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.
Hospital-physician recruitment agreements provide a source of financing for private medical groups to bring an additional physician on staff, reducing the economic risk of making a new hire. They serve the public interest by encouraging physicians to relocate to medically underserved areas and health professional shortage areas. The need for primary care providers in these areas is especially great. Yet, more and more, primary care is being delivered by ancillary providers, particularly physician assistants and nurse practitioners.
In its Proposed Rule from July of last year, CMS acknowledged that there have been drastic changes to the primary care workforce and the delivery of primary care services throughout the United States. As such, CMS proposed a limited exception for hospitals, federally qualified health centers ("FQHCs") and rural health clinics ("RHCs") to provide remuneration to physicians who want to recruit a non-physician practitioner ("NPP"). CMS previously declined to expand the physician recruitment exception to NPPs during the regulations promulgated in Phase III of the Stark Law. But CMS has now determined that this extension of the exception is appropriate for certain employed and independent contractor physician-NPP arrangements in light of health care and primary care workforce shortage projections.
In the Final Rule, CMS made several modifications to the version of the NPP exception that it included in the Proposed Rule. The Final Rule’s definition of NPP is broader than the one originally proposed, covering any NPP who furnishes substantially all primary care services or mental health care services to patients of the physician's practice. As such, covered NPPs include clinical social workers, clinical psychologists, physician assistants, nurse practitioners, clinical nurse specialists and certified nurse midwives.
Prior to the new exception, hospitals, FQHCs, and RHCs could offer recruitment assistance to physicians only for the recruitment and retention of physicians into their geographic service areas.
To be protected under the exception, the recruitment arrangement must satisfy these conditions:
1. It must be in writing and signed by the hospital, the physician, and the NPP.
2. It cannot be conditioned on the physician’s or the NPP’s referrals to the hospital.
3. The remuneration from the hospital cannot exceed 50 percent of the actual compensation, signing bonus, and benefits paid by the physician to the NPP (which compensation must meet the fair market value requirement common to the Stark Law).
4. The remuneration from the hospital can only be paid during the first two consecutive years of the compensation arrangement between the physician and the NPP.
5. The remuneration from the hospital cannot be determined in a way that takes into account the volume or value of actual or anticipated referrals by the physician (or any physicians in that practice), the NPP (or any NPP in the practice), or any other business generated between the parties.
6. The NPP cannot have, within one year of the commencement of the NPP’s compensation arrangement, practiced in the geographic area serviced by the hospital or been otherwise employed or engaged to provide patient care services by a physician or physician organization that has a medical practice site located in the geographic area served by the hospital (whether or not the NPP actually furnished services at that site within the geographic area).
7. Substantially all (that is, at least 75%) of the patient care services that the NPP furnishes to the physician’s practice must be primary care services or mental health care services.
8. The physician cannot impose practice restrictions on the NPP that unreasonably restrict the NPP’s ability to practice in the geographic area.
9. Records of the amount of remuneration by the hospital to the physician, and by the physician to the NPP, must be maintained for at least six years.
The exception may be used by a hospital, FQHC, or RHC only once every three years with respect to the same referring physician. However, this three-year limitation does not apply where an NPP is replacing an NPP who terminated his or her employment or contractual arrangement within one year of its commencement, and the remuneration provided to the physician is provided during a period that does not exceed two consecutive years from the commencement of that employment or contractual arrangement.
CMS expanded the definition of a compensation arrangement to include independent contractors, employees, and "other" arrangements. Thus, the NPP need not be a bona fide employee, as specified in the proposed rule.
However, regardless of whether the NPP is an employee or an independent contractor, the compensation arrangement must be directly between the physician (or physician organization) and the NPP. This requirement would prohibit, among other things, staffing services from holding the contract.