United States: Summer Fraud And Abuse Roundup (September 2016)

Now that the kids are back in school and summer vacations are in the rearview mirror, it's time to catch up on recent fraud and abuse developments. The federal government was busy this summer negotiating a pair of settlements under the Stark Law and anti-kickback statute, drafting changes to the Self-Referral Disclosure Protocol (SRDP), and issuing an interim final rule incorporating statutory increases to civil money penalties. This article highlights those recent developments.

Summer Fraud and Abuse Settlements

Lexington Medical Center

On July 20, 2016, Lexington Medical Center (LMC) in South Carolina agreed to pay $17 million and enter into a corporate integrity agreement with the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) to settle allegations that its financial relationships with 28 physicians violated the Stark Law and the False Claims Act. LMC is a public hospital district with over 300 employed physicians. The plaintiff, a former LMC neurologist, alleged that LMC acquired physician practices to capture the physicians' referrals, and in exchange, LMC paid them commercially unreasonable compensation exceeding fair market value. For example, the plaintiff stated his compensation was $250,000 before the acquisition and topped out at $650,000 during his second year of employment by LMC. The plaintiff also reported that LMC held meetings with the employed physicians to discuss declining imaging referrals and terminated him in July 2013 because he refused to send all imaging referrals to LMC. The second amended complaint alleges that LMC's arrangements with the plaintiff and other physicians violated the Stark Law because the acquisition and employment agreements provided compensation to the physicians in excess of fair market value, took into account the volume or value of referrals, and were not commercially reasonable.

The settlement involved similar allegations related to LMC's acquisition of four other physician groups. The $17 million paid by LMC pales in comparison to recent Stark Law cases involving employed physician relationships which have reached into the hundreds of millions of dollars. Nevertheless, the case is yet another example of the False Claims Act implications of problematic physician relationships.

Sweet Dreams Nurse Anesthesia

On August 5, 2016, Sweet Dreams Nurse Anesthesia (Sweet Dreams) agreed to pay more than $1 million to resolve allegations that it violated the False Claims Act by engaging in several arrangements implicating the federal anti-kickback statute. Sweet Dreams is a partnership of certified registered nurse anesthetists. The settlement addressed several schemes implicating the federal anti-kickback statute, including allegations that Sweet Dreams provided free anesthesia drugs to ambulatory surgery centers (ASCs) in exchange for an exclusive contract as the provider of professional anesthesia services at those ASCs. An affiliate of Sweet Dreams was also alleged to have funded the construction of an ASC in exchange for Sweet Dreams being awarded the exclusive anesthesia contract at the facility and a number of other affiliated ASCs.

The settlement stemmed from a qui tam case filed by a former employee. Notably, the initial False Claims Act complaint did not involve kickback allegations but focused on billing compliance issues. The government may have uncovered the alleged kickback violations through its investigation of the billing compliance issues. The settlement underscores the importance of fraud and abuse compliance considerations in exclusive arrangements for professional services.

Proposed Updates to the Self-Referral Disclosure Protocol

The Centers for Medicare and Medicaid Services (CMS) recently issued a notice in the Federal Register seeking public comments on updates to the Self-Referral Disclosure Protocol (SRDP) information collection requirements. Under the current SRDP, a party must provide a financial analysis of overpayments arising from actual or potential violations based on a four-year lookback period. CMS is proposing to revise the SRDP to reflect the six-year lookback period established by the final overpayment rule on February 12, 2016. The six-year lookback period would apply only to submissions to the SRDP received on or after March 14, 2016, the effective date of the final overpayment rule.

Additionally, on September 9, 2016, CMS introduced a new mandatory form for SRDP submissions, aiming to streamline and simplify the SRDP process. CMS Form Number CMS-10328 solicits all of the required information for an SRDP submission, but providers are still permitted to include a cover letter with additional information.

Comments on the changes to the SRDP must be received by October 11, 2016.

Inflated Penalties

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Act) requires federal agencies to make cost-of-living adjustments to civil monetary penalty (CMP) amounts based on increases in the Consumer Price Index (CPI). On September 6, 2016, the U.S. Department of Health and Human Services (HHS) issued its interim final rule (IFR) updating the CMP regulations for all agencies within HHS. Under the Act, agencies are required to make a "catch-up" adjustment to CMPs that they implement, which is the difference between the CPI of the calendar year in which the penalties were last adjusted and the CPI for the current year. The catch-up adjustments are capped at 150 percent of the current penalty amount. The IFR sets forth the initial catch-up adjustment for CMPs under the control of HHS as well as any necessary technical conforming changes to the language of these regulations. Going forward, the CMP amounts will be adjusted without notice and comment rulemaking each January based on changes in the CPI.

All CMPs under 42 U.S.C. 1320a-7a(a) were increased, including a 47 percent increase to the amount of the CMPs applicable to kickback arrangements (now $73,588) and for employing or contracting with excluded individuals (now $14,718). Further, the CMP for Stark Law violations increased 59 percent, from $15,000 to $23,863. The adjusted civil penalty amounts are applicable only to civil penalties assessed after August 1, 2016, for violations occurring after November 2, 2015.

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