretary to determine additional appropriate categories of information to be required in the reports.
Importantly, several types of transactions are excluded from the statute’s definition of a covered “payment or other transfer of value”, including (among others):
- A transfer of anything valued under $10, unless the aggregate amount transferred to, requested by, or designated on behalf of the covered recipient by the applicable manufacturer in the calendar year exceeds $100. (For calendar years after 2012, these dollar amounts will be indexed to the consumer price index for all urban consumers.)
- Product samples that are not intended to be sold and are intended for patient use.
- Educational materials that directly benefit patients or are intended for patient use.
- Short-term loans for a covered device, unless the trial period exceeds 90 days.
- Discounts (including rebates).
- In-kind items used for the provision of charity care.
With respect to manufacturers’ and GPOs’ required annual disclosures of ownership or investment interests (other than publicly traded securities and mutual funds) held by a physician, or immediate family member of a physician, these reports must include:
- the dollar amount invested by each physician (or family member) holding such an ownership or investment interest;
- the value and terms of each such ownership or investment interest;
- any payment or other transfer of value provided to a physician holding an ownership or investment interest; and
- any other information regarding the ownership or investment interest that the HHS Secretary deems appropriate.
Any information reported under this provision must be made publicly available by no later than September 30, 2013, and on June 30 of each calendar year thereafter. Public availability must be provided through a searchable Internet website and in a format that is clear, understandable, and “able to be easily aggregated and downloaded.” Publicly available reports also must contain background information on industry-physician relationships. The Secretary must establish procedures for the submission of information and for public availability by no later than October 1, 2011, and must consult the HHS Office of Inspector General, as well as “affected industry, consumers, consumer advocates, and other interested parties in order to ensure that the information made available to the public under [this section] is presented in the appropriate overall context.”
The public availability process must afford applicable manufacturers and GPOs with a 45-day “review period” before the information becomes available to the public, so long as the 45-day period for review and submission of corrections does not prevent the information from being posted for public access by the dates specified above. An exception would allow “delayed publication” for payments made pursuant to product research or development agreements or in connection with a clinical investigation regarding a new drug, device, biological, or medical supply. In these cases, reports must be made available after the earlier of the following: (1) the FDA approval date of the product; or (2) four calendar years after the date the payment/transfer was made.
Manufacturers and GPOs that fail to comply with the Act’s reporting requirements are subject to civil monetary penalties (CMPs) ranging from $1,000 to $10,000 per unintentional violation, and up to $10,000 to $100,000 per knowing violation. The maximum annual fines would be $150,000 and $1 million, respectively. (The statute defines the term “knowingly” by way of cross-reference to the definition in the False Claims Act provided at 31 U.S.C. § 3729(b).)
Finally, this provision of the PPACA preempts any state laws that mandate disclosure of payments or other transfers of value governed by the federal law. However, states are not prohibited from enacting or enforcing disclosure laws that are more stringent than the federal standard set forth in this provision. Because many states have demonstrated an interest to legislate in this area, the provision’s “partial preemption” approach presents the possibility that manufacturers and GPOs will face a patchwork of federal and state financial disclosure requirements moving forward.
Pharmacy Benefit Managers Transparency Requirements.
The PPACA also imposes reporting requirements on pharmacy benefit managers (PBMs), or health benefits plans that provide PBM services, that contract with health plans under Medicare or a health insurance exchange. Such entities must report to the Secretary information regarding:
- the generic dispensing rate;
- the total number of prescriptions dispensed;
- the aggregate amount and type of rebates, discounts, or price concessions negotiated by the PBM (excluding bona fide service fees—such as distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative services agreements and patient care programs—but including a specification of which are attributable to patient utilization under the plan and which are passed through to the plan sponsor); and
- the aggregate difference between amounts that health benefits plans pay to PBMs versus amounts that PBMs pay to retail pharmacies and mail order pharmacies.
Information disclosed to the Secretary under this section will be confidential except for limited, specified circumstances, such as to permit review by the U.S. Comptroller General or Director of the Congressional Budget Office. Even in connection with these permitted disclosures, the Secretary may not disclose the identity of a specific PBM or plan, or the prices charged for drugs.
Increased Funding for Anti-Fraud Efforts
Funding Boosts for the Health Care Fraud and Abuse Control Fund (HCFAC Fund).
The PPACA adds an extra $10 million to the HCFAC Fund for each fiscal year from 2011 through 2020—a total of $100 million in additional appropriations. Additionally, the Reconciliation Act appropriates another $95 million in FY 2011, $55 million in FY 2012, $30 million in each of fiscal years 2013 and 2014, and $20 million in each of fiscal years 2015 and 2016, to be used to combat fraud in Medicaid programs. Together, the bills increase HCFAC funding by $350 million over the coming decade. Moreover, the PPACA permanently applies the consumer price index for all urban consumers (CPI-U) to HCFAC Fund, and the Reconciliation Act does the same with respect to funding for the Medicaid Integrity Program.
Additional Compliance Obligations and Integrity Provisions
Required Compliance Programs.
Notably, the PPACA requires providers and suppliers to adopt compliance programs. More specifically, the statute requires the Secretary to develop a compliance program that providers and suppliers “within a particular industry sector or category shall, as a condition of enrollment,” complete. The provision does not specify which industry sectors or categories will be affected, and it leaves to the Secretary, in consultation with the OIG, the task of specifying the required “core elements” of these compliance programs and the timeline for their implementation.
RAC Expansion and Audits.
The PPACA expands the Medicare Recovery Audit Contractor program to require all states to establish one or more RAC contracts by December 31, 2010, for purposes of identifying overpayments and underpayments provided by state Medicaid plans and/or plan waivers. This provision also expands the RAC program to Medicare Parts C and D and includes “special rules” requiring, among other specifications, that Medicare Advantage plans and Part D plans to have an anti-fraud plan in effect and that such plans review the effectiveness of their respective anti-fraud plans.
Data Collection and Provider Screening / Reporting Requirements.
The PPACA requires HHS to maintain a national fraud and abuse data collection program for final adverse actions and to provide the data collected to the National Practitioner Data Bank (NPDB). It also contains provisions that impose new screening requirements for providers and suppliers participating in Medicare, Medicaid, and CHIP, as well as extensive disclosure requirements, demonstration projects, and enforcement tools designed to improve the quality of care in Medicare skilled nursing facilities and Medicaid nursing facilities. It also requires the HHS Secretary to establish a national program for conducting background checks on “direct patient access employees” of long-term care facilities and providers.
Additionally, the Reconciliation Act establishes new requirements for community mental health centers aimed at preventing fraud and abuse, and it modifies previously applicable restrictions on Medicare administrative contractors’ ability to conduct prepayment medical record reviews in cases of suspected fraud and abuse.
As you and your organization work to address and implement these important new changes to healthcare law, and to review your organization’s policies and procedures to ensure compliance, we would be happy to answer any questions you may have about these, or other, aspects of the newly enacted legislation. Please contact the Sidley lawyer with whom you usually work, or any of the lawyers listed on this alert, if you have any questions or wish to discuss further.
If you have any questions regarding this update, please contact Jim Stansel (+1.202.736.8092, email@example.com), Hae-Won Min Liao (+1.415.772.1227, firstname.lastname@example.org), William Sarraille (+1.202.736.8195, email@example.com), Scott D. Stein (+1.312.853.7520, firstname.lastname@example.org), Stephanie Hales (+1.202.736.8349, email@example.com) or the Sidley lawyer with whom you usually work.
1 On March 23, 2010, the President signed the Patient Protection and Affordable Care Act (H.R. 3590) (PPACA), Pub. L. No. 111-148. On March 30, 2010, the President signed the Health Care and Education Reconciliation Act of 2010 (H.R. 4872) (Reconciliation Act), Pub. L. No. 111-152, a smaller bill that effectuated a series of changes to the PPACA.