This is the first post of a two-part discussion of recent developments related to the materiality standard set forth by the Supreme Court in Universal Health Services, Inc. v. U.S. ex rel. Escobar.  Our second post covers government intervention decisions, the “essence of the bargain” test, and the materiality of Anti-Kickback Statute violations.

The Supreme Court’s 2016 decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar continues to play a significant role in FCA litigation, particularly with respect to courts’ analyses of the FCA’s materiality element.  In Escobar, the Supreme Court described the materiality element as “rigorous” and “demanding” and set forth a number of non-exclusive considerations to guide the materiality inquiry, which primarily focus on the government’s actual conduct and its payment (or non-payment) of purportedly false claims.  In 2019, courts continued to grapple with specific applications of Escobar’s directives, with some courts appearing to apply its materiality guidance less “rigorously” than others.

Some Appellate Courts Appear to Apply Escobar Less Rigorously Than Others

As we have previously discussed, the seemingly irreconcilable decisions issued by the nation’s circuit courts about how Escobar’s non-exclusive factors should apply in particular cases led parties in at least three such cases to seek further clarity from the Supreme Court.  But last year the Supreme Court denied review in each of those three cases, perhaps signaling that – at least for now – it is content to allow the various issues raised in Escobar to continue to percolate in the lower courts.

Continue Reading <em>Escobar</em>’s “Rigorous” Materiality Standard: Recent Developments – Part One

Congress amended the Anti-Kickback Statute (AKS) in 2010 to confirm that a claim “resulting from” an AKS violation constitutes a false or fraudulent claim for purposes of the FCA.  42 U.S.C. 1320a-7b(g).  However, Congress did not define the phrase “resulting from.”  That question is immaterial in a criminal AKS case because the offer or receipt of the payment completes the crime.  But in order to prevail in a civil FCA case, a relator or the government must prove the submission of a false claim to a federal healthcare program.  In recent civil FCA cases, courts have struggled to articulate the precise link that is required in order to establish that a claim “result[s] from” an illegal kickback, often relying on traditional causal concepts to help articulate the required link.  This developing area of the law is one to watch as courts continue to grapple with the interplay between the link required by the plain language of the AKS and the body of case law related to FCA causation.

U.S. ex rel. Greenfield v. Medco Health Sys., Inc.

In U.S. ex rel. Greenfield v. Medco Health Sys., Inc., the relator alleged that the defendants illegally donated to certain charities in order to receive patient referrals and then allegedly falsely certified compliance with the AKS when seeking reimbursement.  The U.S. District Court for the District of New Jersey granted summary judgment for the defendants, reasoning that the relator had not shown a causal link between the defendants’ donations and any claims for payment.  Although discovery revealed that the defendants submitted claims for 24 federally insured patients during the relevant time period, the district court concluded that this evidence alone did not provide “the link between defendants’ 24 federally insured customers and defendants’ donations to [the charities].”  Instead, it explained that the relator was required to show that the federally insured patients were referred to the defendants as a result of the defendants’ donations to the charities.  “Absent some evidence … that those patients chose Accredo because of its donations,” the relator could not carry his burden on his claim.

Continue Reading Courts Grapple with Causation Requirement in FCA Cases Based on Violations of Anti-Kickback Statute

Bass, Berry & Sims is pleased to announce the release of the 2019 edition of its Healthcare Fraud & Abuse Annual Review. Compiled by the firm’s Healthcare Fraud Task Force​​​​​​​, the Review is an in-depth and comprehensive analysis of enforcement settlements, court decisions, and recent developments affecting the healthcare industry.

The Review details all healthcare-related False Claims Act (FCA) settlements from last year, organized by particular sectors of the healthcare industry. In addition to reviewing all healthcare fraud-related settlements, the Review includes updates on enforcement-related litigation involving the Stark Law and Anti-Kickback Statute (AKS), and looks at the continued implications from the government’s focus on enforcement efforts involving individual actors in connection with civil and criminal healthcare fraud investigations.

The latest Healthcare Fraud & Abuse Review takes a closer look at:

  • Issues to watch in 2020
  • Noteworthy settlements from 2019
  • Comprehensive coverage of significant FCA decisions
  • Notable developments involving the Stark Law and AKS
  • Discussion of pharmaceutical and medical device risk areas

Click to download Healthcare Fraud and Abuse Review

The Department of Justice (DOJ) announced this month that it obtained over $3 billion in settlements and judgments from civil fraud and false claims cases during the fiscal year ending September 30, 2019 (FY 2019). Of this total recovery, the vast majority—$2.6 billion—arose from matters related to different sectors of the healthcare industry. DOJ noted that 2019 was the tenth consecutive year that recoveries from civil healthcare fraud cases have exceeded $2 billion, indicating that the government’s enforcement efforts remain focused on allegations of fraud in the healthcare sector.

Large Recoveries Related to Drug Manufacturers & EHR

Within the healthcare industry, the government reported significant recoveries against pharmaceutical manufacturers. Insys Therapeutics paid $195 million to resolve civil False Claims Act (FCA) allegations that it paid kickbacks to induce healthcare providers to inappropriately prescribe its fentanyl product, Subsys, to their patients. This civil settlement was part of a larger global resolution of civil and criminal allegations, with Insys agreeing to pay a total of $225 million. Reckitt Benckiser Group agreed to pay $1.4 billion to resolve criminal and civil allegations related to the marketing of the addition treatment drug Suboxone, a buprenorphine product. The global resolution included a $500 million civil settlement with the federal government.

Continue Reading DOJ Announces 2019 FCA Recovery, Majority Came from Healthcare Industry

The Department of Justice (DOJ) recently released its report detailing the settlements and judgments obtained in 2019 from civil cases involving fraud and abuse claims.  As in years past, the substantial majority of these settlements and judgments—$2.1 billion of the $3 billion total—were the result of qui tam whistleblower lawsuits filed under the False Claims Act (FCA).

Following the government’s intervention decision, the first test for many of these qui tam lawsuits is surviving a motion to dismiss.  Because FCA suits allege fraud against the government, they must be pleaded with particularity as required by Rule 9(b) of the Federal Rules of Civil Procedure.  This post discusses recent developments to those standards from 2019.

Courts have held that to satisfy Rule 9(b), FCA complaints must include a detailed description of the alleged fraud scheme and facts to show the scheme resulted in a request for reimbursement from the government.  A failure on either account will result in dismissal.

Continue Reading Recent Developments in False Claims Act Pleading Standards

On December 20, 2019, the U.S. Court of Appeals for the Third Circuit granted in part a petition for rehearing filed by the University of Pittsburgh Medical Center (UPMC) in a False Claims Act (FCA) case that has generated considerable attention among hospitals and health systems due to its treatment of commonplace, productivity-based physician compensation models.  Ultimately, the Third Circuit vacated its original September 17, 2019 decision and issued a revised opinion reversing its holding that the relators could establish a problematic indirect compensation arrangement simply by alleging the employed neurosurgeons’ pay for personally performed services correlated with the volume or value of their referrals to UPMC’s facilities for the corresponding hospital services.

As discussed in our October 14 post, U.S. ex rel. Bookwalter v. UPMC involved employment arrangements between UPMC’s subsidiary physician practice entities and various neurosurgeons pursuant to which the physicians earned base salaries and potential incentive bonuses tied to their personally performed work relative value units (wRVUs).  The Third Circuit previously held – in reliance on a controversial construction of the Stark Law’s “volume or value” test – that the relators pleaded facts sufficient to demonstrate the surgeons’ compensation both varied with and took into account the volume or value of their designated health service referrals to UPMC’s hospitals, thereby creating an impermissible indirect compensation arrangement.

Continue Reading Update: Third Circuit Allows Allegations of Improper Compensation under the Stark Law to Proceed, but Reverses Controversial “Varies with Volume or Value” Reasoning

In two prior posts [Government Files Amended FCA Complaint Against Private Equity Firm and its Portfolio Company and DOJ Intervention in Healthcare Fraud Case Highlights Potential Risks for Private Equity Firms], we wrote about the Department of Justice’s (DOJ) decision to intervene in a False Claims Act (FCA) case against a compounding pharmacy and its private equity backer.

The case, Medrano v. Diabetic Care Rx, LLC, was the first time we had seen the DOJ name a private equity firm in a FCA case involving allegations of wrongdoing by one of its portfolio companies, and we noted that this should be a wake-up call to private equity firms who are actively engaged in the management and control of healthcare companies in which they invest.

The alarm rang once again in September 2019, as the DOJ announced that it reached a $21.36 million settlement with Patient Care America (PCA), the compounding pharmacy at issue in the case, two of the company’s executives and, most notably, the private equity firm Riordan, Lewis & Haden Inc. (RLH) that managed PCA on behalf of its investors.  The settlement was reached on ability to pay grounds.

Continue Reading Private Equity Firm Settles FCA Case

Bass, Berry & Sims and the Tennessee Hospital Association invite you to join us for a complimentary day-long CLE program featuring leading government officials, industry experts and experienced counsel as we discuss the most significant fraud and abuse issues currently facing the healthcare industry. Our panelists will cover topics including:

  • Year in Review: Looking Back on Healthcare Fraud Issues in 2019
  • Medicaid Enforcement Update
  • Enforcement Considerations for a Value-Based World
  • Managed Care Enforcement
  • A View from the U.S. Attorney’s Offices
  • DOJ Cooperation Guidance
  • When the News Gets Out: Crisis Management for Investigations
  • HR Implications of FCA Investigations
  • Settlement Considerations for Enforcement Matters
  • Effectively Managing Internal Investigations

Continue Reading Join Us | Nashville Healthcare Fraud Conference | December 5, 2019

Please join us as we present a complimentary CLE webinar providing timely and practical guidance for healthcare industry executives.

The discussion will highlight the following:

  • Recent regulatory developments, including enforcement activities.
  • Proposed and final rules by OIG and CMS.
  • Published OIG advisory opinions.
  • Additional regulatory pronouncements likely to have material impact on the industry.

The webinar will provide an overview of recent fraud and abuse cases and settlements as well as proactive compliance measures to consider in light of enforcement trends.

WEBINAR DETAILS

Title: Healthcare Update: All Things Regulatory + Fraud & Abuse

Date: Thursday, November 14, 2019  Time: 12:00 PM Central Standard Time

Webinar approved for one hour General Tennessee CLE credit. Certificate of completion available upon request.

Who Should Attend?

  • Outside and in-house counsel
  • Healthcare compliance officers
  • Healthcare and life sciences executives

For additional information, email lauren.parkhurst@bassberry.com.

We recently outlined the significant proposed changes to the Stark Law that the Centers for Medicare & Medicaid Services (CMS) released on October 9.  The analysis was written for the American Health Lawyers Association’s (AHLA) Fraud and Abuse Practice Group and co-authored by Dickinson Wright attorney Rose Willis. In the article, the authors summarized the Proposed Rule, including:

  1. Changes related to a value-based care delivery model – With the ongoing shift from the traditional fee-for-service model to value-based payment and delivery model, the Proposed Rule addresses three new exceptions to the Stark Law focused on the value-based model. Continue Reading CMS Proposed Rule Adds Exceptions to Stark Law and Provides Additional Guidance and Clarification