United States: Skeletons In The Closet? Beware Of Potential Enforcement Actions

Last Updated: October 30 2015
Article by Brian P. Dunphy and Karen S. Lovitch

With Halloween looming, a discussion of skeletons that may be lurking in a health care provider's closet is timely. Many of our previous posts, as well as the monthly Qui Tam Updates published by our Health Care Enforcement Defense Group, have discussed a wide variety of state and federal health care fraud investigations and qui tam cases filed by relators under the False Claims Act (FCA). Here we have identified three skeletons worth clearing from the closet in an effort to avoid the frights that may follow from such enforcement actions and lawsuits.

The 60-Day Rule

As explained in a previous post, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule in February 2012 in an attempt to implement the "60-day rule," which concerns a provider or supplier's obligation to return overpayments, but CMS has had a frighteningly difficult time finalizing the regulations. However, the Office of Management and Budget received the final 60-day rule for review on October 21, 2015, and it has 90 days to review the final rule, although that time may be extended. Regardless of the timing of the final rule's publication, health care providers should already be investigating and addressing any potential overpayments in accordance with the governing statute.

The 60-day rule regulations will implement a provision of the Affordable Care Act (ACA) that requires a person or entity who has received a Medicare or Medicaid overpayment to report and return the overpayment to the appropriate entity by the later of: (1) 60 days after the date on which the overpayment was identified; or (2) the date any corresponding cost report is due (if applicable). The ACA also made retaining an overpayment past the 60-day (or cost report) deadline the basis of FCA liability by making retention an "obligation" under the FCA's "reverse" false claim provision. The reverse false claim provision prohibits "knowingly" concealing or "knowingly and improperly" avoiding or decreasing the payment of an "obligation" to the federal government. The contours of the final 60-day rule thus will have a substantial bearing on the scope of FCA liability.

One particularly scary issue for providers and suppliers relates to how CMS may choose to define when an overpayment has been "identified" and thus when the 60-day period begins to run. According to the proposed rule, an overpayment is "identified" if a health care provider or supplier has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the overpayment. This definition is consistent with the definition of "knowledge" under the FCA but may not be appropriate in the reverse false claims context.

In the proposed rule, CMS acknowledged that a provider or supplier may need time to conduct a "reasonable inquiry" after learning of a potential overpayment to confirm whether an overpayment was actually received, and the reporting and return of the overpayment must occur within 60 days of completing the inquiry. Although CMS provided a number of examples, it offered little concrete guidance on how it would determine whether an inquiry is "reasonable." CMS noted, however, that failure to act "with all deliberate speed" could result in the provider or supplier knowingly retaining an overpayment.

Since publication of the proposed rule, court decisions and settlements have started to emerge that shed some light on potential FCA liability for retaining an overpayment beyond the 60-day deadline. First, in the context of a FCA qui tam lawsuit, the United States District Court for the Southern District of New York recently issued one of the first decisions addressing the 60-day rule. The court decided that the term "identified" means that a provider has been "put on notice of a potential overpayment." The court rejected a proposed standard that would require an overpayment to have been "conclusively ascertained" before the 60-day clock would start. Second, the Department of Justice announced a $6.88 million settlement of claims alleging that a home nursing provider allegedly "fail[ed] to investigate credit balances on its books to determine whether they resulted from overpayments made by a federal health care program." This settlement shows that the failure to conduct an investigation may result in substantial liability.

The decisions and settlements highlight the necessity for a provider or supplier to act quickly once an overpayment is suspected. The failure to act with "deliberate speed" may result in FCA liability for retaining an overpayment.

Payments to Physicians

The OIG has long been critical of payments made to physicians by hospitals, laboratories, and others to whom they refer, and the level of scrutiny seems to be increasing, as evidenced by the June 2014 Special Fraud Alert regarding payments by laboratories to physicians, the June 2015 Fraud Alert regarding physician compensation arrangements, and recent settlements.

Providers and suppliers require the services of referring physicians for a variety of valid reasons. For example, a laboratory may need a physician to serve on an advisory board, to speak at an educational program, or to serve as a medical director. To avoid the horrors of a government investigation or qui tam lawsuit related to payments to physicians, providers and suppliers should consider taking the following steps:

  1. structure consulting services arrangements to fit within the personal services safe harbor of the Anti-Kickback Statute and the personal services or fair market value exception to the Stark Law,
  2. evaluate and document the need for the physician's services,
  3. engage only the number of consultants needed, and
  4. implement a policy that describes the process for evaluating the need for consulting services, confirming the fair market value of the compensation provided, documenting the arrangement and its compliance with the applicable safe harbor and exception, and establishing necessary training programs.

Third-Party Relators

Health care companies should be aware of an emerging trend in qui tam litigation that may result in nightmares. In the past, the vast majority of cases were filed by current or former employees, but lately we have noticed that in-house counsel, compliance officers, and competitors are filing an increasing number of qui tam lawsuits. More common, however, are third-party relators who do business with the defendant company, such as physicians and physician office employees, Medicare Part D sponsors, billing and coding specialists, and auditors. We have also observed the emergence of serial relators. Health care providers must therefore closely scrutinize relationships and communications with third parties, and take any compliance concerns raised by third parties seriously. Today's client may be tomorrow's relator....

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Brian P. Dunphy
Karen S. Lovitch
 
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