Health Law Update – June 18, 2015

Alerts / June 18, 2015

Welcome to this week's edition of the Health Law Update. In this issue:

  • ACOs: The Next Generation of Coordinated Care
  • OIG Advisory Opinion 15-07: An Indicator of Clinical Trial Copayment Change?
  • OIG Fraud Alert Cautions Against Sham Medical Director Arrangements
  • The Deeper Dive: C-Suite to Prison Pipeline
  • “Ain’t Wastin’ Time No More”* — Doctors, Vets, and Lawyers in the Antitrust Crosshairs
  • Blog Exclusive: Healthcare Incidents Involving More Than 500 Individuals Are Investigated 100 Percent of the Time
  • Pharmacy Benefit Manager Group Opposes 21st Century Cures Act’s Cost Offset
  • You are Invited: Employment Class Actions: Strategies for Target Defendants
  • Events Calendar
ACOs: The Next Generation of Coordinated Care

An Overview of the Medicare Shared Savings Program/Accountable Care Organization Final Rules

By Laurice Rutledge Lambert and Josiah B. Heidt

The Centers for Medicare and Medicaid Services (CMS) recently released a final rule (Final Rule) that makes changes to the Medicare Shared Savings Program (MSSP). The Affordable Care Act (ACA) created the MSSP as one of several delivery system reform initiatives. The goal of the MSSP is to reduce unnecessary costs and facilitate coordination of care among providers servicing Medicare fee-for-service beneficiaries through participation in Accountable Care Organizations (ACOs). This Final Rule amends CMS’s November 2, 2011, final rule, which set forth the initial regulations for the MSSP. The Final Rule changes are effective August 3, 2015, except as otherwise set forth below.

Generally, the ACO Final Rule streamlines, clarifies, and refines numerous provisions of the original program rules in accordance with recent CMS guidance and in light of lessons learned from the program’s first few years of operation. These changes in the Final Rule are applicable to existing ACOs and future ACO applicants, including those whose participation in the MSSP will begin January 1, 2016.

As discussed below, the most significant Final Rule changes are those to the Track 2 MSR/MLR, the addition of Track 3, the Three-Day SNF Rule waiver and potential for future Medicare payment rule waivers, and the opportunity to obtain additional ACO beneficiary data. It appears that the impetus for these changes is to incentivize and encourage participation in the MSSP, and in particular, participation in the two-sided risk-based model.

As the healthcare payment system begins to move away from fee-for-service reimbursement and toward a pay-for-performance system, healthcare providers and suppliers may consider participating in an ACO under any model, as this program has demonstrated an ability to decrease costs and share in savings and continues to be refined to foster coordinated, high-quality healthcare.

Modifications to Existing ACO Payment Tracks

An ACO is rewarded under the MSSP when it meets certain quality performance standards and achieves lower growth in Medicare Part A and Part B fee-for-service costs, relative to a benchmark unique to the ACO’s beneficiary population. Currently, within the MSSP, there are two participation tracks that ACOs may choose from – the Track 1 shared savings-only model (one-sided model) or the Track 2 shared savings and losses model (two-sided model). ACOs that choose to participate in Track 2, which to date have been very few, will have the opportunity to earn a greater portion of shared savings.

The following highlights the most significant changes to these original tracks:

In regard to Track 1 ACOs, those ACOs that have completed an initial three-year agreement are now permitted to enter into one additional three-year agreement under this track. Prior to this change, Track 1 ACOs were required to transition to Track 2 after their initial participation terms.

With respect to Track 2, the Final Rule changes give ACOs flexibility in choosing the minimum savings rate (MSR) and minimum loss rate (MLR). Currently, both the MSR and MLR for Track 2 ACOs are set at two percent. To maximize flexibility for ACOs entering Track 2 for agreement periods beginning January 2016 or later, ACOs may now choose one of the following options for establishing their MSR/MLR:

  • Zero percent MSR/MSL (meaning the ACO would share in first-dollar losses and savings);
  • Symmetrical MSR/MLR in a 0.5 percent increment between 0.5 percent and 2.0 percent; or
  • Symmetrical MSR/MLR that varies based on the ACO’s number of assigned beneficiaries under the Track 1 model.

New Risk-Based Track 3

CMS has created a new MSSP participation model, the Track 3 ACO. Track 3 is a risk-based model and is similar to and modeled off of Track 2. The purpose of this model is to make participation in a risk-based model more attractive. The most significant differences among Tracks 1, 2, and 3 follow:

  • Prospective Assignment Methodology. The beneficiary assignment process under Tracks 1 and 2 is prospective (based on data from the previous calendar year) with a retrospective reconciliation. Under Track 3, beneficiaries will be prospectively assigned based on the assignment methodology utilized under Tracks 1 and 2; however, the assignment will be based on data from the most recently available 12 months of data (offset from the calendar year) and there will not be a retrospective reconciliation to add new beneficiaries at the end of the performance year. The only adjustments that would be made to a Track 3 ACO’s beneficiary population at the end of the performance year would be to exclude beneficiaries who no longer satisfy the participation eligibility criteria.
  • Historical Benchmark Calculation. The benchmark calculation for Track 3 will be consistent with the current calculation for Tracks 1 and 2 (which has been revised slightly in the Final Rule).
  • Shared Savings/Shared Losses Calculation. To attract new ACO participants to this new risk-based model, CMS has set the shared savings rate and the shared loss rate at 75 percent – shared savings are capped at 20 percent of an ACO’s benchmark and shared losses are limited to 15 percent of an ACO’s updated benchmark. Like Track 2 ACO participants, Track 3 ACO participants will have the option to choose among the new MSR/MLR options described above.
  • Waiver of the Three-Day Skilled Nursing Facility (SNF) Rule. Perhaps one of the most noteworthy changes in the Final Rule is that a Track 3 ACO participant can apply for a waiver of the Three-Day SNF Rule. Under this waiver, Medicare will pay for otherwise covered SNF services when ACO providers/suppliers participating in Track 3 admit a prospectively assigned beneficiary to an eligible SNF without a three-day prior inpatient hospitalization. This change is significant because Medicare currently will not cover a beneficiary’s SNF visit unless the visit is preceded by a prior inpatient hospital stay of no fewer than three consecutive days. This waiver has been piloted among the Pioneer ACOs, and CMS believes that the waiver will allow ACOs to improve the quality of care while reducing costs. ACOs under the Pioneer Model are accountable for the total cost of care furnished to their assigned beneficiary population and must accept performance-based risk if costs exceed their benchmark. This provision of the Final Rule will be effective January 1, 2017, which will allow CMS to develop additional subregulatory guidance.

It is also worth noting that the Final Rule considers several other potential waivers of Medicare payment and program rules that CMS will continue to evaluate through the Center for Medicare and Medicaid Innovation, including a telehealth waiver, which CMS anticipates being available to ACOs by January 1, 2017, after notice, comment, and rulemaking.

Beneficiary Data Sharing

In connection with the original MSSP rulemaking process, CMS recognized that an ACO may not have access to information about services its assigned beneficiaries receive from healthcare providers and suppliers outside the ACO. This information may be critical to an ACO’s coordination of care efforts. As a result, CMS currently (1) distributes aggregate-level data reports to ACOs, (2) on an ACO’s request, shares limited identifying information about beneficiaries who are preliminarily prospectively assigned to the ACO and whose information serves as the basis for aggregate reports, and (3) on request from an ACO, shares beneficiary identifiable claims data with the ACO to enable it to conduct quality assessment and improvement activities, care coordination, or both (unless a beneficiary declines to share his/her data).

Since the beginning of the program, CMS has continued to evaluate what additional beneficiary data might be necessary to support an ACO’s healthcare operations. The Final Rule includes new beneficiary data categories that ACOs will have access to beginning in performance year 2016. Specifically for Tracks 1 and 2, ACOs will have access to the following categories of information for preliminarily prospectively assigned beneficiaries and beneficiaries who received a primary care service during the previous 12 months from an ACO participant:

  • Beneficiary name,
  • Date of birth,
  • Health Insurance Claim Number, and
  • Sex.

Under Tracks 1 and 2, information in the following categories will also be made available for preliminarily prospectively assigned beneficiaries:

  • Demographic data such as enrollment status;
  • Health status information such as risk profile and chronic condition subgroup;
  • Utilization rates of Medicare services such as the use of evaluation and management, hospital, emergency, and post-acute services, including the dates and place of service; and
  • Expenditure information related to utilization of services.

All of this information will also be made available to Track 3 participants, but will be limited to a Track 3 ACO’s prospectively assigned beneficiaries. These changes are effective January 1, 2016.

As part of this data-sharing expansion, CMS modified the rule that gives beneficiaries the right to decline data sharing. The Final Rule expressly requires ACOs to notify beneficiaries at the point of care about the MSSP and give them an opportunity to decline claims data sharing. ACOs must also provide beneficiaries with instructions on how to inform CMS of their preference. An ACO participant must post signs in its facilities to this effect and make standardized written notices available on request using template language developed by CMS. These changes are effective November 1, 2015.

Beneficiary Assignment Process

New Requirements for a Beneficiary to be Assigned to an ACO. CMS has incorporated some of its prior guidance on beneficiary qualification into the Final Rule. A beneficiary must now meet the following criteria to be assigned to an ACO:

  • Has at least one (1) month of Part A and Part B enrollment and does not have any months of Part A only or Part B only enrollment;
  • Does not have any months of Medicare group (private) health plan enrollment;
  • Is not assigned to any other Medicare shared savings initiative; and
  • Lives in the U.S. or a U.S. territory.

Updates to the Definition of Primary Care Service. Currently, primary care services for the MSSP are defined as services billed under the HCPCS/CPT codes 99201 through 99215, 99304 through 99340, 99341 through 99350, the Welcome to Medicare Visit (G0402), and the annual wellness visit (G0438 and G0439). The Final Rule expands this list by adding transitional care management codes (99495 and 99496) and chronic care management codes (99490).

Inclusion of Nonphysician Practitioner Primary Care Services. CMS has revised the first step of the beneficiary assignment process to include primary care services provided by nonphysician practitioners (NPs, PAs, and CNSs, collectively NPPs). Services provided by NPPs currently are included only in the second step of the beneficiary assignment process.

Exclusion of Certain Physician Specialties. Certain professionals bill for primary care CPT codes, but do not actually perform primary care services for MSSP purposes. The Final Rule ensures that only professionals actually providing primary care services are included in the beneficiary assignment process by excluding the following specialties from the second step of the assignment process: allergy and immunology, gastroenterology, hospice and palliative medicine, infectious disease, rheumatology, and interventional cardiology.

Care Coordination Through Health Information Exchange

As part of an ACO’s application to participate in the MSSP, it must explain how it will coordinate an episode of care across a spectrum of providers and demonstrate that it has established processes to promote evidence-based medicine, promote patient engagement, develop an infrastructure to report on quality and cost metrics, and coordinate care across and among primary care physicians and specialists, as well as acute and post-acute providers and suppliers. In addition to these processes, CMS believes that it is important for applicants to explain how they will develop health information technology tools and infrastructure to accomplish care coordination.

Accordingly, the Final Rule adds a new eligibility requirement that requires an ACO to describe in its application how it will encourage and promote the use of enabling technologies for improving care coordination for beneficiaries. These enabling technologies may include electronic health records and other health IT tools (such as population health management and data aggregation and analytic tools), telehealth services (note as discussed above that CMS is considering a payment waiver for telehealth services), remote patient monitoring, health information exchange services, or other electronic tools to engage patients in their care.

Legal Structure and Governance

An ACO must be an independent legal entity with its own governing body, and the Final Rule includes new requirements for ACO legal structure and governance.

Legal Structure. The Final Rule clarifies that (1) an ACO formed by two or more participants, each of which is identified by a unique tax identification number (TIN), must be a legal entity that is separate from its ACO participants, and (2) an ACO formed by a single ACO participant may use its existing legal entity and governing body.

Governing Body Requirements. Consistent with the legal structure changes, an ACO comprising two or more ACO participants must have a governing body that is separate and unique to the ACO, whereas an ACO comprised of a single ACO participant may utilize the governing body of the ACO’s existing legal entity. Additionally, the Final Rule clarifies that governing body members owe the fiduciary duty of loyalty to the ACO, and that an ACO governing body must include a Medicare beneficiary who (1) is served by the ACO, (2) is not an ACO provider/supplier, (3) does not have a conflict of interest with the ACO, and (4) does not have an immediate family member who has a conflict of interest with the ACO.

Participant Agreement

Each ACO that CMS approves for participation in the MSSP must enter into a participation agreement with CMS. The ACO agrees to participate in the program for at least three years and agrees to comply with the MSSP regulations. Due to inconsistencies and inaccuracies in the process ACOs were using to contract with their participants and providers/suppliers, CMS issued guidance on additional requirements for ACO participant agreements; the Final Rule codifies this guidance with minimal changes and requires an ACO to submit copies of its ACO participant agreements along with its application for program participation.

The Final Rule also clarifies that an ACO is ultimately responsible for ensuring that each provider/supplier billing through the TIN of an ACO participant has agreed to participate in and comply with the MSSP rules. Per the Final Rule, an ACO can fulfill this obligation by either (1) directly contracting with an ACO provider/supplier through an agreement that is compliant with the new ACO participant agreement rule or (2) contractually requiring the ACO participant to ensure that all ACO providers/suppliers billing through its TIN have agreed to participate in and comply with the MSSP rules.

These requirements are effective beginning with performance year 2017 and subsequent performance years.

OIG Advisory Opinion 15-07: An Indicator of Clinical Trial Copayment Change?

By Payal P. Cramer and Gregory E. Fosheim

“You scratch my back, I scratch yours” arrangements are common in business transactions. These agreements are risky in the healthcare space, however, with the potential to implicate civil and criminal sanctions. Whether involving a patient, provider, or industry, the government closely scrutinizes quid pro quo arrangements when the government foots the bill.

Clinical trial sponsors often have motivation to cover copayment obligations of trial enrollees. Sponsor coverage of copayments allows subjects to participate in trials without incurring costs directly, while permitting sponsors to minimize trial costs by relying on insurance coverage of routine items and services instead of conducting fully sponsor-paid research. Such practice can raise regulator concerns when trial subjects are also beneficiaries of federal healthcare programs.

In a 2002 Special Advisory Bulletin, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) focused on waivers of copayments and deductibles in clinical trials where well-established treatments were already available. While acknowledging the advantages of copayment and deductible waivers for patients, the Special Advisory Bulletin noted that when sponsors waive cost-sharing obligations to encourage subjects to participate in such trials, the sponsors may actually induce subjects to forgo equally effective or more appropriate nonexperimental care.

Since 2002, the OIG has contemplated soliciting public comments on establishing a regulatory safe harbor to the anti-kickback statute for free goods and services (including copayment waivers) provided to beneficiaries in connection with clinical trials sponsored at least in part by the National Institutes of Health or other governmental organizations. To date, no such request for comments has been issued. Instead, clinical trial sponsors who wish to cover copayments of Medicare beneficiaries subject themselves to OIG scrutiny.

In early June, the OIG again published an Advisory Opinion addressing copayment waivers in the clinical trial setting. Advisory Opinion 15-07 represents the first time the OIG has explicitly indicated that it will not impose civil monetary penalties or administrative sanctions for an arrangement whereby a commercial trial sponsor may routinely cover the copayment obligation of clinical trial enrollees who are also Medicare beneficiaries and provide other subsidies for participation in the trial. It is yet to be determined whether this Advisory Opinion suggests a sea change in the government’s position or simply demonstrates a narrow set of facts where such remuneration arrangements are permitted.


Advisory Opinion 15-07 provides an analysis and enforcement decision on a medical device manufacturer’s request to waive copayments and offer related subsidies for Medicare beneficiaries who participate in a clinical trial involving the manufacturer’s product. The product is designed to assist in performing a type of minimally invasive spinal surgery known as percutaneous image-guided lumbar decompression for lumbar spinal stenosis (PILD). The manufacturer’s request arose from the particular, and less common, coverage mechanism applicable to the product.

Generally, for Medicare to cover an item or service for its beneficiaries, CMS must find the item or service to be “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” (42 U.S.C. 1395y(a)(1)(A)). CMS typically makes this determination by conducting a National Coverage Determination (NCD), which involves discussion of relevant medical and scientific information and request for public comment.

In the NCD for PILD, CMS determined that the procedure was not “reasonable and necessary” for blanket coverage authorization. Instead, CMS agreed to cover PILD through the Coverage with Evidence Development Program, a mechanism by which CMS may support innovative technologies that may benefit Medicare beneficiaries but the basis for coverage requires more data (in the form of a clinical trial) before CMS is persuaded of its reasonable and necessary nature. CMS coverage was limited to beneficiaries enrolled in certain clinical trials meeting specified criteria. Specifically, the clinical trial must answer whether PILD (1) provides a clinically meaningful improvement of function and/or quality of life compared with other treatments, (2) provides clinically meaningful reduction in pain compared with other treatments, or (3) affects the overall clinical management and decision making, including use of other medical treatments or services, compared with other treatments. CMS required that the clinical trial utilize a randomized, controlled design with appropriate comparator treatments or a sham controlled arm.

Proposed Clinical Trial and Copayment Coverage

Under CMS’s trial parameters and with CMS’s input, the manufacturer developed a clinical trial to evaluate the effectiveness of PILD using its product compared with a sham procedure. The trial design included prospective, multicenter, randomized, controlled, blinded measures with the goal of determining whether the manufacturer’s product meaningfully improved health outcomes following PILD. Treatment group subjects would receive PILD with the manufacturer’s product; control group subjects would receive sham surgery involving the same anesthesia and skin incision as the PILD group but with no therapeutic treatment.

Because the trial followed CMS’s prescribed requirements, those subjects who were randomized to the treatment group and were enrolled in Medicare could have Medicare coverage for their PILD and would be subject to copayment through their insurance coverage. By comparison, those subjects randomized to the control arm would not be eligible for Medicare coverage because they would not receive a procedure with any therapeutic intent. Thus, billing Medicare and collecting a copayment from the subject would be prohibited. The manufacturer expressed concern that a failure to collect copayments from subjects randomized to the control arm would compromise the trial design – subjects would know their group by virtue of their copayment obligation. To prevent any unintended unblinding, the manufacturer sought to pay the copayments on behalf of Medicare beneficiaries enrolled on the treatment arm.

Further, during follow-up, any subject for whom the PILD is deemed a failure would be unblinded; those originally in the control group would be given the opportunity to undergo PILD using the manufacturer’s product and at the manufacturer’s expense. The manufacturer believed that subsidizing the PILD procedure for control group subjects was necessary to encourage trial enrollment despite the risk of being randomized to a sham surgery.

OIG’s Analysis

The manufacturer’s proposal involved two potential areas of improper remuneration: (1) paying copayments of Medicare beneficiaries randomized to the treatment arm, and (2) paying the costs of the PILD procedure for control group subjects. None of the regulatory exceptions available under the anti-kickback statute or the Civil Monetary Penalties Law applied to the proposed arrangement. Nevertheless, using the rationale below, the OIG determined that the manufacturer’s proposed arrangement posed minimal risk of fraud and abuse under the anti-kickback statute:

  • The proposed arrangement would further CMS’s policy objectives. The manufacturer designed the trial in consultation with CMS and in alignment with CMS’s parameters. Any results would be shared with CMS to determine whether PILD is reasonable and necessary for broader Medicare coverage.
  • CMS required a randomized, controlled, blinded trial with appropriate comparator mechanisms. The manufacturer’s proposed arrangement was reasonable to encourage trial enrollment and to properly assess the true impact of PILD using the manufacturer’s product.
  • The manufacturer certified that the arrangement was independent of any other arrangement or agreement between or among manufacturer and investigators, trial sites, and trial participants. Further, any compensation paid was in conjunction with the fair market value for necessary trial services.
  • The risk of overutilization or increased costs to federal healthcare programs was minimized because subjects would be required to meet predetermined enrollment criteria and execute an informed consent document before participating in the trial, and investigators would be required to adhere to the trial protocol and report to an institutional review board.
OIG Fraud Alert Cautions Against Sham Medical Director Arrangements

By Donna S. Clark and Darby C. Allen

The HHS OIG recently issued a brief fraud alert (Fraud Alert) reminding physicians that inappropriate compensation arrangements may lead to enforcement actions under the federal anti-kickback statute and Civil Monetary Penalties Law. Although not mentioned in the Fraud Alert, improper compensation arrangements also raise issues under the federal self-referral law known as the Stark Law.

The Fraud Alert specifically focuses on the facts surrounding recent settlements the OIG has entered into with 12 physicians. The physicians had compensation arrangements, primarily in the form of medical director agreements, with an imaging facility that resulted in improper payments that took into account the volume or value of referrals the physicians made to the facility and exceeded fair market value. Moreover, the OIG has alleged that the physicians did not actually provide the services specified in the agreement. The physicians settled with the OIG under the Civil Monetary Penalties Law for amounts between $50,000 and $200,000 each, and one physician was voluntarily excluded from participating in the federal healthcare programs.

Enforcement agencies have historically instituted actions under the laws referenced above against the entities that pay improper compensation to physicians. The laws have always applied to the physicians who receive the illegal compensation, and the recent settlements with physicians are a concrete sign that the OIG is increasing its focus on physicians.

The Deeper Dive: C-Suite to Prison Pipeline

By Robert M. Wolin and Gregory S. Saikin

In recent years, the U.S. Department of Justice (DOJ) has been criticized for failing to prosecute executives for fraud, particularly in the financial sector. In response, the DOJ has begun to more heavily emphasize identifying individual malefactors and prosecuting them. This emphasis is particularly beneficial where a criminal conviction of a healthcare provider entity could result in significant hardship for a community. Adding an exclamation point, over the last three days, the DOJ charged or unveiled charges against 243 defendants across the country for their alleged participation in Medicare fraud schemes. According to the government, it is the largest criminal healthcare fraud takedown in DOJ history.

Former U.S. Attorney General Eric Holder has laid out the government’s interest in pursuing executives when it comes to white collar crimes, which include Medicare and Medicaid fraud. Specifically, Attorney General Holder has stated that the DOJ:

“…recognizes the inherent value of bringing enforcement actions against individuals, as opposed to simply the companies that employ them. We believe that doing so is both important – and appropriate – for several reasons:

First, it enhances accountability. …[C]orporate misconduct must necessarily be committed by flesh-and-blood human beings. So wherever misconduct occurs within a company, it is essential that we seek to identify the decision-makers at the company who ought to be held responsible.

Second, it promotes fairness – because, when misconduct is the work of a known bad actor, or a handful of known bad actors, it’s not right for punishment to be borne exclusively by the company, its employees, and its innocent shareholders.

And finally, it has a powerful deterrent effect. All other things being equal, few things discourage criminal activity at a firm – or incentivize changes in corporate behavior – like the prospect of individual decision-makers being held accountable.

A corporation may enter a guilty plea and still see its stock price rise the next day. But an individual who is found guilty of a serious fraud crime is most likely going to prison.”

Further, in an effort to identify potential targets, including executives, for prosecution, the DOJ has looked to companies to root them out, in part through internal investigations. Principal Deputy Assistant Attorney General Marshall Miller has stated that if an entity wants to receive “full cooperation credit [in connection with disclosing the results of its internal investigations, the entity must], make [its] extensive efforts to secure evidence of individual culpability the first thing [it] talk[s] about when [its representatives] walk in the door to make [a] presentation [to DOJ]. Make those efforts the last thing you talk about before you walk out. And most importantly, make securing evidence of individual culpability the focus of your [internal] investigative efforts so that you have a strong record on which to rely.

The DOJ has also, in pursuing civil fraud cases, increasingly named corporate executives as defendants and has recovered significant monetary penalties from executives, separate and apart from the penalties imposed on their employers. Boards and governing bodies need to be aware that the risk of monetary penalties coupled with the consequences of an executive admitting to misconduct can significantly complicate the executive’s relationship with the entity and the decisions he or she makes on behalf of the entity, given the potential negative effects to the executive. The risk to an entity’s executives may make settlements more difficult for the organization to accomplish.

As examples of the DOJ’s efforts to pursue executives in the healthcare industry, we have compiled a summary below of some recent cases.

Hospital Administrators

Down the River. Earnest Gibson III, the former CEO and president of Riverside General Hospital, was sentenced to 45 years in prison. Gibson’s son, who was the group home operator, was sentenced to 20 years. Regina Askew, a Riverside auditor, received a 12-year sentence. Finally, Mohammed Kahn, an assistant administrator, was sentenced to 40 years. Each was sentenced for submitting claims for partial hospitalization programs (PHP) services that were not medically necessary and, in some cases, never provided. Riverside submitted over $116 million in claims to Medicare for PHP services purportedly provided to the recruited beneficiaries when, in fact, the PHP services were medically unnecessary or never provided. The assistant administrator also admitted that he and his co-conspirators paid kickbacks to patient recruiters and to owners and operators of group care homes in exchange for which those individuals delivered ineligible Medicare beneficiaries to the hospital’s PHPs.

Disguised Bribes Bite Back. Chicago’s Sacred Heart Hospital’s former CFO and COO were convicted on multiple counts for their roles in a 12-year conspiracy that paid bribes and kickbacks for referrals of patients. The illegal payments were allegedly disguised as consulting fees, employment and personal services compensation, rent, and stipends for instructional services. During the trial, their attorneys said there was nothing unorthodox about a hospital trying to drum up business, but one of the recordings captured the hospital’s owner warning “you better make sure the evaluations and paperwork are done because if I go down for this, you're going down with me.” A second former COO, as well as the hospital's former vice president for geriatric services, also pleaded guilty.

Physician Practices

Who Knew the Good Patients Died Young? Rick Brown, the president of Home Care America, Inc., who controlled the daily operations of a physician practice, Medicall Physicians Group, Ltd., was convicted of falsely billing Medicare for services that were never provided to patients, along with Mary Talaga, the company’s biller. The defendants fraudulently billed Medicare for services to deceased patients, as well as services purportedly provided by medical professionals after they had ended their employment and by medical professionals who worked over 24 hours per day. Evidence also showed that Brown forged physician signatures on medical documents, and that Talaga directed physicians to create false documentation after she had billed for services that had not been documented or provided.

We Buy Medicaid IDs! Christopher White, who managed financial and accounting services for a physician’s medical clinic companies, admitted as part of his guilty plea that he coordinated payments to patient recruiters who illegally sold Medicare beneficiary information to a New Orleans-based medical clinic and its co-conspirators. This information was used by home health companies operated by the clinic’s owner and others to bill Medicare for home health services that were not medically necessary and often not delivered at all. White also admitted that he, along with the clinic’s owner, fabricated tax and employment records in response to a federal grand jury subpoena to conceal the illegal kickbacks paid and mislead the grand jury.

CFO and CEO Divert Clinic Funds. The former CFO of a federally-funded health clinic, Birmingham Health Care, pleaded guilty, and the CEO was indicted on federal fraud charges in an alleged scheme to divert $11 million of funds and assets to corporations allegedly controlled by the former chief executive officer of the Birmingham clinic. Prosecutors alleged that the CFO personally received $1.7 million from the fraudulent scheme.

Bottoms Up! Tonya Rushing, the former CEO of the Endoscopy Center of Southern Nevada, was sentenced to a year and one day in prison for conspiring with the Endoscopy Center's physician owner to defraud Medicare, Medicaid, and other insurers by overstating time records of nurse anesthetists during procedures.

No Free Lunch. Emily Shim, an office manager, was recently accused of Medicare fraud as a result of providing free lunches, massages, cash equivalent coupons and recreational classes to people who agreed to see her chiropractors and therapists. She was also accused of fraudulently submitting claims for medically unnecessary services, services not provided and services that did not meet applicable requirements for payment. In another similar New York alleged scheme, three managers of a therapy center/diagnostic testing facility were charged with Medicare fraud for providing cash inducements to beneficiaries through ambulette drivers and patient recruiters to subject themselves to medically unnecessary procedures. The claims submitted to Medicare are alleged to be false because they were unnecessary, performed by unlicensed personnel, induced by kickbacks, not properly supervised and not performed by licensed personnel.

Mama Mia – It’s Not Ok? Tamara Brown’s mother is a physician. Unfortunately for her, she is accused of receiving kickbacks from two home health agencies in exchange for providing home health referrals for patients that were being seen by her mother. The home health agencies used the patient information provided by Brown to bill for services that were not provided or were medically unnecessary.

Home Health Agencies

Office Administrator. Joe Ann Murthil, an office manager and biller at a home health company, was convicted for her role in a Medicare fraud scheme in which she assisted with the payment of illegal kickbacks to patient recruiters and submitted false claims, representing to Medicare that patients were homebound when some of these patients had jobs, had not received services, or did not want services. In total, 13 defendants were charged for their roles in this scheme.

Miami Home Vice. Dennis Hernandez, a manager and supervisor at Professional Medical Home Health, along with Joel San Pedro, a manager and supervisor, were recently sentenced along with others to lengthy sentences for their roles in a $6.2 million home health fraud scheme. The defendants participated in the company’s submission of claims for physical therapy and other home health services that either weren't medically necessary or weren't provided. In addition to receiving kickbacks for providing Medicare beneficiary names and ID numbers, the defendants also created fake patient records to justify the Medicare claims.

Director of Nursing. Mariamma Viju, the Director of Nursing for Dallas Home Health was recently charged with conspiring to bill Medicare for medically unnecessary services and for services that were never provided. She is also alleged to have exaggerated the nature of the patients’ health conditions to increase the amount billed. Viju was also accused of taking patient identifying information from her former major medical center employer to use in recruiting patients. Finally, Viju was accused of offering improper inducements to beneficiaries by giving them $25 Walmart gift cards, cash and free transportation.

Holy Toledo. Luis Toledo is accused of Medicare fraud and money laundering for writing checks to Countrywide Consulting and EZ Marketing, each of which would return cash to Toledo to be used to pay patient recruiters in return for home health referrals.

And More...

Ambulance Company Manager. Harlan Kingsbury, the general manager of Alpha Ambulance, Inc., which specialized in the provision of nonemergency ambulance transportation services to and from dialysis treatments, was convicted of one count of conspiracy to commit healthcare fraud, one count of conspiracy to obstruct a Medicare audit, and one count of making materially false statements to federal law enforcement officers. The government alleged that he conspired with the owners of Alpha and its training supervisor to bill Medicare for ambulance transportation services for individuals who did not need to be transported by ambulance. In addition, Kingsbury instructed emergency medical technicians to conceal the true medical condition of patients they were transporting by altering paperwork and creating false justifications for the transportation services.

Recycled Drugs. Kim Mulder, the former CEO of Kentwood Pharmacy, pleaded guilty to charges that she distributed misbranded and adulterated drugs when she resold drugs that were returned from nursing homes and adult foster homes. The returned drugs allegedly included cross-contaminated drugs that were previously mixed together, drugs bearing foreign substances and residues, and discolored and expired medications.

Alternative Services – No Exception. Darlington Odidika, executive director of Systems and Abilities, Inc., pleaded guilty to his role in a bid-rigging and kickback scheme to defraud Medicaid. Odidika admitted to falsifying bids for modifications to Medicaid recipient’s homes under a nursing home diversion program. By falsifying these bids, Odidika was able to control which contractor won the bid and inflate the amount of payment that Systems and Abilities received as its share of the project. Odidika also admitted to submitting final cost reports, and Medicaid claims based upon these reports, which falsely stated the actual costs of the projects. Similarly, he admitted to falsifying final cost reports in the transition program for moving expenses, which were either never provided or significantly inflated over the actual costs, and submitting Medicaid claims based upon these false reports.

Partial Hospitalization Program. The Eleventh Circuit recently affirmed the convictions and sentences of the CEO, the day-to-day manager, and the Medicare billing and payroll manager of Biscayne Milieu, a partial hospitalization program, for their roles “in a pernicious scheme to defraud Medicare and prey upon vulnerable victims.” The facility and the defendants carried out a scheme in which they: (1) submitted false and fraudulent claims to Medicare for PHP services for patients who were not eligible for PHP treatment, for PHP services that were not medically necessary, for PHP services that were not eligible for Medicare reimbursement, and for PHP services that were not actually provided by Biscayne Milieu; (2) offered, paid, or received kickbacks and bribes for recruiting Medicare beneficiaries to attend Biscayne Milieu; (3) paid kickbacks and bribes to patients to ensure the attendance of ineligible Medicare beneficiaries at Biscayne Milieu; (4) concealed the submission of false and fraudulent claims to Medicare, the receipt and transfer of the proceeds from the fraud, and the payment of kickbacks and bribes to patient recruiters and Medicare beneficiaries; and (5) diverted proceeds of the fraud for personal use.

DME Executive Excluded for Importation of Non-FDA Approved Devices Based Upon Investigation Obstruction Conviction. The exclusion of George Schulte, the former CEO of Spectranetics Corporation (SPNC), which manufactured medical lasers and related devices associated with them such as catheters, was recently upheld by the HHS Departmental Appeals Board (DAB). The exclusion proceedings stemmed from a prior FDA investigation of SPNC for knowingly importing unapproved medical devices, not properly declaring them to U.S. Customs, and then distributing the devices to physicians for use in patients when the devices were not approved by the FDA. Schulte was convicted of interfering with an investigation into a criminal offense as a result of having made false statements to an FDA investigator. Schulte attempted to avoid exclusion by arguing that his false statements to the FDA investigator did not have an impact on the FDA’s investigation since the FDA investigator knew those statements were false and because he corrected the false statements promptly. The DAB found that Schulte’s false statements to the FDA investigator interfered with the FDA’s investigation.

Stamping out healthcare “fraud and holding those who commit this fraud accountable are core missions of the Criminal Division and the Justice Department,” according to Leslie Caldwell in her speech at the May 14, 2015, meeting of the American Bar Association’s Healthcare Fraud Section. With Assistant Attorney General Caldwell’s remarks in mind, it is incumbent on and in the self-interest of healthcare companies and executives to implement and enforce rigorous compliance policies and programs, as well as hire counsel at the outset of a governmental investigation.

BakerHostetler represents and counsels healthcare clients on a variety of state and federal fraud and abuse matters, including False Claims Act litigation, the federal anti-kickback statute, Stark Law, and the Civil Monetary Penalties Law. The Healthcare Industry team also includes former Assistant U.S. Attorneys who specialized in prosecuting healthcare fraud and are well-versed regarding DOJ’s expectations around internal investigations, remedial measures, and disclosures.

“Ain’t Wastin’ Time No More”* — Doctors, Vets, and Lawyers in the Antitrust Crosshairs

Supreme Court Decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission Prompts Legal Challenges to State Professional Boards

By Jonathan L. Lewis

Earlier this month a Texas federal district court judge granted a motion by Teladoc, Inc. (Teladoc) for a preliminary injunction enjoining the Texas Medical Board (TMB) “from taking any action to implement, enact, and enforce” a TMB rule requiring doctors to conduct an in-person exam prior to telephonic diagnosis and treatment of patients, regardless of whether the exam is medically necessary. (Background on this and other disputes involving Teladoc and TMB is available here and here.

Despite the much-anticipated ruling in Teladoc, the court did not review the TMB rule under the Supreme Court’s decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission, which provides that professional boards, when comprised primarily of active market participants, are exempt from antitrust claims only if they are actively supervised by the state government.

Why, you may ask? Well, the court found itself in an atypical situation because “TMB declined to assert any immunity defenses” in defense of the challenged rule.

So where does that leave us? Waiting for this and other cases challenging state professional boards in the aftermath of the Dental Examiners decision to play out in the courts.

A rundown of recent litigation, for those of you keeping score, include:

  • Ouch! The Mississippi State Board of Medical Licensure is facing an antitrust challenge to its regulations that preclude nonphysicians from owning pain management medical practices.
  • Chihuahuas, Terriers, and Spaniels, Oh My! A veterinarian accused of giving small dogs half the recommended rabies dosage is suing the Connecticut Board of Veterinary Medicine and five of its members for “enforcing labeling directions that prohibit the vet’s vaccination protocol to shield themselves from competition.”
  • LegalZoom(ed)! The “premier online legal destination for small businesses and consumers” is suing the North Carolina State Bar for allegedly excluding LegalZoom from offering its prepaid legal services plans in North Carolina.

These plaintiffs “ain’t wastin’ time no more” sitting on the antitrust sidelines. More antitrust lawsuits surely will follow.

*By Greg Allman, performed by The Allman Brothers Band

Blog Exclusive: Healthcare Incidents Involving More Than 500 Individuals Are Investigated 100 Percent of the Time

By Lynn Sessions

We have released the inaugural BakerHostetler Data Security Incident Response Report, which provides insights generated from the review of more than 200 incidents that our attorneys advised on in 2014. Read more >>

Pharmacy Benefit Manager Group Opposes 21st Century Cures Act’s Cost Offset

By Lee H. Rosebush and Dena S. Kessler

The trade coalition representing pharmacy benefit managers is raising concerns about major bipartisan legislation aimed at streamlining the approval of new medicines and medical devices. However, the Pharmaceutical Care Management Association’s (PCMA) opposition to the legislation is not about the content of the bill but rather how Congress intends to pay for it.

The 21st Century Cures Act (Cures bill) seeks to overhaul the FDA’s drug and medical device approval processes. It would also provide significant funding increases for the FDA and the National Institutes of Health. Further, the legislation would place greater regulatory attention on personalized medicine and rare diseases. Members of Congress on both sides of the aisle, many industry experts, and patient advocacy organizations consider this legislation a significant and needed reform to the FDA’s regulatory system. In a display of bipartisanship, the House Energy and Commerce Committee passed the Cures bill out of committee with a unanimous 51-0 vote.

While some critics are concerned about the substantive provisions of the bill, a growing number of stakeholders disapprove of how the bill’s sponsors want to pay for it. It is not uncommon for legislation to run aground due to legislators’ disagreements over so-called pay-fors, the provisions detailing how a bill will be financed. Since 2007, Congress operates under Pay-As-You-Go (PAYGO) rules. Under PAYGO, Congress cannot pass a bill that adds to the deficit or undoes deficit reduction measures without identifying an offset. The Cures bill’s price tag is more than $13 billion.

The PCMA opposes one of the current pay-fors provided for in the legislation: a payment delay for Medicare Part D prescription drug plans. In a statement released on its website, the PCMA stated that “[i]f the 21st Century Cures initiative can only be advanced by cutting billions from America’s premier health program – Medicare – then its costs outweigh any potential benefits it may yield down the road. Leveraging payments to Part D plans to fund this legislation ironically could have the unintended consequence of making it harder for beneficiaries to access the very medicines that 21st Century Cures seeks to advance.”

The proposed pay-for saves the federal government money by delaying when the government makes payments to Part D providers. Currently, government reinsurance funds pay Medicare Part D plans several weeks before the plan spends the money on medical care. This structure allows the Part D plans to accrue interest on the funds, which they can spend on their beneficiaries. These advance payments are considered to grow the deficit because the government could earn the interest instead. The Medicare Part D payment delays are estimated to save $5 to $7 billion over 10 years, offsetting half of the Cures bill.

Opposition to the Medicare Part D plan pay-for is growing. As recently as June 17th, 44 House members sent a letter to Speaker John Boehner and Minority Leader Nancy Pelosi expressing support for the current Part D reinsurance payment structure and concern for restructuring the program to be used as an offset. This bipartisan opposition to the pay-for may complicate the schedule for the Cures bill’s next vote.

The House Energy and Commerce Committee vote is a vital step forward for the legislation, but is not the final obstacle. The Cures bill still faces hurdles prior to final passage, including a potential vote in the House Ways and Means Committee and the Senate Health Education Labor and Pension Committee. It is anticipated that the House Ways and Means Committee will vote on the Cures bill later this summer.

You are Invited: Employment Class Actions: Strategies for Target Defendants

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Events Calendar

June 23

Washington, D.C. Partner Lee H. Rosebush will speak on “Outsourcing Facilities Under Section 503B of the Drug Quality & Security Act” at The Western Association for Vitreoretinal Education in Maui, Hawaii.

June 29

Several members of the Healthcare Industry team will address attendees and lead discussions at the AHLA Annual Meeting June 29 - July 1, 2015, in Washington, D.C.

  • Washington, D.C. Partner Lee H. Rosebush will speak on “Now That We Have DQSA, What’s Next for Pharmacy Compounding?”
  • Atlanta Counsel Lynn S. Garson will speak on “Legal Ethics: Legal and Risk Management Issues When Key Employees Burn Out/Impaired Attorneys.”
  • Atlanta Associate Kristen McDermott Woodrum will moderate a roundtable discussion of “Hot Legal Topics in Behavioral Health” at the Behavioral Health Task Force practice group luncheon.

In addition, Atlanta Partner and President-Elect Designate of the AHLA, Charlene L. McGinty, will assume the office of President of the AHLA in 2016.

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