Source: https://fcablog.sidley.com/page/79/
Timestamp: 2020-02-23 13:07:56
Document Index: 323649509

Matched Legal Cases: ['§ 1347', '§ 24', '§ 331', '§ 1131', '§ 1997', '§ 256', '§ 3729']

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Welcome to Original Source: The Sidley Austin False Claims Act Blog
The False Claims Act (FCA) has long been a key enforcement tool for the federal government in matters involving government contracts or other expenditures of government funds. FCA enforcement has traditionally focused primarily on two industries receiving a substantial amount of government funds: healthcare and defense and other government contractors. Recently, however, FCA enforcement has expanded to other industries, including financial services. Through the False Claims Act Blog, lawyers in Sidley’s White Collar, Healthcare, FDA, Government Contracting, Financial Services, Appellate, and other practices will provide timely updates on new and interesting developments relating to FCA enforcement and litigation.
DOJ Announces Record FCA Recoveries in 2011
On December 19, the Department of Justice announced that during the fiscal year ended September 30, 2011, it obtained over $3 billion in settlements and judgments under the False Claims Act. A few items of note:
Over 90% of the amount recovered resulted from whistleblower suits. According to DOJ, a record 638 qui tam suits were filed in FY2011.
80% of the total recoveries involved alleged healthcare fraud, with the bulk ($2.2 billion) directed toward the pharmaceutical industry.
DOJ obtained $358 million from “non-war related procurement and consumer-related financial fraud” cases, a category that includes grant, housing and mortgage fraud that emerged in the wake of the financial crisis.
In addition to FCA recoveries, DOJ secured $1.3 billion in criminal fines, forfeitures, restitution, and disgorgement under the federal Food, Drug and Cosmetic Act (FDCA).
Tennessee Prosecutors Ramping Up FCA Enforcement
A December 3 article in the Daily News Journal (Murfreesboro, TN) reporting on the recent indictment of the owners of an ambulance company for Medicare fraud discusses the increasing focus on healthcare fraud cases by the U.S. Attorney’s Office in the Middle District of Tennessee. According to the article, Jerry Martin, the current U.S. Attorney, said in a recent speech that his office is “absolutely looking for [FCA} business,” and recently has doubled the number of prosecutors working on FCA cases. While the U.S. Attorney’s Office for the Middle District of Tennessee is not as well-known as its counterparts in other locales (such as Boston and Philadelphia) for its FCA work, it has announced a number of healthcare FCA verdicts or settlements in 2011 relating to medical devices, diagnostic testing, and nursing homes.
DOJ Intervenes in FCA Suit Against Hospice Company
Scott Stein and Allison Reimann
Posted by Scott Stein and Allison Reimann
On December 6, 2011, the Department of Justice intervened in an FCA suit against AseraCare Hospice, a hospice provider with facilities in nineteen states. The lawsuit, filed in 2009 by two former AseraCare employees, alleges that AseraCare knowingly filed false claims to Medicare for hospice care for patients who were not terminally ill. The DOJ’s complaint alleges that AseraCare, by pressuring employees to reach aggressive Medicare targets, admitted and retained individuals who were ineligible for Medicare hospice benefits—even after being alerted to problems by an internal auditor.
The case is United States ex rel. Richardson v. Golden Gate Ancillary LLC d/b/a AseraCare Hospice, No. 09-CV-00627, and is pending before Judge Abdul Kallon in the Northern District of Alabama. As reported by Bloomberg News, the DOJ’s complaint in intervention is part of a wider federal crackdown of suspected fraud by hospice providers.
Complaints, Health Care Providers, Medicare/Medicaid
Court Holds Relator’s Settlement and Release of FCA Claims Unenforceable
In a recent decision that exemplifies the difficulties in settling a qui tam in which the United States has declined to intervene, a federal district court in Florida recently held that a settlement agreement in which a relator falsely represented that she had not filed any action against the Defendant, and released her qui tam claim, was unenforceable. U.S. ex rel. Scott v Cancio, No. 8:10-cv-50-T-30TGW (M.D. Fla.), November 28, 2011 Slip Op. The plaintiff sued her former employer, a medical practice, for discrimination and retaliation. While the employment case was still pending, the plaintiff filed a qui tam under the False Claims Act (“FCA”) against the same defendant. Three weeks after filing the qui tam under seal, the plaintiff and defendant executed a settlement agreement in connection with the employment case in which the employee represented that she had not filed any “complaint, claim or charge” against the Defendant in any “state or federal court.” The agreement also contained a broad release of any and all claims the plaintiff had against the defendant.
After the qui tam was unsealed and the United States declined to intervene, the defendant moved to dismiss on the ground that the plaintiff was barred by the settlement agreement from pursuing the case. Notably, the United States took no position on the Defendant’s motion to dismiss the case. Yet the court denied the motion to dismiss and held the release unenforceable. The court noted that while in a “typical case, the release would preclude” the qui tam, the FCA provides an “action” under the FCA “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting,” quoting 31 U.S.C. 3730(b)(1). Acknowledging that several cases have held that pre-filing releases of qui tam actions may be enforceable, the court distinguished those cases on the ground that when the release precedes the filing of a qui tam, there is no “action,” and therefore section 3730(b)(1) is not implicated.
The defendant noted that it was seeking dismissal only of the plaintiff’s relator interest, and not any claims that could be asserted by the United States – which, as noted above, did not oppose the motion to dismiss. But the court held that “the plain language of section 3730(b)(1) requires the Attorney General’s written consent to a qui tam action’s dismissal and does not make a distinction based on whether the dismissal is without prejudice to the Government’s interest.” The court concluded with a bit of cold comfort, noting that the defendant was free to “seek appropriate relief in the separate employment action to set aside the Settlement Agreement it entered into with Scott based on any misrepresentations or fraud on the part of Scott.”
While the Cancio decision is consistent with other cases that have drawn the “pre-filing/post-filing” distinction in evaluating the enforceability of releases of FCA claims, it is a good example of why that distinction reflects both bad law and bad policy. While the statute states that the consent of the Attorney General is required for dismissal of a qui tam, when the government takes no position on – i.e., has not opposed – the motion to dismiss, it is difficult to see why such silence should not be interpreted as consent. Moreover, there are no compelling public policy reasons for linking enforcement of the release to the timing of its execution. Courts that have enforced pre-filing releases of qui tams have done so in situations in which they have emphasized that the United States was otherwise aware of the relator’s allegations, so that enforcement of the release would not raise a concern that evidence of the defendant’s alleged wrongdoing might never come to light. See, e.g., U.S. ex rel. Radcliffe v. Purdue Pharma L.P., 600 F.3d 319 (4th Cir. 2010); U.S. ex rel. Richie v. Lockheed Martin Corp., 558 F.3d 1161 (10th Cir. 2009). Yet when a relator releases a qui tam claim after filing, he already will have apprised the United States of both the specific allegations and the “material evidence” supporting them. 31 U.S.C. 3730(b)(2). Accordingly, the same public policy reasons that support enforcement of settlement agreements and releases in the pre-filing context are equally as strong, if not stronger, in the post-filing context.
FL-MD, Settlement
First Circuit Rewrites False Claims Act Requirements and Significantly Expands Potential Liability
In two recent decisions, the Court of Appeals for the First Circuit parted ways with well-established standards applied by other courts for assessing liability under the Federal False Claims Act (FCA) and adopted an approach that may significantly broaden the risk of FCA liability for all companies that contract with or submit claims, or cause others to submit claims, for payment to federal or state governments. These decisions raise a number of practical concerns for companies including increased risk of FCA exposure, increased litigation costs, and a need for greater attention to FCA issues in contract negotiation. The First Circuit’s decisions also create a clear split among the federal circuits, increasing the likelihood of review of these issues by the U.S. Supreme Court.
Prior to the First Circuit’s recent decisions, a number of other federal courts had articulated the standards for what constitutes a “false” claim under the FCA. These courts had established that a claim could be either “factually false” or “legally false” See, e.g., Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001). A factually false claim incorrectly describes goods or services or lists goods or services that were never provided. A legally false claim is one in which a party certifies compliance with a statute or regulation as a condition to government payment where it had not actually complied with the statute or regulation. Courts had further identified two species of legally false claims: express or implied certification. Under the express certification theory, a claim is false if it expressly certifies compliance with a statute or regulation, but does not meet its requirements. Under the implied certification theory, the claim contains no express certification, but the claimant implies that it has complied with any preconditions to payment set forth expressly in statutes or regulations by submitting the claim for payment. A number of circuits have adopted similar interpretations of the “false or fraudulent” prong of the FCA, including the Second (United States ex rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94 (2d Cir. 2010), rev’d on other grounds, 131 S. Ct. 1885 (2011)), Third (United States ex rel. Wilkins v. United Health Group, Inc., 2011 WL 2573380 (2011)), and Tenth (United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163 (10th Cir. 2010)). Notably, the Third Circuit’s recent decision in Wilkins acknowledged but did not follow the First Circuit’s new approach, holding instead that the implied false certification theory “gives effect to Congress’ expressly stated purpose” for the FCA.
On June 1, 2011, in United States ex rel. Hutcheson v. Blackstone Medical, Inc., the First Circuit rejected this approach for FCA claims arising in the Medicare context. There, the Plaintiff, Susan Hutcheson, had brought a qui tam action alleging that Blackstone Medical, Inc. engaged in a nationwide kickback scheme to induce physicians to use its medical devices, a violation of the Anti-Kickback Statute (AKS). Hutcheson alleged that Blackstone knew this scheme would cause physicians and hospitals to present federal healthcare programs like Medicare with payment claims that contained material misrepresentations.
The district court had dismissed Hutcheson’s claims following the approach established in other circuits. Reversing, the First Circuit refused to “adopt any categorical rules as to what counts as a materially false or fraudulent claim under the FCA.” It held that “the text of the FCA does not exhibit an intent to limit liability in this fashion.” Instead, it held the proper inquiry is simply whether the claims misrepresented to the government that there had been compliance with a precondition of payment so as to render the claim false or fraudulent and whether those misrepresentations were material.
The First Circuit also loosened the standards for what may constitute a precondition of payment. First, it agreed with the District of Columbia’s decision in United States v. Sci. Applications Int’l Corp. (SAIC), 626 F.3d 1257 (D.C. Cir. 2010), rejecting the argument “that legal preconditions of payment must be expressly designated as such to give rise to false or fraudulent claims.” Moreover, the First Circuit held that a precondition of payment need not be found in a statute or regulation. Specifically, it concluded that the Provider Agreements and Hospital Cost Reports drafted by the Centers for Medicare and Medicaid Services and entered into by the physicians and hospitals, make “clear” that AKS compliance is a precondition of Medicare payment.
Lastly, and perhaps most critically, the court also rejected the argument that “a submitting entity’s representations about its own legal compliance cannot incorporate an implied representation concerning the behavior of non-submitting entities.” The Provider Agreements and Hospital Cost Reports, it concluded, make no exception for violations caused by third parties. Blackstone had argued that when a submitting entity expressly represented its own legal compliance, its representations could not encompass a precondition of payment applicable to non-submitting entities. The First Circuit disagreed, holding “[w]hen the defendant in an FCA action is a non-submitting entity, the question is whether that entity knowingly caused the submission of either a false or fraudulent claim or false records or statements to get such a claim paid.”
On July 22, 2011, in United States ex rel. Westmoreland v. Amgen, the First Circuit extended its approach to claims submitted to individual state Medicaid programs. There, Plaintiff Kassie Westmoreland brought a qui tam action alleging that Amgen, acting in concert with co-defendants International Nephrology Network and ASD Healthcare, had engaged in an elaborate kickback scheme to induce medical providers to prescribe a drug used to treat anemia.
Applying Hutcheson, the court asked whether the claims at issue misrepresented compliance with a material precondition of payment forbidding the alleged kickbacks, a “fact-intensive and context-specific inquiry.” Because Medicaid is run on a state basis, the court proceeded to analyze each individual state program’s statutes, regulations, and program documents. The court found the necessary preconditions of payment in relevant statutes and regulations in four states (Illinois, Indiana, Massachusetts, and New York) and in provider agreements in the remaining two (California and New Mexico). The court held that Westmoreland did not make an adequate showing that Georgia contained the requisite preconditions for payment. In so holding, it noted that unlike the other six states, Georgia has no state law analogue to the federal AKS.
Consistent with its holding in Hutcheson, the court also stated that while the “provider agreements speak to the compliance of the providers rather than third parties … this is of no moment as to whether they rendered the relevant claims false or fraudulent. The agreements amount to a representation of compliance with the relevant anti-kickback statutes” that the plaintiff alleges is incorrect because of the kickbacks.
These decisions represent a significant expansion of the FCA’s reach that will impact all companies contracting with or submitting claims to the government or “causing” others to do so. The court’s holdings permit much greater flexibility in finding claims to be “false or fraudulent” and allow for a claimant’s submission for payment to extend FCA liability to entities in the “supply chain” of the good or service being billed.
This raises a number of practical concerns for companies, including whether they may now be exposed to FCA liability for conduct typically challenged by private action. Given the First Circuit’s construction of the FCA, a qui tam relator may now claim FCA violations for an entity’s alleged failure to comply with a contract provision even when that provision is not expressly designated as a condition of payment. In rejecting this concern, the First Circuit stated that “other means exist to cabin the breadth of the phrase ‘false or fraudulent’ as used in the FCA.” Specifically, it referenced other prongs of the FCA, noting that “liability cannot arise under the FCA unless a defendant acted knowingly and the claim’s defect is material.” While these defenses certainly remain viable, they are inherently fact-bound and therefore much less susceptible to a motion to dismiss or for summary judgment. This increases companies’ cost of litigation and may well force more costly settlements of poorly-founded but expansive claims.
The court also invoked the FCA’s “causation” element in dismissing as “overblown” concerns that allowing a submitting entity’s representation of compliance to encompass a precondition of payment applicable to non-submitting entities would stretch FCA liability too broadly. However, this interpretation is likely to result in companies having much less notice ex ante about what conduct would trigger FCA liability. To address this lack of notice, companies dealing directly with the government should explore whether they can negotiate preconditions of payment expressly in their contracts.
While future litigation will likely attempt to limit the reach of the “false or fraudulent” component of the FCA in the First Circuit, the extent to which the FCA’s other requirements will successfully “cabin” its newly acquired breadth remains to be seen. It also remains to be seen which approach other uncommitted circuits will take.
It is likely that some companies that have heretofore enjoyed a relatively low FCA risk profile now face greater exposure. As a result, companies that provide a good or service for which the government is or may be billed should assess whether their exposure has changed. In recent years, federal prosecutors have dramatically expanded application of the FCA beyond the health care field to include the defense, financial services, and other industries. See, e.g., Mark D. Hopson & Kristin Graham Koehler, Financial Institutions Face New Challenges Under False Claims Act, BNA (2011). This trend is expected to continue.
1st Circuit, False Certification
Fraud and Abuse Changes in the New Laws Enhance Government Enforcement Power and Heighten Industry Transparency Obligations
President Obama recently signed into law two pieces of legislation that, together, represent the most comprehensive reform that the U.S. healthcare system has seen in decades.1 In addition to providing for sweeping changes to health insurance coverage, healthcare delivery, and healthcare funding mechanisms, these laws substantially expand the government’s investigative and enforcement authority in connection with healthcare fraud and abuse. Additionally, the new laws include increased penalties for fraud and abuse in several contexts, as well as heightened disclosure and compliance obligations for providers, manufacturers, and other entities as part of government efforts to reduce fraud and to increase transparency.
This update highlights the key provisions of the new laws pertaining to anti-fraud and pro-transparency initiatives. Several of these new enforcement risks and compliance obligations take effect immediately or within one year, so affected entities will need to familiarize themselves with these provisions and plan for their implementation accordingly.
Enhanced Enforcement of Fraud and Abuse Laws
Expanded Applicability of the False Claims Act (FCA).
The PPACA extends the scope of payments subject to the FCA in two significant ways. First, it amends the Anti-Kickback Statute (AKS) to state that any claims for items or services “resulting from” a violation of the AKS also constitute a “false or fraudulent claim” under the FCA. Second, the PPACA extends the FCA to any payments made “by, through, or in connection with” any of the state-based health insurance exchanges created by the PPACA to assist individuals in finding affordable and available coverage, if such payments include any federal funds.
Additionally, the PPACA amends the FCA’s “public disclosure” bar in several ways. First, it limits the scope of relevant disclosures in government reports or investigations to those that occur at the federal level. Second, it eliminates language that previously described public disclosure as a matter implicating the court’s subject-matter jurisdiction, and authorizes the government to permit a complaint that otherwise would violate the public disclosure bar to proceed. Third, it expands the scope of individuals who qualify as an “original source” to include any person who “has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.”
Affirmative Obligation To Report and Return Overpayments.
The PPACA imposes on recipients of overpayments an affirmative obligation to report and return the overpayment on the later of (a) 60 days after the overpayment is “identified,” or (b) the date any corresponding cost report is due, if applicable. Any overpayment retained after the applicable deadline is an “obligation” under the civil FCA statute, and therefore subject to a repayment obligation. For purposes of this requirement, the PPACA defines the term “overpayment” as “any funds that a person receives or retains under title XVIII or XIX [of the Social Security Act] to which the person, after applicable reconciliation, is not entitled under such title.”
The PPACA requires that any “person” receiving an overpayment must “report and return the overpayment to the Secretary, the State, an intermediary, a carrier, or a contractor, as appropriate, at the correct address”, and must notify the returnee “in writing of the reason for the overpayment.” The term “person” includes a provider of services, supplier, Medicaid managed care organization, Medicare Advantage organization, or Part D prescription drug plan sponsor; it does not include a beneficiary.
Lowered Intent Standard Under the Anti-Kickback Statute (AKS).
The PPACA amends the AKS to overrule court decisions holding that, in order to be criminally liable under the AKS, an individual must have actual knowledge of and the specific intent to violate the AKS. Specifically, the PPACA amends section 1128B of the Social Security Act (which includes the AKS) to state that “[w]ith respect to violations of this section, a person need not have actual knowledge of this section or specific intent to commit a violation of this section.”
Stronger Tools for Criminal Enforcement.
In addition to establishing a lowered intent requirement under the AKS, the PPACA amends the federal healthcare fraud statute (18 U.S.C. § 1347) to state explicitly that, “[w]ith respect to violations of this section, a person need not have actual knowledge of this section or specific intent to commit a violation of this section.” It also amends the definition of a “federal healthcare fraud offense” (18 U.S.C. § 24(a)) to include violations of the AKS—and also to include violations of section 301 of the Food, Drug, and Cosmetic Act (21 U.S.C. § 331) (FDCA) or section 501 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1131). As a result, an FDCA violation potentially can trigger certain enforcement-related authorities under title 18, including the use of administrative subpoenas under section 3486 and criminal forfeiture authorities under section 982, as well as providing a new basis to be prosecuted for money laundering under section 1956 or obstruction of justice under section 1518.
Additionally, the PPACA includes substantial enhancements to federal sentences for violations of healthcare fraud under the advisory U.S. Sentencing Guidelines. In particular, the law requires the U.S. Sentencing Commission to amend the federal sentencing guidelines to provide that, when a court is calculating the amount of intended loss by the defendant in an action for healthcare fraud, the “aggregate dollar amount of fraudulent bills” submitted to a government healthcare program “shall constitute prima facie evidence” of the loss amount. The PPACA also sets forth new offense-level multipliers for government losses related to federal healthcare offenses.
Expanded Administrative Remedies
New Civil Monetary Penalties (CMPs).
The PPACA also includes several provisions creating new or increased CMPs, including the following:
A $50,000 penalty for any false statement, misrepresentation, or omission in applications, bids, or contracts to participate as a provider or supplier under any federal healthcare program. The $50,000 penalty would apply to each violation, plus up to three times the damages for such claims.
A $10,000 penalty for any excluded individual or entity who orders or prescribes a covered item or service under a federal healthcare program during the period of exclusion, or who “knows or should know that a claim” for such item or service will be made under a federal healthcare program.
A $10,000 penalty for any person who knows of an overpayment and does not report and return the amount due.
A $15,000 penalty for any failure to grant timely access to the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) “for the purposes of audits, investigations, evaluations, or other statutory functions of” the OIG. The $15,000 penalty can be assessed for each day of delayed access.
A $50,000 penalty (per violation) for conduct that is also actionable under the FCA.
New CMPs are also created under provisions of the PPACA and Reconciliation Act that establish the Medicare Part D “coverage gap discount program” starting in 2011. Under this program, manufacturers must sign an agreement with the Secretary and provide 50% discounts on covered drugs provided to beneficiaries who are in the coverage gap. As part of their participation in the coverage gap discount program, manufacturers are subject to audits by the Secretary to ensure that they are satisfying the terms of their agreements, and are subject to CMPs if they fail to provide beneficiaries with the discounts required. The penalty amount can be up to 125% of the total amount the manufacturer was obligated to provide in coverage gap discounts.
Exclusion Authority.
The PPACA amends section 1128(b)(2) of the Social Security Act (SSA) to authorize permissive exclusion for, among other things, obstructing an investigation or audit. Under pre-PPACA law, this provision permitted exclusion only for obstructing certain criminal investigations.
The PPACA also extends permissive exclusion authority under SSA section 1128(b) to “[a]ny individual or entity that knowingly makes or causes to be made any false statement, omission, or misrepresentation of a material fact in any application, agreement, bid, or contract to participate or enroll as a provider of services or supplier under a Federal healthcare program”, including Medicare Advantage organizations under Part C, prescription drug plan sponsors under Part D, Medicaid managed care organizations, and other “entities that apply to participate as providers of services or suppliers in such managed care organizations and such plans.”
To enhance Medicaid integrity, PPACA requires states to terminate individuals or entities from their Medicaid programs if the individual or entity has been terminated from Medicare or from the Medicaid program of another state. Further, the PPACA requires Medicaid agencies to exclude individuals or entities from Medicaid participation for a specified period of time if the entity or individual “owns, controls, or manages an entity that (or if such entity is owned, controlled, or managed by an individual that)” is suspended, excluded, or terminated, or is “affiliated with” an individual or entity that has been excluded, suspended, or terminated.
Suspension and Withholding of Payments.
Substantially expanding the authority of the Secretary of the Department of Health and Human Services (HHS), the PPACA permits the Secretary to “suspend payments to a [Medicare] provider of services or supplier . . . pending an investigation of a credible allegation of fraud against the provider of services or supplier, unless the Secretary determines there is good cause not to suspend such payments.” The Secretary is required to consult with the HHS Office of Inspector General (OIG) in determining whether there is a “credible allegation of fraud” against a provider of services or supplier, and to issue implementing regulations to carry out this provision.
Further, the Reconciliation Act allows the Secretary to withhold payments to new suppliers of durable medical equipment (DME) for up to 90 days if the Secretary determines the supplier is operating in an area with significant levels or risks of fraud and abuse among DME suppliers. The Reconciliation Act refers to this 90-day withholding period as an “enhanced oversight” period.
Revocation of Enrollment.
Effective as of January 1, 2010, the PPACA allows the Secretary to revoke enrollment for up to one year for any home health provider or DME supplier that fails to maintain documents substantiating claims for items or services, or that fails to provide the Secretary with access to such documentation upon request. This provision applies to orders, certifications, and referrals made by physicians, home health providers, and DME suppliers.
Enhanced Authority and Access for the OIG and Department of Justice (DOJ).
The PPACA requires the HHS Secretary to maintain an “Integrated Data Repository” with claims and payment data for all major federal healthcare programs, including Medicare Parts A, B, C, and D; Medicaid; the Children’s Health Insurance Program (CHIP); and any health-related programs administered by the Departments of Veterans Affairs and Defense, the Social Security Administration, and the Indian Health Service. Further, this section expressly provides that the OIG and DOJ shall have access to this data “[f]or purposes of conducting law enforcement and oversight activities”, to the extent that such access is consistent with regulations promulgated under the Health Insurance Portability and Accountability Act of 1996.
In addition, the PPACA specifies that the OIG’s authority to obtain information extends to any person or entity who “directly or indirectly provides, orders, manufactures, distributes, arranges for, prescribes, supplies, or receives medical or other items or services payable by any Federal healthcare program (as defined in [SSA] section 1128B(f)) regardless of how the item or service is paid for, or to whom such payment is made.” In connection with this authority, the OIG is authorized to access any documents necessary to validate claims, including medical records and any other “records necessary for evaluation of the economy, efficiency, and effectiveness of” federal healthcare programs.
The PPACA also expands the government’s subpoena power by allowing for physical access by DOJ to any institution, and its books and records, where the institution “is the subject of an investigation under [the Civil Rights of Institutionalized Persons Act (42 U.S.C. § 1997 et seq.)] to determine whether there are conditions which deprive persons residing in or confined to the institution of any rights, privileges, or immunities secured or protected by the Constitution or laws of the United States.”
340B Integrity Amendments
The PPACA adds a new subsection (d) to section 340B of the Public Health Service Act (42 U.S.C. § 256b). The new subsection includes important provisions regarding manufacturer compliance (including new CMPs), covered entity compliance, and the administrative dispute resolution process. These amendments to the 340B program take effect as of January 1, 2010, and apply to drugs purchased on or after that date.
Manufacturer Compliance.
The manufacturer compliance provisions are designed to prevent overcharges and other violations of the discounted pricing requirements in section 340B through various regulatory mechanisms, such as the publication of more precise guidelines by the HHS Secretary. The provisions also authorize the Secretary to conduct spot checks of manufacturers and wholesalers, and to establish procedures for manufacturers to issue refunds to covered entities in the event of an overcharge.
The 340B integrity amendments impose sanctions in the form of CMPs on any manufacturer with an agreement under 340B that “knowingly and intentionally charges a covered entity a price that” exceeds the applicable 340B ceiling price. The CMPs would be assessed “according to standards established in regulations to be promulgated by the Secretary not later than 180 days after the date of enactment” and would be capped at $5,000 per instance of overcharging a covered entity.
Covered Entity Compliance.
The provisions regarding covered entity compliance call for clarification of covered entity requirements through “more detailed guidance” from the agencies that administer the program. This section also sets forth sanctions, in the form of interest payments to manufacturers, where covered entities knowingly and intentionally violate their 340B program requirements. Further, if the Secretary determines that a covered entity’s violations are “systematic and egregious as well as knowing and intentional,” the Secretary may remove the covered entity from the 340B drug discount program and may prohibit re-entry “for a reasonable period of time”- also to be determined by the Secretary.
Dispute Resolution and “Must Offer” Language.
The PPACA also provides for the replacement of the informal and involuntary alternative dispute resolution (ADR) process established under prior guidance from the Health Resources and Services Administration (HRSA), the agency responsible for administering the 340B program, by authorizing new regulations providing for a binding ADR process to adjudicate and make final determinations regarding complaints about non-compliance by covered entities or manufacturers. Covered entities would be afforded at least some discovery during these administrative proceedings. Notably, manufacturers would still be required to conduct the rather time-consuming and cumbersome audit process under the existing HRSA guidance before proceeding with the ADR process.
Additionally, the PPACA includes language requiring manufacturers to “offer” covered outpatient drugs to 340B covered entities if such drug “is made available to any other purchaser at any price.” The Administration has indicated that the intent of this language is simply to codify existing HRSA guidance requiring manufacturers to treat 340B covered entities in a non-discriminatory manner as compared to entities that do not participate in the 340B program. It remains to be seen, however, exactly how the language will be interpreted and enforced moving forward.
&llt;P>Transparency: New Reporting and Disclosure Obligations
Physician Payments “Sunshine” Provisions.
Reflecting heightened public attention in recent months to financial relationships between physicians and industry, the PPACA requires drug, device, biological, and medical supply manufacturers to submit annual, electronic reports to HHS disclosing any “payment or other transfer of value” made to a physician and/or teaching hospital. It also requires applicable manufacturers and group purchasing organizations (GPOs) to submit annual, electronic reports regarding any ownership or investment interest (other than publicly traded securities and mutual funds) held by a physician, or immediate family member of a physician, in the applicable manufacturer or GPO.
This provision of the PPACA codifies many aspects of what had previously been introduced as a stand-alone bill sponsored by Senators Charles Grassley (R-IA) and Herb Kohl (D-WI), known as the “Physician Payments Sunshine Act” (S. 301). As enacted, the provision defines an applicable “manufacturer of a covered drug, device, biological, or medical device supply” as:
any entity which is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply (or any entity under common ownership with such entity which provides assistance or support to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological, or medical supply).
The first required “transparency reports” are due March 31, 2013, and must cover all payments or other transfers of value made, and all ownership and investment interested existing, during calendar year 2012.
These reports must include, for each payment or transfer of value:
the name and business address of the covered recipient;
the amount of the payment or other transfer of value;
a description of the form of the payment or other transfer of value (e.g., cash or cash equivalent; in-kind items or services; stock, stock options, or other ownership or investment interests);
the dates on which the payment or transfer of value was made; and
a description of the nature of the payment or transfer of value (e.g., consulting fees, compensation for non-consulting services, grant, gift, entertainment, education, research, etc).
For payments or other transfers of value related to marketing, education, or research specific to a particular covered drug, device, biological, or medical supply, the report also must include the name of the covered product. Additionally, the statute permits the Secretary to determine additional appropriate categories of information to be required in the reports.
Importantly, several types of transactions are excluded from the statute’s definition of a covered “payment or other transfer of value”, including (among others):
A transfer of anything valued under $10, unless the aggregate amount transferred to, requested by, or designated on behalf of the covered recipient by the applicable manufacturer in the calendar year exceeds $100. (For calendar years after 2012, these dollar amounts will be indexed to the consumer price index for all urban consumers.)
Product samples that are not intended to be sold and are intended for patient use.
Educational materials that directly benefit patients or are intended for patient use.
Short-term loans for a covered device, unless the trial period exceeds 90 days.
Discounts (including rebates).
With respect to manufacturers’ and GPOs’ required annual disclosures of ownership or investment interests (other than publicly traded securities and mutual funds) held by a physician, or immediate family member of a physician, these reports must include:
the dollar amount invested by each physician (or family member) holding such an ownership or investment interest;
the value and terms of each such ownership or investment interest;
any payment or other transfer of value provided to a physician holding an ownership or investment interest; and
any other information regarding the ownership or investment interest that the HHS Secretary deems appropriate.
Any information reported under this provision must be made publicly available by no later than September 30, 2013, and on June 30 of each calendar year thereafter. Public availability must be provided through a searchable Internet website and in a format that is clear, understandable, and “able to be easily aggregated and downloaded.” Publicly available reports also must contain background information on industry-physician relationships. The Secretary must establish procedures for the submission of information and for public availability by no later than October 1, 2011, and must consult the HHS Office of Inspector General, as well as “affected industry, consumers, consumer advocates, and other interested parties in order to ensure that the information made available to the public under [this section] is presented in the appropriate overall context.”
The public availability process must afford applicable manufacturers and GPOs with a 45-day “review period” before the information becomes available to the public, so long as the 45-day period for review and submission of corrections does not prevent the information from being posted for public access by the dates specified above. An exception would allow “delayed publication” for payments made pursuant to product research or development agreements or in connection with a clinical investigation regarding a new drug, device, biological, or medical supply. In these cases, reports must be made available after the earlier of the following: (1) the FDA approval date of the product; or (2) four calendar years after the date the payment/transfer was made.
Manufacturers and GPOs that fail to comply with the Act’s reporting requirements are subject to civil monetary penalties (CMPs) ranging from $1,000 to $10,000 per unintentional violation, and up to $10,000 to $100,000 per knowing violation. The maximum annual fines would be $150,000 and $1 million, respectively. (The statute defines the term “knowingly” by way of cross-reference to the definition in the False Claims Act provided at 31 U.S.C. § 3729(b).)
Finally, this provision of the PPACA preempts any state laws that mandate disclosure of payments or other transfers of value governed by the federal law. However, states are not prohibited from enacting or enforcing disclosure laws that are more stringent than the federal standard set forth in this provision. Because many states have demonstrated an interest to legislate in this area, the provision’s “partial preemption” approach presents the possibility that manufacturers and GPOs will face a patchwork of federal and state financial disclosure requirements moving forward.
Pharmacy Benefit Managers Transparency Requirements.
The PPACA also imposes reporting requirements on pharmacy benefit managers (PBMs), or health benefits plans that provide PBM services, that contract with health plans under Medicare or a health insurance exchange. Such entities must report to the Secretary information regarding:
the generic dispensing rate;
the total number of prescriptions dispensed;
the aggregate amount and type of rebates, discounts, or price concessions negotiated by the PBM (excluding bona fide service fees—such as distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative services agreements and patient care programs—but including a specification of which are attributable to patient utilization under the plan and which are passed through to the plan sponsor); and
the aggregate difference between amounts that health benefits plans pay to PBMs versus amounts that PBMs pay to retail pharmacies and mail order pharmacies.
Information disclosed to the Secretary under this section will be confidential except for limited, specified circumstances, such as to permit review by the U.S. Comptroller General or Director of the Congressional Budget Office. Even in connection with these permitted disclosures, the Secretary may not disclose the identity of a specific PBM or plan, or the prices charged for drugs.
Increased Funding for Anti-Fraud Efforts
Funding Boosts for the Health Care Fraud and Abuse Control Fund (HCFAC Fund).
The PPACA adds an extra $10 million to the HCFAC Fund for each fiscal year from 2011 through 2020—a total of $100 million in additional appropriations. Additionally, the Reconciliation Act appropriates another $95 million in FY 2011, $55 million in FY 2012, $30 million in each of fiscal years 2013 and 2014, and $20 million in each of fiscal years 2015 and 2016, to be used to combat fraud in Medicaid programs. Together, the bills increase HCFAC funding by $350 million over the coming decade. Moreover, the PPACA permanently applies the consumer price index for all urban consumers (CPI-U) to HCFAC Fund, and the Reconciliation Act does the same with respect to funding for the Medicaid Integrity Program.
Additional Compliance Obligations and Integrity Provisions
Required Compliance Programs.
Notably, the PPACA requires providers and suppliers to adopt compliance programs. More specifically, the statute requires the Secretary to develop a compliance program that providers and suppliers “within a particular industry sector or category shall, as a condition of enrollment,” complete. The provision does not specify which industry sectors or categories will be affected, and it leaves to the Secretary, in consultation with the OIG, the task of specifying the required “core elements” of these compliance programs and the timeline for their implementation.
RAC Expansion and Audits.
The PPACA expands the Medicare Recovery Audit Contractor program to require all states to establish one or more RAC contracts by December 31, 2010, for purposes of identifying overpayments and underpayments provided by state Medicaid plans and/or plan waivers. This provision also expands the RAC program to Medicare Parts C and D and includes “special rules” requiring, among other specifications, that Medicare Advantage plans and Part D plans to have an anti-fraud plan in effect and that such plans review the effectiveness of their respective anti-fraud plans.
Data Collection and Provider Screening / Reporting Requirements.
The PPACA requires HHS to maintain a national fraud and abuse data collection program for final adverse actions and to provide the data collected to the National Practitioner Data Bank (NPDB). It also contains provisions that impose new screening requirements for providers and suppliers participating in Medicare, Medicaid, and CHIP, as well as extensive disclosure requirements, demonstration projects, and enforcement tools designed to improve the quality of care in Medicare skilled nursing facilities and Medicaid nursing facilities. It also requires the HHS Secretary to establish a national program for conducting background checks on “direct patient access employees” of long-term care facilities and providers.
Additionally, the Reconciliation Act establishes new requirements for community mental health centers aimed at preventing fraud and abuse, and it modifies previously applicable restrictions on Medicare administrative contractors’ ability to conduct prepayment medical record reviews in cases of suspected fraud and abuse.
As you and your organization work to address and implement these important new changes to healthcare law, and to review your organization’s policies and procedures to ensure compliance, we would be happy to answer any questions you may have about these, or other, aspects of the newly enacted legislation. Please contact the Sidley lawyer with whom you usually work, or any of the lawyers listed on this alert, if you have any questions or wish to discuss further.
If you have any questions regarding this update, please contact Jim Stansel (+1.202.736.8092, jstansel@sidley.com), Hae-Won Min Liao (+1.415.772.1227, hminliao@sidley.com), William Sarraille (+1.202.736.8195, wsarraille@sidley.com), Scott D. Stein (+1.312.853.7520, sstein@sidley.com), Stephanie Hales (+1.202.736.8349, shales@sidley.com) or the Sidley lawyer with whom you usually work.
1 On March 23, 2010, the President signed the Patient Protection and Affordable Care Act (H.R. 3590) (PPACA), Pub. L. No. 111-148. On March 30, 2010, the President signed the Health Care and Education Reconciliation Act of 2010 (H.R. 4872) (Reconciliation Act), Pub. L. No. 111-152, a smaller bill that effectuated a series of changes to the PPACA.
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