Looking Back at Health Care False Claims Enforcement in 2015; Looking Ahead at Trends Driving Health Care False Claims Enforcement in 2016
On December 3, 2015, the U.S. Department of Justice (DOJ)—the principal public enforcer of the U.S. False Claims Act (FCA)—released its report of recoveries obtained under the FCA during its 2015 fiscal year. In FY 2015, the DOJ recovered more than $3.5 billion in settlements and judgments from civil cases involving fraud and false claims against the government. This is the fourth year in a row that the DOJ has recovered more than $3.5 billion in cases under the FCA, and brings total recoveries from January 2009 to the end of the fiscal year to $26.4 billion.
Of the $3.5 billion recovered last year, $1.9 billion—more than half of the total recovery—came from companies and individuals in the health care industry who were accused of providing unnecessary or inadequate care, paying kickbacks to health care providers to induce the use of certain goods and services, or overcharging for goods and services paid for by Medicare, Medicaid, and other federal health care programs. This $1.9 billion reflects federal losses only. In many of these cases, the DOJ played a salient role in recovering additional millions of dollars for consumers and state Medicaid programs.
Big recoveries for FCA violations in the health care industry are nothing new. Health care fraud recoveries in 2015 were actually slightly less than they were in 2014, when DOJ’s FCA recoveries for fraud against federal health care programs were about $2.3 billion in all. Health care fraud has been assuming an increasingly prominent role in FCA enforcement for decades. In 1987, the number of FCA cases that the DOJ filed involving fraud on federal health care reimbursement programs was a whopping zero. By 2011, it was over 400 cases. By the late 1990s, HHS cases began to represent a majority of all FCA cases.
The growth in health care FCA claims is mostly attributable to qui tam actions—that is, lawsuits alleging FCA violations that have been filed by private individuals acting on the government’s behalf, pursuant to 31 U.S.C. § 3729 et seq. In 1992, the number of qui tam filings exceeded for the first time the number of FCA claims filed by the DOJ. For the last decade, about 80 percent of all FCA recoveries in health care have resulted from qui tam lawsuits.
What can we expect by way of FCA enforcement trends in health care this year? Extrapolating from last year’s developments, there seem to be at least two safe bets:
1. Individuals will be in the cross-hairs like never before. In a memo issued in September 2015, the DOJ announced that it will aggressively pursue individuals in the health care industry who are responsible for corporate FCA violations. The memo, addressed to all federal prosecutors and issued by Deputy Attorney General Sally Quillian Yates (and therefore popularly referred to as the “Yates Memo”), states among other things that: (1) in order to qualify for any cooperation credit, corporations must provide to the DOJ all relevant facts relating to the individuals responsible for the misconduct; (2) criminal and civil corporate investigations should focus on individuals from the inception of the investigation; (3) absent extraordinary circumstances or approved departmental policy, the DOJ will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation; (4) DOJ attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and (5) civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual's ability to pay.
All of this is likely to increase the incentives for employers in the health care sector to place the blame for FCA violations on the actions of "bad apple" employees, in an effort to escape corporate culpability. Those incentives were already powerful before the Yates Memo was issued.
2. Enforcement focus on physician compensation arrangements will likely continue. Physician compensation arrangements that violated the Stark Law, and that therefore violated the FCA as well (at least where federal money was directly or indirectly involved), were the focus of several big-dollar FCA recoveries in 2015.
In September of last year, the DOJ announced that Florida-based Broward Health had agreed to pay the federal government $69.5 million to settle allegations it violated the FCA by engaging in improper financial relationships with nine physicians. This case originated as a qui tam complaint brought by a physician-whistleblower, Dr. Michael Reilly, MD, an orthopedic surgeon in private practice, who alleged the health system carefully tracked the value of physician referrals and pressured physicians to increase referral volume when they lagged. Dr. Reilly's claim came about after he was offered an employment deal with Broward Health, but rejected it after his lawyer told him it was illegal.
Just one week after the Broward Health settlement was announced, Florida-based Adventist Health System reached a $118.7 million settlement with the DOJ and four states to settle similar allegations. The settlement resolved claims that the nonprofit health system had paid bonuses to employed physicians based on a formula that improperly took into account the value of the physicians' referrals to Adventist hospitals.
Then in October of 2015, the DOJ announced that it had settled its years-long battle with Tuomey Healthcare System in South Carolina. Trial in that case in 2013 yielded an astonishing $237 million jury verdict, which was subsequently upheld by the US. Court of Appeals for the Fourth Circuit in July of 2015. The DOJ settled the case for $72.4 million, and Tuomey was sold to Palmetto Health, a multi-hospital healthcare system based in Columbia, South Carolina. The basis of the DOJ’s complaint against Tuomey was that it illegally billed the Medicare program for services referred by physicians with whom the hospital had improper financial relationships.
Given all of the attention directed at these big settlements in 2015, physician compensation cases should continue to fuel FCA claims in 2016. It's not enough to have a written employment contract with compensation provisions that appear to comply with the Stark Law on their face. The government has signaled that it will not only scrutinize a written agreement memorializing a compensation arrangement, but will also scrutinize the parties' performance under the contract and the basis on which compensation is determined. Compliance is an on-going obligation throughout the term of a physician's employment.
The Tuomey and Adventist cases, which are only two among the many enforcement actions brought recently by the DOJ against non-profit providers, also make clear that the DOJ won't cut any slack to a hospital or health system just because it is non-profit. There is no "halo effect" that will shield a non-profit health care provider from a potentially devastating FCA claim.
The U.S. Department of Labor (DOL) is expected to issue a final rule regarding the overtime provisions in the Fair Labor Standards Act (FLSA) in late 2016 that will significantly expand the number of employees eligible to receive overtime pay. The proposed rule issued in July 2015 has already prompted health care employers to proactively evaluate their compensation and employee classification practices so as not to be caught flat-footed when final rule takes effect.
The FLSA requires certain employees to be paid overtime for any hours worked in excess of 40 in a workweek. Employers are not required to pay overtime to all employees. Among other categories, the FLSA exempts certain “white collar” workers (e.g., executive, administrative, professional). To be exempt, employees must satisfy a “salary test” and a “duties test” which require that the employee:
DOL also proposes to increase the salary threshold to meet the “highly compensated employee” exemption from $100,000 to $122,148, the 90th percentile for full-time salaried employees. All employees who earn less than $50,440 must be classified as non-exempt regardless of their job duties, and all employees who earn between $50,440 and $122,148 are potentially non-exempt, depending on their specific duties. DOL’s proposed rulemaking doesn’t make any changes to duties analyses for white collar exemptions.
Health care compensation analysts expect the rule change to impact mid-level administrative positions within hospitals and health systems especially: Lower-level white collar positions in support departments such as accounting, human resources and information technology are ones that are most often misclassified as exempt.
But it is important for physicians, physician assistants, nurses and other employed medical professionals to understand that they, too, may be entitled to overtime compensation, if they are made to work more than 40 hours per week and are paid a salary that is under the threshold, or are not paid a salary at all. This is the lesson that Righttime Medical Care, an operator of urgent care clinics in Maryland, learned to its dismay this past year when some of its current and former PAs and NPs sued it for unpaid overtime, and were subsequently granted class certification under the FLSA by the United States District Court.
Negotiations leading to physician employment often begin not with a draft contract, but with a “letter of intent” from the employer, spelling out—usually not in a very detailed way—the anticipated terms and conditions of the employment agreement.
Letters of intent (and their siblings, memoranda of understanding and term sheets) are favored by employers because they allow them to gauge a prospective employee’s commitment to the position before going to the trouble and expense of drafting a definitive employment contract.
A letter of intent can be valuable to the prospective employee as a tool for comparing competing employment offers. The best way to for an employee to get what he or she wants in an employment negotiation is to have alternatives; and having sufficiently detailed letters of intent for each employment offer provides an easy way to make apples-to-apples comparisons among them.
But a letter of intent, if not entered into thoughtfully by the employee, can impair the employee’s ability to negotiate better terms at the contract drafting stage. This is especially true where compensation is concerned. (Asking for a rate of pay in an employment contract that is higher than what you already agreed to in a letter of intent won’t endear you to your prospective employer, and may even end the negotiation.) Worst case scenario: the letter of intent may be drafted in such a way as to constitute a binding contract. In that case, backing out of the arrangement later, without liability, if you decide that it isn’t acceptable may not be an option at all.
It’s imperative that you closely review and negotiate any letter of intent that a prospective employer presents to you before you sign it. Here are a few things to know about negotiating a letter of intent for physician employment.
1. Know What You Want.
You can’t properly evaluate an employment offer outlined in a letter of intent unless you know what you want out of the position. Are you looking for more money, or for a greater work-life balance? Do you welcome greater volatility in earnings if it means you might make money, or do you prefer greater predictability? Are you looking for a pathway to partnership? Do you want an academic appointment along with clinical responsibilities? Do you want administrative or teaching responsibilities in addition to clinical responsibilities, or do you want to eliminate clinical or non-clinical responsibilities from your work entirely? You can’t effectively negotiate until you know what you want out of the deal. Preferences that are material to your decision whether or not to accept the offer should be addressed in the letter of intent to your satisfaction.
2. Know What You're Worth.
Benchmark compensation for physicians of your specialty and in the area where the job will be located, using recent physician compensation survey data. The American Medical Association (AMA), the American Medical Group Association (AMGA) and various national physician recruiting firms all publish annual surveys of what doctors are paid. But the survey with the greatest currency and reputability in the U.S. healthcare industry is probably the Physician Compensation and Production Survey conducted annually by the Medical Group Management Association (MGMA). You can purchase this data yourself—but it can be costly. Better to work with a recruiter, consultant or attorney who has access to this data, and engage him or her at the letter of intent stage to provide you with this data.
3. Know What You’ll be Paid.
For some physicians (a number that is probably shrinks with each passing year) how much you’ll be paid will be obvious from the face of the letter of intent. You’ll be compensated on a straight salary basis, with no incentive pay or other contingencies based on quality or productivity that might cause that figure to go up or down in any given year.
For all other physicians, knowing what you’ll be paid will depend first on knowing how you will be paid: You must understand the prospective employer’s compensation model. The subject of physician compensation models is one I’ll leave for a future (and probably longer) article. It’s enough to say that at the beginning of your employment, your compensation will be based at least partly on one or more contingent factors relating to quality or productivity. The most common private-sector physician compensation models are a salary or net-income guarantee with a potential bonus or incentive add-on.
For the purpose of comparing employment opportunities, you’ll need to know what the basis of that incentive or bonus is, and how it will be triggered. Gross collections, net collections, quality measures, relative value units (RVUs), or some combination of them? If your pay will be based at least in part on RVUs, you’ll want to know the value the employer will apply to convert those RVUs into a dollar amount. You will want to benchmark this conversion figure against compensation survey data.
Keep in mind that might be able to negotiate a change to the numbers in a particular model, but you are very unlikely to negotiate a change to the model itself. That’s because compensation model design is a complicated and risky process for the employer, involving complex business tradeoffs (preserving competitiveness in the employment market while also preserving the appearance of uniform and fair treatment among the employer’s existing workforce), and the need to comply with Federal and state anti-kickback and anti-referral laws.
Also keep in mind that once you sign a letter of intent with a certain dollar amount for your base salary, negotiating an increase in that amount under the definitive employment agreement will be tough. Although letter of intent are usually non-binding, they are a terrific tool of moral pressure, especially in the hands of an employer.
If you’ll be working for a private practice, and your compensation will be guaranteed by a hospital under a hospital recruitment agreement, you’ll want to know this at the letter of intent stage as well. It means you will need to review and sign a hospital recruitment agreement that will be among you, your employer and the hospital, in addition to the employment agreement between you and your employer.
The letter of intent stage is also the right time to negotiate other dollar-denominated inducements like signing bonus, student loan subsidies, relocation expense reimbursement and CME allowance. If any part of these benefits are subject to recapture in the event that you leave, you’ll want to what that “vesting” schedule is for them.
And although you’ll also want the letter of intent to spell out other fringe benefits to which you’ll be entitled—health, life and disability insurance, 401(k)/403(b) match—the best you’ll usually get is a statement to the effect that you’ll get whatever group benefits the employer makes available from time to time to its other professional employees. If that’s the case, ask for a separate summary of the benefits which the employer currently offers.
4. Know How Much You'll Be Expected to Work.
The letter of intent stage is the perfect time to talk about the length of your average work week. How many hours will you generally be expected to work, and how will your time be distributed among your various clinical, academic, and/or administrative responsibilities?
A significant contributor to your overall workload will be your call coverage responsibilities. You’ll want to negotiate a “not to exceed” figure for the number of nights and weekends you will be on call (with an allowance for additional call, if needed, to cover for your colleagues who are on vacation). It’s easier to do this at the letter of intent stage than it is when negotiating the definitive contract. Be warned that many employers will only provide in the letter of intent that you will share in call on an “equitable rotating basis” with the employer’s other physicians. This provides little assurance that you won’t be saddled with crushing call responsibilities sometime in the future if your employer decides to reduce the size of its professional staff.
Finally, you’ll want to know how much paid leave you’ll be entitled to. You’ll want to know whether any of that leave, if unused in a given year, can be transferred to a subsequent year, or if it can be cashed out instead.
5. Know Your Malpractice Coverage.
An employer will usually cover your medical malpractice insurance premium during the term of your employment. You’ll want the letter of intent to stipulate the applicable coverage limits, usually expressed in “per claim/in the aggregate” numbers.
Most malpractice claims are made on a claims-made basis; as such, they will only cover claims that arise during the term of your employment. To cover claims arising after you leave which relate back to alleged errors or omissions during your employment, you’ll need a “prior acts endorsement”—more commonly known as “tail coverage.” When you leave the job, will the employer pay the premium for tail coverage, which is typically 150-200% of the policy’s then-current premium? Will there be any conditions on your entitlement to tail coverage? For example, will you need to remain employed for a certain number of years before your employer will pay it? You’ll want this spelled out in the letter of intent.
6. Know What Should Stay Out.
There are some things you usually won’t want a letter of intent to mention. Generally, the less said in your letter of intent about a post-employment non-compete, the better. This is because these geographic restrictions on employment are usually tightly negotiated and should get an attorney’s review. Employees typically do not have their letters of intent reviewed by attorneys (although there is no reason why they shouldn’t). The exception to this is if you are dead-set against a non-compete, and will not entertain the offer any further unless the employer is willing to forgo the protection of one in the definitive agreement. In that case, get it in writing at the letter of intent stage.
You also don’t want any language in the letter that suggests that it is a binding arrangement, or an exclusive one. You want the letter to make clear that it is non-binding in nature. Even the inclusion of a binding paragraph to the effect that you will negotiate in good faith with the employer toward a definitive employment contract should be avoided. Keep your options open and your right to play the field unburdened.
The Law Office of David M. Briglia represents physicians, physician assistants, nurse practitioners and other professionals in the health care industry in the negotiation of employment contracts, separation agreements, practice buy-ins and partnership and shareholder agreements, and in litigation involving employment and contract disputes in Maryland and Washington D.C. The article above is for informational purposes only, and is not intended, nor can it be relied upon, as legal advice. It is also not intended as an advertisement, solicitation or invitation to enter into an attorney-client relationship.