FRAUD AND ABUSE LEGISLATION:

AN UPDATE OF THE CURRENT CASE LAW

William Mack Copeland

FEDERAL FALSE CLAIMS ACT • Prohibits presenting a false or fraudulent claim for

payment to the Federal Government, or causing the use of a false record to get a claim paid by the Federal Government.

• Includes billing for work not performed, upcoding, billing for unnecessary services, and even billing for services that were obtained in violation of other laws and/or regulations (such as the Anti-Kickback Statute).

FEDERAL FALSE CLAIMS ACT

• Originally passed in 1863

• Amended in 1986 to make it more relator friendly

• The number of cases filed since the 1986 amendments has risen from 33 in 1987 to 415 in 2004.

QUI TAM CASES FILED (BY FISCAL YEAR): • 1987 33• 1988 60• 1989 95• 1990 82• 1991 90• 1992 119• 1993 132• 1994 222• 1995 277

• 1996 363• 1997 533• 1998 470• 1999 482• 2000 367• 2001 310• 2002 320• 2003 326• 2004 415

Total Transfers/Deposits by Recipient FY 2004

Department of the Treasury     HIPAA Deposits to the Medicare Trust Fund            Gifts and Bequests            Amount Equal to Criminal Fines            Civil Monetary Penalties            Asset Forfeiture *            Penalties and Multiple Damages

Centers for Medicare and Medicaid Services    OIG Audit Disallowances - Recovered    Restitution/Compensatory Damages

                                  Subtotal

47,358304,768,588

11,471,5290

354,205,714

141,350,000802,659,281

1,614,502,470

Restitution/Compensatory Damages to Federal AgenciesOffice of Personnel ManagementVeterans AdministrationAdministration for Children and Families HHS/OIG Investigative Costs TRICAREBureau of Primary Health CareOther Agencies                                  Subtotal

13,329,71913,296,62512,214,034

7,308,4595,533,5223,629,740

3,645,279 $58,957,378

Relators’ Payments** $82,867,287

       TOTAL ***

Source: The Department of Health and Human Services and The Department of Justice, Health Care Fraud and Abuse Control Program Annual Report For FY 2004, Sept. 2005.

$1,756,327,135

False Claims Act Recoveries Approach $16 Billion Since '86

• More than $1.5 billion recovered in FY 2005, and

• More than $600 million in civil penalties recovered in the first month of FY 2006.

Source: Taxpayer Against Fraud, October 25, 2005.

How does the False Claims Act Work

• Financial Incentive: 15-30% • Filed on behalf of US under seal• Government investigates • If US intervenes, Relator gets 15-25%

of successful recovery• If US declines, 15-30%

PROOF OF FALSE CLAIM

• Civil standard: more likely than not• Intent does not have to be shown• Must show “knowingly” filed • Knowingly includes deliberate

ignorance or reckless disregard• Head in the sand won’t work

FALSE CLAIMS ACT DAMAGES

• Treble damages, costs, attorneys’ fees, and penalties

• The penalties are a mandatory $5000 - $10,000 per false claim.

FALSE CLAIMS ACT

• Anyone with knowledge of the illegal conduct can bring suit

• Suit must be brought within six years from the date of the false claim, or within three years after the Government knows or should have known of the false claim, but in no event later than ten years after the false claim.

FALSE CLAIMS ACT

• If the allegations in the False Claims Act suit were already “publicly disclosed,” the relator has to be the “original source” of the allegations

RISK OF FILING A FALSE CLAIMS ACT SUIT

• “RETALIATION”• If clearly frivolous, vexatious or

brought for harassment, then the court may find the relator liable for the defendant’s expenses and fees

FALSE CLAIMS IN THE HEALTH CARE ARENA

• A distinct trend toward health care fraud cases

• In 1994, only 18% of the cases involved health care fraud

• In 2004, that percentage was 58%

Beth Israel Hospital

• Settles Medicare Fraud Case for $72 Million.• Charged with billing Medicare for a wide

variety of disallowed expenses ranging from basic administrative overhead  to methadone maintenance, from fundraising and marketing to employee housing and parking.

• The whistleblower was awarded $14.5 million.Source: The Associated Press, November 30,

2005

South Shore Hospital, Miami, FL

• OIG Proposes to exclude Miami hospital.• South Shore materially breached the terms of

a corporate integrity agreement (CIA).• Agreement was part of the resolution of a

False Claims Act Case in 2002.Source: OIG, Nov. 7, 2005.

FALSE CLAIMS AND STARK AND ANTI-KICKBACK

“. . . compliance with the [Anti-Kickback] Statute is necessary for reimbursement under the Medicare program; and the [Defendants] submitted claims for reimbursement knowing that they were ineligible for the payments demanded in those claims.”United States ex rel. McNutt v. Haleyville Medical Supplies, Inc., No. 01-03156-CV-AR-J (11th Cir. Sept. 5,2005)

STARK I AND STARK II

• The Ethics in Patient Referral Act of 1989 (Stark I)

• Omnibus Budget and Reconciliation Act of 1993(Stark II)

STARK I AND STARK II

• Different from Anti-Kickback Statute• Anti-Kickback prohibits payment for

referrals • Stark prohibits referrals to an owned

facility or a facility with which the physician has a compensation arrangement

STARK I AND STARK II

Applies to clinical laboratory services and ten designated health services: • (1) physical therapy services, (2) occupational therapy

services, (3) certain radiology services, (4) radiation therapy services and supplies, (5) durable medical equipment and supplies, (6) parenteral and enteral nutrients, equipment, and supplies, (7) prosthetics, orthotics, and prosthetic devices and supplies, (8) home health services, (9) outpatient prescription drugs and (10) inpatient and outpatient hospital services.

STARK PENTALTIES

• No good faith or actual knowledge standard for compliance

• Penalty is denial of Medicare or Medicaid payment and, in three situations, civil monetary penalties and exclusions

STARK:CIVIL MONETARY PENALTY

AND EXCLUSION

Three Situations:– where a person knows or should know that an

improper claim has been made or where a refund has not been made (penalty of up to $15,000 for each prohibited service provided);

– where a person knows or should know that the purpose of the arrangement is to circumvent The Stark Law (penalties of up to $100,000 for each scheme); and

– for false reporting under The Stark Law (penalty not to exceed $10,000 per day).

STARK EXCEPTIONS

• Group practice • Physician services • In-office ancillary services • Managed care organizations, clinical laboratory services furnished in

an ambulatory surgical center, academic medical centers, implants in an ambulatory surgical center, dialysis-related drugs in an end stage renal disease facility, preventable screening tests, and eyeglasses and contact lenses for cataract surgery

• Non-monetary compensation up to $300, fair market value compensation, medical staff incidental benefits, risk sharing arrangements, compliance training, and indirect compensation

STARK: RECENT CASELAW

• None, other than cases alleging violation of the Anti-Kickback Statute and Stark Law as the basis for a False Claims Act suit

FEDERAL ANTI-KICKBACK STATUTE

• The Statute prohibits the offer or payment, as well as the solicitation or receipt, of "any remuneration (including any kickbacks, bribe, or rebate)" in exchange for referrals.

• Two way street: both the payer and the receiver equally culpable.

ANTI-KICKBACK EXCEPTIONS

• A discount or price reduction to the provider that is properly disclosed and appropriately reflected in costs claimed by the provider;

• Payments by an employer to a bona fide employee;

• Group purchase arrangements; and • The safe harbors.

ANTI-KICKBACK CASELAW

• Greber: "If one purpose of the payment is to induce future referrals, the Medicare statute has been violated." (Emphasis added)

• Kats• Bay State

ANTI-KICKBACK SAFE HARBORS

• 16 Safe Harbors• 4 are the most pertinent:

– Investment Interest,– Space and Equipment Rental,– Personal Service and Management

Contracts, and– Practitioner Recruitment.

OIG JOINT VENTURE ADVISORY OPINION• Hospital expands into a related service line by contracting

with an existing provider of that service. • Problems:

– Venture dependent on referrals from hospital’s existing business;– Hospital neither operates nor commits substantial financial,

capital, or human resources to the venture;– Contractor is established provider of the same services as the

hospital’s new line of business;– Share in the economic benefit; and– Payments to the Manager/Supplier typically vary with the value

or volume of business.

KICKBACK RECENT CASES

• Medical Center Hospital, Texas, agreed to pay $333,500; hospital leased space to a physician group at a rate below fair market value.

• Chief Executive Officer (CEO) of Good Samaritan Hospital, Nebraska, agreed to pay $130,000; provided financial assistance to a physician in the form of bank loan guarantees, the payment of consultant fees, and the provision of discounted pharmaceuticals, biologicals, supplies, and medical equipment.

• Home Health Corporation of America (HHCA), Pennsylvania, agreed to pay $300,000; payments in the form of loans, consulting fees, and monthly space rental payments to six physicians.

• St. Joseph Mercy-Oakland (SJMO), Michigan, agreed to pay $4 million; financial arrangements allegedly included office management services, medical equipment, lease and/or purchase agreements, loans, and income guarantees to 14 physicians.

KICKBACK RECENT CASES (Continued)

• Tender Loving Care Health Care Services, Inc. (TLC), a nationwide home health agency, agreed to pay $130,000; paid commissions to non-employees who were providing marketing services.

• A California physician agreed to pay $57,500; received free samples of the prostate cancer drug Lupron from Tap Pharmaceutical Products, Inc. and billed at least some of those samples to Medicare and other payers.

• A Texas physician agreed to pay $38,941.92; received free samples of the prostate cancer drug Lupron from Tap Pharmaceutical Products, Inc. and billed at least some of those samples to Medicare and other payers.

• A New Jersey physician agreed to pay $500,000; violated both the Stark Law and the Anti-Kickback Statute; entered into two lease agreements with a home health agency/durable medical equipment supplier to which the physician referred Federal health care program beneficiaries. The OIG alleged that neither lease was commercially reasonable and that both leases were shams to disguise kickbacks paid to the physician in exchange for referrals.

KICKBACK RECENT CASES (Continued)

• Dominican Health Services, d/b/a Holy Family Hospital , Washington, agreed to pay $270,000; paid remuneration to induce referrals from an entity owned by urologists by entering into a series of contracts with an entity owned by urologists in excess of fair market value for the lease of a lithotripter and contracted lithotripsy services.

• In Louisiana, the former owner/administrator of a geriatric psychiatric facility was sentenced to 15 months in prison and ordered to pay $313,000 in restitution; failed to disclose a related party on the facility’s 1999 cost report and paid marketers for Medicare referrals.

• In California, a physician was sentenced to 5 months in prison, 150 days home confinement and ordered to pay $120,000 in restitution; accepted kickbacks in exchange for the use of his provider number.

• In Kansas City, in 1999, two physicians and two hospital executives guilty of violating the statute. The physicians were members of a medical group that provided care to patients in nursing homes. Physicians approached several hospitals in the area with the benefits of entering into "consulting agreements" with the medical group. Five hospitals entered into these agreements, but no consulting duties were ever performed. The conviction of one hospital executive was overturned on appeal, but the conviction of the hospital’s president and the two physicians was upheld.

• In Kentucky, an owner of a durable medical equipment company was sentenced to six months home detention and ordered to pay $708,000 in restitution for payment of kickbacks; paid kickbacks to a physician and his office manager in return for patient referrals.

PHYSICIAN RECRUITMENT: The Anti-Kickback Safe Harbor

• Provide incentives to recruit a physician to join the hospital’s medical staff and provide medical services to the surrounding community.

• Does not protect: – recruitment arrangements in areas that are not

designated as HPSAs, – recruitment of specialists, or – joint recruitment with existing physician practices in

the area.

PHYSICIAN RECRUITMENT: The Anti-Kickback Safe Harbor

• Physician must have been practicing for less than one year, or

• To induce any other practitioner to relocate, his or her primary place of practice into a HPSA

PHYSICIAN RECRUITMENT: The Anti-Kickback Safe HarborNine Standards1. Written agreement specifies benefits, terms, and obligations2. If leaving an established practice, at least 75 percent of the revenues of the

new practice must be generated from new patients3. Benefits do not exceed 3 years 4. No requirement to make referrals 5. No restriction on privileges at other hospitals6. Benefits may not vary based on the volume or value of referrals 7. Agrees to treat Federal patients in a nondiscriminatory manner8. 75 percent of revenues come from from patients residing in a HPSA,

MUA, or MUP9. Payment may not benefit any person (other than the practitioner) or entity

in a position to make or influence referrals

PHYSICIAN RECRUITMENT: Stark Nine Standards

1. Must be set out in writing and signed by the parties.2. It cannot be conditioned on referrals.3. Cannot be based on the volume or value of referrals.4. No restrictions no establishing privileges or making referrals to any other

hospital.5. Must relocate practice at least 25 miles.6. 75 percent of revenues must come from new patients.7. Physicians in practice less than one year are eligible even if they do not

move their practices, but must establish practice in the hospital’s geographic.

8. For payments made either indirectly or directly to a physician who joins a physician practice, there are additional conditions (See next slide).

9. Applies a federally qualified health center as well as hospital, so long as the anti-kickback statute not violated.

PHYSICIAN RECRUITMENT: Stark Payments Indirectly Made

• For payments made either indirectly or directly to a physician who joins a physician practice, there are additional conditions:

• The written agreement must also be signed by the party receiving payments; • Except for actual costs incurred, the remuneration is passed directly to the

recruited physician; • The costs allocated can not exceed the actual additional incremental costs

attributable to the recruited physician; • Records of these costs are maintained for 5 years; • The remuneration not determined by the volume or value of referrals; • Physician practice may not impose additional practice restrictions other than

conditions related to quality of care; and • Does not violate the anti-kickback statute

OTHER FRAUD AND ABUSE LAWS

• Health Insurance Portability Accountability Act (HIPAA)

• Others identified in handout

OTHER COMPLIANCE ISSUES

• HIPAA Security

• HIPAA Privacy

CONCLUSION

• Getting paid is important • But, the health care fraud and abuse laws are very

complicated and complex. • Nevertheless, you are responsible for compliance.• Get good advice for someone who practices in this

area and understands its idiosyncrasies. • While they cannot be eliminated, the risks can be

mitigated.