Healthcare Regulatory Check-up | Sept 2024 Recap

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This issue of McDermott's Healthcare Regulatory Check-Up highlights regulatory activity for September 2024. We discuss several enforcement actions pertaining to healthcare fraud, including alleged violations...
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SEPTEMBER REGULATORY UPDATE SUMMARY

This issue of McDermott's Healthcare Regulatory Check-Up highlights regulatory activity for September 2024. We discuss several enforcement actions pertaining to healthcare fraud, including alleged violations under the False Claims Act (FCA), federal Anti- Kickback Statute (AKS), and the Stark Law. We also review an unfavorable Office of Inspector General (OIG) advisory opinion on the sharing of savings between an organization that provides coverage through employer group waiver plans and the groups to which it provides such plans, as well as other regulatory updates in the healthcare field.

NOTABLE ENFORCEMENT RESOLUTIONS AND ACTIVITY

Surgical Hospital, USPI Agree to Pay $12.7M to Settle Self-Disclosed AKS and Stark Law Claims

On September 16, 2024, the US Department of Justice (DOJ) announced that Siouxland Surgery Center LLP, doing business as Dunes Surgical Hospital; United Surgical Partners International Inc. (USPI), which has partial ownership of Dunes; and USP Siouxland Inc., a wholly owned USPI subsidiary through which USPI has ownership in Dunes, agreed to pay approximately $12.76 million to resolve self-disclosed alleged FCA violations. The settlement addresses allegations that from 2014 to 2019, Dunes made significant financial contributions to a nonprofit affiliate of a physician group, which funded the salaries of athletic trainers who generated referrals to both the physician group and Dunes. Dunes also allegedly provided another physician group with free or below-fair-market-value clinic space, staff, and supplies. The DOJ alleged that these arrangements violated the AKS and the Stark Law. The settlement was reached following an internal compliance review and independent investigation by Dunes and USPI, which disclosed the arrangements to the government.

Physician Charged in $32.7M Medicare Fraud Scheme

On September 18, 2024, a pain management physician was charged in a $32.7 million Medicare fraud scheme. The indictment alleges that from January 2010 through July 2023, Michael Dole, MD, billed Medicare for definitive urine drug testing services that were medically unnecessary. The government claimed that Dole billed Medicare more than $32.7 million for testing more than 22 classes of drugs in urine specimens from almost all his patients, despite a lack of documentation or suspicion of drug use. Medicare reimbursed Dole more than $11.7 million for these claims, which he allegedly used for personal expenses. Dole is charged with one count of conspiracy to commit healthcare fraud and five counts of healthcare fraud. If convicted, Dole faces a maximum penalty of 10 years in prison on each count.

100+ Defendants Federally Charged With Pandemic-Related Fraud

On September 25, 2024, the US Attorney's Office for the Middle District of Florida announced the results of its efforts to combat fraud related to the COVID-19 pandemic. Since March 2020, the US Attorney's Office has federally charged 109 individuals with fraud-related schemes to exploit state and federal programs implemented to alleviate the economic hardships caused by the COVID- 19 pandemic. Collectively, the defendants attempted to defraud the government of more than $96 million through programs such as the Paycheck Protection Program, economic injury disaster loans, and unemployment insurance. Of the 109 charged, 74 have been found guilty, while cases against 35 defendants are still pending.

OIG UPDATES

OIG ISSUES AO NO. 24-08 ON MA GAINSHARING PAYMENTS

On September 10, 2024, OIG issued an unfavorable opinion regarding a requestor's proposal to share a percentage of savings with certain groups to which it provides coverage. Requestor is a corporation that, on behalf of itself and its affiliates, contracts with the Centers for Medicare & Medicaid Services (CMS) to offer Medicare Advantage (MA) plans, MA Prescription Drug (MA-PD) plans, and MA/MA-PD Employer Group Waiver Plans (EGWPs). It provides health insurance coverage and administrative services to group health plans consistent with 42 C.F.R. § 422.106(d)(6), such as employees, trusts, and union groups (collectively, groups).

Pursuant to the proposed arrangement, requestor would give groups the opportunity to share in a percentage of requestor's savings (gainshare payment) by entering into agreements with groups to provide coverage to the group's enrollees for the basic benefits under Medicare Parts A, B, and D, as applicable, through an MA-PD plan. Requestor and each group would negotiate whether requestor would charge any additional amount as a premium, and the contract would include conditions dictating when a group would be eligible to share a percentage of requestor's savings as a gainshare payment. The gainshare payment would be based on a negotiated "medical loss ratio" and calculated by dividing certain expenses incurred by requestor by certain revenues received. If the final negotiated medical loss ratio for the group fell below a previously negotiated target, requestor would pay the group an amount representing a separately negotiated percentage of the savings below the target, which could exceed any additional premium amount paid by the group and could be paid to groups that did not pay an additional premium to requestor. Requestor would not restrict how a group could use the gainshare payment, but a group might be subject to ERISA or other state laws that impose fiduciary requirements that may impact how the group could use the gainshare payment.

The OIG determined that the proposed arrangement would implicate the AKS because requestor, an organization that offers EGWPs, would offer remuneration to a group in the form of sharing a percentage of its savings that could induce the group to refer its enrollees to requestor so that requestor, via its EGWP, would arrange for the furnishing of items or services that are reimbursable by a federal healthcare program. Additionally, no safe harbor to the AKS would apply.

The OIG noted that the proposed arrangement presented a risk of steering that could also impact competition. Groups would be given an opportunity to receive an incentive to choose a particular plan that would arrange for federally reimbursable items and services for the enrollees. A group's ability to use the gainshare payment for purposes other than benefitting enrollees could steer the group to choose requestor's plan over other plans that are unable to provide such incentives. Second, the steering concern would not be offset by any guaranteed benefits to enrollees. Groups would be under no obligation to negotiate for enhanced benefits or lower costs for their enrollees.

Finally, the OIG rejected requestor's reliance on CMS's 2021 "Announcement of Calendar Year 2022 MA Capitation Rates and Part C and Part D Payment Policies," in which CMS noted that it "does not regard the regulation at [42 C.F.R.] § 422.266, which governs the use of beneficiary rebates, as restricting how the EGWP can use the entire payment it receives from CMS, particularly its own gain/loss margin." OIG noted that notwithstanding this statement, CMS does not expressly permit gainshare payments as part of the MA program; rather, it simply states that the regulation does not apply to the portion of a payment not issued as a rebate. OIG also noted that the statement does not insulate any such payments from implicating the AKS.

CMS REGULATORY UPDATES

CMS Issues Revised Guidance for Eligible Providers Interested in REH Certification

On September 6, 2024, CMS issued revised guidance regarding the process by which rural hospitals and outpatient facilities can participate in Medicare as a rural emergency hospital (REH) rather than a critical access hospital (CAH) or rural hospital. This guidance updates the enrollment and conversion process for eligible facilities, detailing the conditions of participation that REHs must meet to participate in Medicare and Medicaid programs. The revisions aim to improve healthcare access in rural communities by addressing health inequities. The document also includes updated frequently asked questions and states that the final interpretive guidance for REHs will be released in the future.

CMS Announces Annual Amount in Controversy Threshold Adjustment

On September 27, 2024, CMS published a notice in the Federal Register announcing the annual adjustment to the amount in controversy threshold amounts for administrative law judge (ALJ) hearings and judicial review under the Medicare appeals process. The adjustment will be effective for requests for ALJ hearings and judicial review filed on or after January 1, 2025. The calendar year 2025 amount in controversy threshold amounts are $190 for ALJ hearings and $1,900 for judicial review.

OTHER NOTABLE DEVELOPMENTS

Departments Issue Landmark Mental Health Parity Final Rule

On September 23, 2024, the US Departments of the Treasury, Labor, and Health and Human Services issued final regulations under the Mental Health Parity and Addiction Equity Act. These regulations update the 2013 rules to incorporate changes from the Consolidated Appropriations Act, 2021. The key updates require plans and issuers to analyze and compare nonquantitative treatment limitations (NQTLs) for both mental health/substance use disorder benefits and medical/surgical benefits.

Significant changes include clarifying terms such as "medical/surgical benefits," "mental health benefits," and "substance use disorder benefits." The final regulations also eliminate the "substantially all" test that was included in the proposed regulations, and adopt certain modification standards related to plan design, data collection, and evaluation. The regulations adopt modifications to the proposed "meaningful benefit" requirement and introduce new content requirements for NQTL comparative analysis. The rule also adopts, with some modifications, the proposed regulations' fiduciary certification requirement.

These rules are part of the Biden-Harris administration's efforts to improve mental health care for more than 150 million people with private health coverage. Most changes will take effect in 2025, with some provisions delayed until 2026. For further analysis, see our On the Subject.

OIG Recommends CMS Implement Additional Oversight of RPM in Medicare

On September 2024, OIG released a data-driven analysis of Medicare and Medicaid claims and encounter data that highlights the need for increased oversight of remote patient monitoring (RPM). The report reveals that about 43% of Medicare beneficiaries did not receive all three essential components of RPM services, which include the monitoring device, education and setup, and treatment management. There also are significant data gaps; Medicare lacks critical information about the types of devices used and the data being monitored. Concerns about potential fraud have also been raised, with some companies making unsolicited calls to beneficiaries or lacking sufficient staff to monitor enrollees effectively. The use of RPM has grown significantly. More than 570,000 beneficiaries used the service in 2022, up from about 55,000 in 2019. The OIG recommends that CMS implement additional safeguards, require detailed information about the ordering provider, and conduct provider education about RPM billing to ensure the service is used and billed appropriately. For further analysis, see our On the Subject.

OIG Releases Findings of Novitas Cost Report Final Settlements Audit

On September 11, 2024, OIG issued its findings in an audit of Medicare administrative contractor Novitas Solutions, Inc., to determine whether Novitas reopened and corrected cost report final settlements because of obvious errors in its audits. OIG determined that Novitas reopened eight of 281 (2.8%) of audited cost reports to correct the final settlements that contained obvious errors. These eight audited cost reports required 10 reopenings because of human errors by Novitas. As a result of these errors, the reopened cost reports resulted in corrected final settlements to providers totaling $1.1 million in net overpayments, consisting of $1.4 million in overpayments and $285,076 in underpayments. According to OIG, delays in the finalization of audited cost reports could prevent some Medicare funds from being used in the most efficient and effective ways. OIG recommended that Novitas develop and deliver additional education to auditors and audit supervisors regarding applicable criteria and review requirements, and develop and implement enhanced procedures so that supervisors are better qualified to detect incorrect audit adjustments.

Eighth Circuit Tosses FCA Claims Alleging MA Marketing Schemes

On September 13, 2024, the US Court of Appeals for the Eighth Circuit upheld the dismissal of FCA claims against an insurance brokerage firm and several carriers accused of improperly marketing MA plans. The court stated that the relator, an insurance agent, failed to demonstrate that the alleged marketing schemes were material to the government's payment decision. The relator brought the qui tam action against Medicare Medicaid Advisors, Inc. (MMA), and several insurance carriers, including UnitedHealthcare, Humana, and Aetna. The complaint alleged three fraud schemes in which MMA:

  • Violated MA marketing regulations, including by cold-calling and door-to-door sales of plans, making misrepresentations to beneficiaries, and encouraging beneficiaries to switch plans to generate commissions.
  • Falsely attested that its agents were fully certified to sell MA plans when it knew they were not.
  • Worked to bypass CMS's complaint tracking module to improve the MA plans' star ratings and entitle the carriers to bonus payments.

The US District Court for the Western District of Missouri dismissed the complaint, and the Eighth Circuit upheld this decision, citing the lack of materiality under the FCA. The Eighth Circuit concluded that none of the alleged schemes went to the "essence" of CMS's contract with the carriers, and that the alleged schemes were not "material to CMS's bargain with the carriers."

California Governor Vetoes AB 3129

On September 28, 2024, California Governor Gavin Newsom vetoed Assembly Bill (AB) 3129. The bill would have required private equity groups and hedge funds to notify and obtain the consent of the California Attorney General for certain investments involving healthcare facilities, provider groups, and providers operating in California. In his veto statement, Governor Newsom emphasized that the Office of Health Care Affordability (OHCA) already has the authority to review healthcare transactions that could significantly impact market competition or affordability. He argued that it would be more appropriate for OHCA to continue overseeing these transactions rather than expanding the attorney general's authority as proposed by AB 3129. For further analysis, see our On the Subject.

Florida Federal Court Holds FCA Qui Tam Provisions Unconstitutional

On September 30, 2024, the US District Court for the Middle District of Florida dismissed an FCA case, U.S. ex rel. Zafirov v. Florida Medical Associates, LLC, on the grounds that the FCA's qui tam provisions are unconstitutional. This landmark decision follows arguments similar to those previously raised by Supreme Court Justice Clarence Thomas in his dissent in the 2023 Supreme Court case U.S. ex rel. Polansky v. Executive Health Resources, Inc.

The ruling focused on three main constitutional issues:

  • Jurisdiction and waiver.
  • The Appointments Clause.
  • Whether Article II of the Constitution contains a "qui tam exception."

Judge Kathryn Kimball Mizelle concluded that FCA relators are considered "officers" of the United States and must be properly appointed by the executive branch, thus invalidating the qui tam provisions.

This decision is expected to be appealed to the US Court of Appeals for the Eleventh Circuit and could potentially reach the Supreme Court. If upheld, the decision would have significant implications for FCA enforcement, which relies heavily on qui tam relator claims. This ruling has important litigation and strategic implications for anyone involved in qui tam litigation today or in the future. For further analysis, see our On the Subject.

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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