22 November 2019

HHS Memo Announces Violations of Sub-Regulatory Payment Rules and Guidance Cannot Form the Basis of Enforcement Actions

As we reported here, the Supreme Court in Azar v. Allina Health Services, 139 S. Ct. 1804 (2019) held that the Medicare Act expressly requires HHS to engage in notice-and-comment rulemaking prior to adopting any “substantive legal standard.”  One court recently relied on Allina to conclude that FCA claims premised on a CMS rule articulated in payment manuals must fail because the rule constitutes a “substantive legal standard” that did not go through notice-and-comment rulemaking.  Polansky v. Executive Health Resources, Inc., No. 12-4239, 2019 WL 5790061 (E.D. Pa. Nov. 5, 2019).

This week, HHS released a memo from top lawyers in its Office of General Counsel announcing that payment rules and other guidance documents issued by the Center for Medicare that do comply with the standard set forth in Allina cannot form the basis of enforcement actions.  To be clear, the Memo confirms that to the extent guidance is “closely tied to statutory or regulatory requirements, enforcement actions implicating those guidance materials can still be brought.”  In addition, the Memo notes that nothing in Allina prevents CMS from enforcing payment provisions as a matter of contract law, where appropriate.  However, where “guidance set[s] forth payment rules that are not closely tied to statutory or regulatory standards, the government generally cannot use violations of that guidance in enforcement actions, because under Allina, it was not validly issued.”  Thus, among other forms of guidance, Local Coverage Determinations issued by MACs, standing alone, cannot form the basis of an enforcement action.

The Memo (available here) also states that, consistent with the principles articulated in DOJ’s Brand Memo, guidance documents can be relevant to establishing the materiality and scienter elements of a FCA cause of action – even if they cannot alone establish falsity.

We expect that many government lawyers who bring enforcement actions against the healthcare and life sciences industry will take the position that the HHS Allina Memo does not change their authority or ability to bring enforcement actions.  Make no mistake, the position taken by the Agency in the Memo marks a significant shift and we will continue to report on how this impacts the FCA landscape moving forward.

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