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The Centers for Medicare & Medicaid Services (“CMS”) has proposed a new rule that, among other changes, would amend the “identified overpayment” standard in the current regulations for Medicare to align with the False Claims Act’s (“FCA”) “knowingly” standard. The proposed rule plans to remove “the exercise of reasonable diligence” language from the relevant regulations and replace that language with the “knowingly” standard from the FCA.

The regulations at issue — 42 C.F.R. § 401.305(a)(2); 42 C.F.R. § 422.326(c) and 42. C.F.R. § 423.360(c) — are supposed to implement, in part, Section 6402(a) of the Affordable Care Act (“ACA”), codified at 42 U.S.C. § 1320a-7k. This section of the ACA explains that if an overpayment under the various Medicare programs has been identified and has not been reported and returned in a set amount of time, then an enforcement action can be brought under the FCA. This section also states that the terms “knowing” and “knowingly” have the same meaning as under the FCA.

The FCA defines these terms to mean that a person has actual knowledge of information, acts in deliberate ignorance of the truth or falsity of information, or acts in reckless disregard of the truth or falsity of information; the terms do not require a specific intent to defraud. 31 U.S.C. § 3729(b)(1).…

Continue Reading CMS Proposes Amending Identified Overpayment Rules to Align with FCA Knowledge Standard

The U.S. Court of Appeals for the Eighth Circuit recently weighed in on the causation standard for False Claims Act (“FCA”) cases premised on Anti-Kickback Statute (“AKS”) violations. United States ex rel. Cairns v. D.S. Med. LLC, 42 F.4th 828 (8th Cir. 2022). The panel adopted a strict interpretation, finding that the government or whistleblowers must show a “but-for” causal relationship between kickbacks and claims for payment to establish the requisite link in the FCA liability chain, creating a circuit split on an issue that courts have struggled with for years.

The decision is notable for FCA defendants as it offers support for a defense they have long asserted, and that courts have been reluctant to condone, including an opinion from the U.S. Court of Appeals for the Third Circuit that refused to require a direct causal link between an AKS violation and a false claim.…

Continue Reading Eighth Circuit Finds “But-For” Causation Standard for AKS-Premised FCA Cases

Supreme Court review of Rule 9(b)’s application in False Claims Act cases may finally be coming whether the Executive Branch likes it or not.

In January, the Supreme Court, which is considering a certiorari petition in Johnson v. Bethany Hospice and Palliative Care, LLC, asked the Solicitor General to weigh in on whether the Court should accept the case. The case presents the question of what Rule 9(b) requires in cases arising under the False Claims Act, which is an important threshold question in many False Claims Act cases resulting in significant motions practice.

As past Solicitors General have done before her, the current Solicitor General’s brief filed late on May 24 argued that the Supreme Court should not grant plenary review because there really isn’t a meaningful circuit split on the issue. The brief also argues that the case is not a good vehicle for Supreme Court review because the district court dismissed the relator’s case on the alternative ground that the relator had not adequately pleaded violations of the federal anti-kickback statute, an issue the U.S. Court of Appeals for the Eleventh Circuit did not reach on appeal.…

Continue Reading SCOTUS Review of Rule 9(b) in False Claims Act cases may be on the way

On February 23, 2022, the Federal Bar Association (FBA) kicked off its fifth annual Qui Tam Conference to highlight key areas for False Claims Act (FCA) enforcement in the coming year. The conference opened with a keynote address by Gregory E. Demske, Chief Counsel to the Inspector General, Department of Health and Human Services (HHS), Office of Inspector General (OIG). Then, a series of panels analyzed the FCA-related developments from the prior year, recent efforts by the U.S. Department of Justice (DOJ) to combat cybersecurity fraud, and some of the schemes promoting alleged telehealth fraud during the ongoing COVID-19 public health emergency. Based on the comments of government speakers, all speaking in their individual capacities, below are key takeaways of what we expect the government to prioritize in 2022:

Pandemic-related fraud and telehealth fraud are key targets

Reinforcing the DOJ’s current enforcement priorities, we expect the DOJ to continue to focus its resources and enforcement activity on where it stands to recover the most dollars swiftly: pandemic-related fraud (e.g., misuse of CARES Act relief funds) and telehealth fraud.

During his keynote address, Demske similarly acknowledged these two areas of focus and added Medicare Advantage, the opioid epidemic, and nursing homes as ongoing priorities for OIG enforcement. Notably, Demske cited OIG’s Data Analytics Group as a robust resource for the agency to identify anomalies in large data sets (e.g., outlier distributions of CARES Act provider relief funds) that may lead to targeted enforcement.

For more information about the fraud and abuse implications of CARES Act provider relief funds, as well as practical tips for navigating the evolving CARES Act regulatory environment, please check this Reed Smith client alert.
Continue Reading FBA’s 2022 Qui Tam Conference Puts Annual Spotlight on FCA Enforcement Trends and Developments

The Department of Health and Human Services’ Office of Inspector General (OIG) will be lifting its long-standing refusal to accept requests for advisory opinions if the request describes a course of action that is “the same or substantially the same” as a course of action that is either under investigation by OIG, or is the subject of a proceeding involving a governmental agency. As of February 10, 2022, a new final rule issued by the OIG will do away with that restriction and allow entities to request an advisory opinion, even if the requested course of action is the same or substantially the same as one under investigation or is the subject of a proceeding involving a governmental agency. Previously, the OIG’s policy deliberately left unsettled many fraud-and-abuse issues implicated by pending investigations or litigation.

As the final rule points out, however, seeking clarity during a pending investigation or litigation will carry risk: the mere fact that a course of action is the subject of a qui tam case or under investigation “will weigh against the issuance of a favorable advisory opinion because such circumstances generally indicate that the arrangement does not present a sufficiently low risk of fraud and abuse.”

This warning seems to assume that all investigations and litigation have equal merit, which is certainly not the case with matters initiated by self-appointed whistle-blowers under the False Claims Act, who often bring cases with very little merit. Nevertheless, the new rule provides flexibility, and provides opportunities for the OIG to provide guidance to health care companies seeking to develop business opportunities that, for example, a long-pending and/or declined qui tam case may have stymied.…

Continue Reading Pending investigations/cases no longer prevent OIG advisory opinions

On August 12, 2021, the Seventh Circuit joined the Third, Eighth, Ninth, and D.C. Circuits in holding that the “objective reasonableness” standard for determinations of scienter, as set forth by the Supreme Court in Safeco Insurance Co. of America v. Burr, 551 U.S. 47, 70 (2007), applies in the context of False Claims Act (FCA) litigation.  In doing so, the Seventh Circuit observed that, under Safeco, a defendant cannot possess the requisite scienter under the FCA if: (1) it has an objectively reasonable reading of the statute or regulation; and (2) there was no authoritative guidance warning against its view.  This case has significant implications for defendants in FCA litigation by finding that an objectively reasonable interpretation of the law will defeat allegations of false claims.

Further, the decision is the latest victory in a spate of cases brought by the plaintiffs’ bar claiming that pharmacies are required to report special prices—such as membership club prices or matched competitor prices—as their usual and customary (U&C) prices. Virtually every pharmacy that has operated a membership club has faced scrutiny through actions under the FCA and consumer-class actions. The Seventh Circuit’s decision comes in the wake of the recent jury verdict in favor of CVS in the matter of Carl Washington (formerly known as Corcoran) et al. v. CVS Pharmacy, Inc., No. 15-cv-03504 (N.D. Ca. Jun. 24, 2021).   This victory will support pharmacies’ defenses in other similar litigation alleging the submission of false U&C prices, particularly when the alleged false conduct occurred before 2016, given that the Seventh Circuit found that reporting retail prices—as opposed to special prices such as price matches—was an objectively reasonable approach to U&C reporting.

The Lower Court’s Decision: …
Continue Reading Seventh Circuit adopts Safeco objective reasonableness standard in the context of false claims act cases

On May 18, 2021, in a statement issued by the U.S. Department of Health and Human Services’ (HHS) Office of Inspector General, Acting U.S. Attorney for the Eastern District of California, Phillip Talbert, and California Attorney General, Rob Bonta (the Statement), the health care industry was reminded of the prohibition against charging individuals for COVID-19…

On May 14, 2021, the Centers for Medicare & Medicaid Services (CMS) released a new final rule that further delays until December 15, 2021, the effective date of the final rule titled “Medicare Program; Medicare Coverage of Innovative Technology (MCIT) and Definition of ‘Reasonable and Necessary’” (the January 2021 Rule), which was published in the…

In recent years, the U.S. Department of Justice (“DOJ”) has increasingly leveraged data analytics to combat fraud. Principal Deputy Chief of DOJ’s Fraud Section, Joe Beemsterboer, described the department’s data-mining capabilities as the “foundation of how [DOJ] investigate[s] and analyze[s] cases,” and explained that digital forensics equips the department with “powerful” tools for identifying “trends,”…

Effective January 14, 2021, the Internal Revenue Service (“IRS”) implemented a final rule (the “Final Rule”) concerning the tax deductibility of settlement payments made to the government.  This rulemaking followed a legislative update to the Internal Revenue Code of 1986 (“IRC”), which was implemented as part of the 2017 federal tax overhaul and specifically included…

Earlier this month and with little fanfare, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would invoke CMS’s rarely used retroactive-rulemaking authority to essentially ensure that, despite the Supreme Court’s adverse rulemaking decision in Azar v. Allina Health Services, 139 S. Ct. 1804 (2019), CMS will apply the same Medicare payment methodology found procedurally improper in Allina. CMS’s invocation of its retroactive-rulemaking authority to effectively circumvent Allina sets a potentially dangerous precedent that should not go unnoticed by all Medicare stakeholders.
Continue Reading “Contrary to the Public Interest”: CMS invokes retroactive-rulemaking authority to escape consequences of Allina

On August 4, 2020, the Ninth Circuit, in a decision authored by Judge Wardlaw, dismissed for lack of jurisdiction an atypical appeal filed by the Federal Government from a district court’s order denying the Government’s motion to dismiss a qui tam case filed under the False Claims Act (“FCA”).  See United States v. United States…

Academic medical centers and other health care entities operating within institutes of higher education need to be aware of the compliance risks surrounding the recent release of higher education grants under the CARES Act. On April 21, 2020, the U.S. Department of Education (Department of Education) announced the release of $6.2 billion in connection with…

On December 20, 2019, the Federal appeals court panel that heard U.S. ex rel. Bookwalter v. UPMC, No. 18-1693 (3d Cir.), amended its September 2019 opinion by removing a controversial interpretation of the “volume or value” standard under the Stark Law.  The September opinion had adopted a “correlation theory,” holding that a physician’s compensation “varies with” the volume or value of referrals if the physician is paid based on his personally performed services, such as on a work relative value unit (wRVU) basis, and there is a “correlation” between the physician’s referrals and those personally performed services.  The court relied on this correlation theory to support its finding that the physicians had an indirect compensation arrangement with the hospitals to which they referred, thereby allowing the case to proceed and shifting the burden to the defendants to prove the availability of a Stark Law exception.  Although the amended December opinion removed the correlation theory rationale, the court maintained its September holding to allow the case to proceed based on alternative reasoning that there were adequate allegations that the physicians’ compensation “took into account” their referrals.

Background

The Stark Law prohibits a physician’s Medicare referrals for “designated health services,” including hospital services, to an entity with which the physician has a direct or indirect financial relationship, unless the requirements of an applicable exception are satisfied.  One element of the Stark Law’s test to determine whether a physician has an indirect compensation arrangement with an entity is whether the physician’s aggregate compensation “varies with, or takes into account, the volume or value of referrals” to the entity.  For these reasons, a critical component in a Stark Law analysis is frequently whether a referring physician is compensated in a manner that “varies with” or “takes into account” the volume or value of his referrals.
Continue Reading Federal Appeals Court Amends Stark Law Opinion to Remove Controversial “Volume or Value” Interpretation, but Uncertainty Remains

Reed Smith is hosting its 6th Annual Washington Health Care Conference on December 4, 2019 at The Almas Center in Washington, D.C., and is pleased to welcome another impressive line-up of speakers this year.

Our keynote speaker is Dr. John Whyte, Chief Medical Officer of WebMD, who will be discussing “Artificial Intelligence in Health Care: Disrupt but Don’t Be Disruptive.”

The conference also includes a particularly timely panel on the proposed rules to modernize Stark Law and the Anti-Kickback Statute. Our presenters include: Lisa Wilson, Senior Technical Advisor to the Centers for Medicare and Medicaid Services; David Gregory, Principal, Healthcare Practice, Baker Tilly Virchow Krause; Nancy Bonifant Halstead, Partner, Reed Smith; and moderator Nicole Aiken-Shaban, Senior Associate, Reed Smith.

We’re also pleased to be offering a session with representatives from major associations on how the industry is preparing for the next major shift in the health delivery continuum. Our presenters include: Terry Chang, MD, JD, Vice President, Assistant General Counsel, and Director, Legal & Medical Affairs, AdvaMed; Clif Porter, Senior Vice President, Government Relations, AHCA; Julie Wagner, Senior Assistant General Counsel, PhRMA; Katie Mahoney, Vice President, Health Policy at the U.S. Chamber of Commerce; and moderator Elizabeth Carder-Thompson, Senior Counsel, Reed Smith.

Additional conference sessions include:…
Continue Reading Speakers from WebMD, CMS, PhRMA, AdvaMed, AHCA, and More to Present at Reed Smith’s Dec. 4 Washington Health Care Conference

A top Department of Justice (DOJ) official has recently issued a much-anticipated memo explaining the factors DOJ will consider when deciding whether to dismiss FCA suits brought by relators in qui tam cases. Specifically, the memo by Michael Granston, Director of the Commercial Litigation Branch within the DOJ Fraud Section sets forth seven non-exhaustive factors…

The Department of Justice (DOJ) obtained $3.7 billion in False Claims Act (FCA) settlements and judgments in fiscal year (FY) 2017, with $2.4 billion coming from health care industry cases. The $2.4 billion amount includes only federal recoveries; additional funds were recovered for state Medicaid programs.  The largest health care industry recoveries in FY 2017–…

A recent False Claims Act (“FCA”) settlement involving an allegedly overpaid Florida medical practice reaffirms the interplay between the 60-Day Overpayment Statute and the FCA, but also highlights the importance for all providers and suppliers to report and return overpayments, regardless of the source of federal funds.

According to the Department of Justice (“DOJ”), First Coast Cardiovascular Institute (“FCCI”) allowed credit balances from various federal health care programs to accrue despite multiple internal warnings that the balances should be paid back. DOJ alleged that FCCI’s failure to return those credit balances within 60 days violated the FCA. DOJ’s comments are notable, however, because the credit balances not only involved Medicare and Medicaid, but also TRICARE and the Department of Veterans Affairs, both of which are outside the scope of the 60-Day Overpayment Statute. DOJ and FCCI resolved the alleged $175,000 in unreturned overpayments for a $448,821.58 price.
Continue Reading DOJ Settles Second 60-Day Overpayment Case, Highlights Broader Reach of the FCA’s Reverse False Claims Provision

The Department of Health and Human Services (HHS) is once again applying an inflation increase to maximum civil monetary penalty (CMP) amounts for HHS agencies and programs – less than five months after the last inflation hike and notwithstanding the Trump Administration’s recently-announced regulatory freeze.  Specifically, in a final rule to be published on…