Since the 2016 Supreme Court decision in Universal Services Inc. v. United States ex rel. Escobar, courts have wrestled with exactly how to apply the unanimous decision. This post highlights developments across the country in numerous substantive areas addressed in the Escobar decision. If you need a refresher on the Escobar decision, see our previous post explaining the major elements of the case.
The U.S. District Court for the Eastern District of Pennsylvania recently refused to extend the period during which a False Claims Act (FCA) action remains under seal while the government investigates and decides whether to intervene. In U.S. ex rel. Brasher v. Pentec Health, Inc., which involved claims of illegal kickbacks constituting FCA violations, the court denied the government’s eleventh extension request and subsequent request for reconsideration even after both the relator and the defendant joined that request. The case had been under seal for more than five years.
Settlement Discussions Were Not Good Cause to Extend the Seal Period
The court held that the matter would not remain sealed to allow the government and defendant time to reach a settlement. It noted that “the purpose of the sealing provision is not to allow the Government to prosecute a civil action entirely under seal and then to present a settlement as a fait accompli to the Court and the general public.”
In recent years, healthcare providers have increasingly faced civil and criminal enforcement actions premised on the allegation that services billed to government healthcare programs were not medically necessary. As a result, those claims allegedly have constituted fraud in violation of the civil False Claims Act (FCA) and/or various criminal statutes.
These actions – whether brought by the government in civil or criminal proceedings or qui tam relators in civil FCA cases – pose significant issues for providers. Often, disputing clinical judgments related to care or services provided many years in the past can be particularly challenging when efforts are made by the government or relators to use statistical sampling to establish civil liability and/or damages across a vast universe of claims. Given the risks associated with these cases, it is not surprising that there have been a number of high-dollar civil settlements involving medical necessity allegations against providers, including hospitals, physicians and providers of hospice, home health and therapy services. In criminal cases, the government likewise has secured a number of high-profile convictions and guilty pleas in cases challenging billing associated with allegedly unnecessary medical procedures.
Bass, Berry & Sims attorney Taylor Chenery discussed the implications of a recent court ruling demonstrating how a court should analyze multiple different types of alleged claims under the False Claim Act at the motion to dismiss phase of the case. The case involves Boston Heart Diagnostics Corp., who is facing allegations from a former board member that the company paid illegal kickbacks for lab test referrals.
“The court here really confirms that a complaint has to specifically plead knowledge with respect to each alleged fraud scheme or theory of liability,” said Taylor.
The full article, “Boston Heart Lab Group Stuck in Medicare Fraud Case,” was published by Bloomberg Law on September 13, 2018, and is available online (subscription required).
On August 24, 2018, the Ninth Circuit addressed the Supreme Court’s decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar, holding that Escobar sets forth the exclusive test for establishing FCA liability under the theory of implied false certification. In that case, U.S. ex rel. Rose v. Stephens Institute, the Ninth Circuit also grappled with Escobar’s materiality requirement, providing further guidance on how the past government action factor of the materiality analysis should be applied.
On August 2, 2018, DOJ announced that Detroit-based Beaumont Health would pay $84 million to settle claims that between August 31, 2004, and January 31, 2012, its arrangements with eight physicians violated the Anti-Kickback Statute (AKS) and the Stark Law by providing improper remuneration in the form of free or below-market value office space and employees and providing them with compensation in excess of fair market value. The settlement agreement also settles claims that from 2006 to 2012, Beaumont misrepresented that one of its CT radiology centers qualified as an outpatient department of the hospital. As part of the settlement, Beaumont is entering into a five-year Corporate Integrity Agreement, during which time its referral arrangements will be reviewed by an independent review organization.
Bass, Berry & Sims attorney Taylor Chenery provided insight in a Bloomberg article on the effect that a Department of Justice (DOJ) Memorandum is having on healthcare fraud enforcement actions and corresponding defense strategies. The Brand Memo, named after then-Associate Attorney General Rachel Brand, was issued by the DOJ in January 2018 and limits the use of guidance documents in civil enforcement actions and prevents DOJ attorneys from using “informal agency guidance as binding law.”
Following the recent high-stakes trial in U.S. ex rel. Ruckh v. Salus Rehabilitation, LLC, a federal district court overturned the $350 million verdict handed down against the owners and operators of 53 skilled nursing facilities who were accused of “upcoding” patient Resource Utilization Group scores, “ramping up” treatment during assessment periods and failing to maintain comprehensive plans of care for their patients.
As set out in a previous post, in overturning the verdict, the district court held that the relator failed to offer sufficient evidence at trial to satisfy the “rigorous and demanding” requirements of materiality and scienter as set forth in the Supreme Court’s landmark decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar.
The Ninth Circuit recently revived a False Claims Act (FCA) suit against Medicare Advantage Organizations (MAOs) related to risk adjustment payments for Medicare Advantage plans in U.S. ex rel. Silingo v. WellPoint Inc. et al. As previously discussed in this blog post, MAOs provide Medicare benefits under a capitated payment system, whereby government reimbursement is based on an individual’s risk adjustment data. The Centers for Medicare and Medicaid Services (CMS) increase monthly payments to MAOs when an individual’s medical diagnoses support a higher level of risk or cost of care. Recently, both relators and the government in a number of cases have challenged the validity of diagnostic patient information utilized to support risk adjustment data, as discussed here and here.
In June 2018, Healogics, Inc., the nation’s largest provider of advanced chronic wound care services, agreed to pay to up to $22.51 million to resolve False Claims Act (FCA) allegations that, from 2010 to 2015, it caused wound care centers to submit claims to Medicare for medically unnecessary and unreasonable hyperbaric oxygen (HBO) therapy. Healogics manages almost 700 hospital-based wound care centers where HBO therapy is provided. HBO therapy is a modality wherein a patient’s full body is enclosed in a pressurized chamber and exposed to high concentrations of oxygen. Medicare covers the therapy only when used to treat certain conditions (e.g., diabetic foot ulcers) and only when administered in certain circumstances (e.g., after no measurable signs of healing for prior 30 days of treatment with standard wound therapy).
Pursuant to the settlement agreement, Healogics paid $17.5 million and could pay an additional $5.01 million if its earnings exceed certain levels over the next five years. Healogics also agreed to enter into a five-year Corporate Integrity Agreement with the U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG) as part of the resolution.