© 2011 Winston & Strawn LLP
© 2011 Winston & Strawn LLP 2
Penalties, Prosecutions and Exclusions: Navigating a New Era of Stepped Up
Health Care Enforcement
Brought to you by Winston & Strawn’s Healthcare Practice Group.
© 2011 Winston & Strawn LLP 3
Today’s eLunch Presenters
Marion GoldbergHeathcare
Washington, D.C.
Tom MillsHealthcare
Washington, D.C.
Elizabeth PapezLitigation
Washington, D.C.
© 2011 Winston & Strawn LLP 4
Overview: Combating Fraud Remains a Political Priority Congress and the Executive Branch June 2011 Executive Order and “Campaign to Cut Waste”
S. 890 (Leahy/Grassley): (5/19/11 out of Judiciary Comm.) Greater funding for agency investment in enforcement/recovery efforts
S. 454 (Grassley): (3/2/11 referred to Finance Comm.) Expansion of exclusion; public access to Medicare provider data Delay payments if fraud suspected; State certification of drug marketing
H.R. 675 (Herger/Stark): (2/11/11 referred to Budget Comm.) Would amend 42 U.S.C. § 1320a-7(b)(15) to allow exclusion of: “Any affiliated entity of a sanctioned entity” and current and former officers and
managers or “person[s] with an ownership or control interest . . . [who] knows or should know . . . of [culpable] conduct”
© 2011 Winston & Strawn LLP 5
Overview: DOJ
Fraud enforcement viewed as key to health reform• $2.5 B in healthcare fraud recoveries since 1/09
(34% of all fraud recoveries)
• Jan 2011: 1,341 qui tam cases awaiting intervention decisions (66% allege health care fraud; 500+ CIDs in Q4 2010)
© 2011 Winston & Strawn LLP 6
Overview: DOJ
Assistant AG Lanny A. Breuer (DOJ Criminal)“The era of getting away with Medicare fraud is over.”
© 2011 Winston & Strawn LLP 7
Overview: DOJ
Assistant AG Tony West (DOJ Civil)“Unparalleled focus” on “aggressive civil enforcement action” and “pursu[ing] individuals . . . just as vigorously as companies”
© 2011 Winston & Strawn LLP 8
Overview: HHS
Mary Riordan, Sr. Counsel OIG Government will continue to bring large numbers of cases
against drug manufacturers and device manufacturers
Government is looking to change corporate behavior through penalties and individual prosecutions and exclusions where appropriate
© 2011 Winston & Strawn LLP 9
Overview: HHS
HHS-DOJ HEAT Task Force & Medicare Strike Forces
HHS OIG Hospital Audits & New Guidance on Permissive Exclusion
CMS Medicare Crackdown (July 2011 computer modeling)
FDA Pharma Fraud Pilot Program; New Guidance on Prosecution
© 2011 Winston & Strawn LLP 10
Overview: Courts
PPACA likely before the Supreme Court Decision could affect entire Act (including overpayment and
other FCA expansions and compliance plan requirements)
Increase in FCA and whistleblower exposure Supreme Court restricts, lower courts expand, exposure
Parallel SEC whistleblower regime will increase compliance and defense burdens for public companies
Prosecutions & exclusions Judicial backstop for some cases (Stevens-Glaxo)
Limited reach
© 2011 Winston & Strawn LLP 11
Recent Cases & Headlines
9/30: LHC Group $65 M FCA settlement & HHS CIA Alleged overbilling of home health services to Medicare
9/22: Hill Dermaceuticals FDCA Consent Decree Corporate and individual consent decree
9/16: 50-Year Prison Sentence for Medicare Fraud Lawrence Duran (ATC) $87 M restitution; 50 years prison
9/12: Maxim $130 M civil/criminal & HHS CIA Medicare fraudulent billing
9/7: 91 Individuals/8 cities for Medicare Fraud Medicare Strike Force takedown (including doctors and nurses)
© 2011 Winston & Strawn LLP 12
Civil Liability: Statutory Expansions
FERA (2009) and PPACA (2010) FCA amendments
Expand definition of false claims
Expand indirect liability (i.e., liability for entities that do not themselves submit claims to federal programs)
Impose new and significant liability for retention of overpayments (reverse false claims)
Expand whistleblower protections
Eliminate certain judicial protections against suits
© 2011 Winston & Strawn LLP 13
Civil Liability: Judicial Decisions
Schindler Elevator (S. Ct. 2010) – FOIA responses are government reports that may trigger the public disclosure bar to FCA whistleblower suits
Summers (CA6 2010, cert. denied 2011) – new circuit split about when to dismiss FCA cases for plaintiff’s failure to file under seal
Baltazar (CA7 2011) – allowing FCA suit despite reports of industry-wide fraud
Wilkins (CA3 2011) – express or implied certification of Anti-Kickback Statute (AKS) compliance can give rise to FCA exposure
Blackstone Medical (CA1 2011) – downstream third parties can face FCAliability for another entity’s breach of implied AKS certification
© 2011 Winston & Strawn LLP 14
Civil Liability: Lessons Learned
Large recoveries and whistleblower incentives top enforcement priority (federal and state)
Statutory amendments and lower court decisions expanding liability increased costs and exposure
Ramifications may justify new and more aggressive compliance and defense strategies
Civil cases are often the starting point for criminal prosecution and corporate and individual exclusions
© 2011 Winston & Strawn LLP 15
Criminal Enforcement: Statutes
Criminal Statutes Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b))
(automatic civil FCA liability)
Health Care Fraud (18 U.S.C. § 1347)
Mail and Wire Fraud (18 U.S.C. §§ 1341, 1343)
Social Security Act (SSA) (42 U.S.C. §§ 1128, 13120a-7b)
Food, Drug, & Cosmetic Act (FDCA) (21 U.S.C. §301)
© 2011 Winston & Strawn LLP 16
Example: InterMune
Civil FCA claims and investigation into off-label violations criminal prosecution and exclusion
Actimmune FDA approval to treat two orphan indications (low profit)
Clinical trials for treatment of a fatal lung disease (idiopathic pulmonary fibrosis) Increase in overall survival rate was insignificant
Increased survival, however, for patients with mild-to-moderate disease
© 2011 Winston & Strawn LLP 17
InterMune
August 28, 2002, Company press release stated a strong trend in survival for overall patient population and statistically significant survival in patients with mild-to-moderate disease
Company representatives reported to have told an investors’ conference that its sales force included 60 pulmonary specialists to call on every lung doctor in the country in the context of its education and awareness program
© 2011 Winston & Strawn LLP 18
InterMune
October 2006, InterMune was charged with FDCAviolation by promoting with intent to defraud or mislead, off-label promotion and false claims for unnecessary and off-label use
Settlement 2-year deferred prosecution agreement
Company barred from entering into a joint defense agreement
$30.2 M to Medicare, VA, DOD, Federal Employees Health Program, and federal portion of Medicaid
Close to $6.7 M to state Medicaid programs
© 2011 Winston & Strawn LLP 19
InterMune
March 18, 2009 - Former CEO, W. Scott Harkonen, M.D. indicted on wire fraud and felony FDCA charges Promotion and causing promotion of off-label use
Press release was part of a scheme to induce doctors to prescribe, and patients to take, Actimmune for IPF
DOJ conceded data in the press release was accurate but prosecuted Harkonen for his interpretation of the data
September 29, 2009 – Harkonen found not guilty of off-label promotion and guilty of wire fraud
© 2011 Winston & Strawn LLP 20
InterMune
Sentence Three years probation
200 hours community service
$20,000 fine
6 months home confinement if appeal is unsuccessful
Judge criticized government bringing the charges
Felony wire fraud conviction resulted in Harkonen’sexclusion
Conviction of a criminal offense related to fraud … in connection with the delivery of a health care item or service.
© 2011 Winston & Strawn LLP 21
Example: Perdue Pharma
Civil FCA claims and investigation into off-label violations criminal prosecutions and exclusions
Promoted OxyContin as less addictive and less subject to abuse than other painkillers
Purdue Frederick (subsidiary) pled to single felony count of misbranding $276.1 M
Parent – Purdue Pharma $19.5 M to 27 states
$634.5 M to federal government (90% of the profits)
Non-prosecution Agreement (NPA)
© 2011 Winston & Strawn LLP 22
Purdue Pharma
Executives charged under responsible corporate officer doctrine
CEO, General Counsel, and Chief Medical Officer each pleaded guilty to misdemeanor counts of misbranding
CEO – $19 M fine; General Counsel – $ 8 M; Chief Medical Officer – $7.5 M
Exclusion – 12 years each for CEO, GC and CMO Exclusions now on appeal to D.C. Circuit
© 2011 Winston & Strawn LLP 23
Responsible Corporate Officer Doctrine
Initially introduced in US v. Dotterweich, 320 U.S. 277 (1943) “The offense is committed… by all who do have such a
responsible share in the furtherance of the transaction which the statute outlaws…”
Principle FDCA protects the public by keeping impure and adulterated
food and drugs out of commerce
Therefore, law “dispenses with the conventional requirement for criminal conduct – awareness of some wrongdoing”
© 2011 Winston & Strawn LLP 24
Responsible Corporate Officer Doctrine
Refined in U.S. v. Park, 421 U.S. 658 (1975)
“Government establishes a prima facie case when it introduces evidence sufficient to warrant a finding … that the defendant had, by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and he failed to do so.”
FDCA “imposes the highest standard of care and permits conviction of corporate officials who, in light of this standard of care, have the power to prevent or correct violations of its provisions.”
© 2011 Winston & Strawn LLP 25
Example: Synthes – Norian
Civil investigation RCO pleas
October 4, 2010: Norian paid selected spine surgeons to travel to seminars to learn to use a bone cement to treat spine fractures (a procedure for which it was not FDA-approved) in a “test market” Conduct of illegal clinical trials
Promotion of off-label use
Shipping adulterated and misbranded products
Three patients died from blood clots – could not rule out bone cement as a factor
© 2011 Winston & Strawn LLP 26
Synthes – Norian
Settlement Norian pled guilty to 1 felony count and 110 misdemeanor
counts – adulterated and misbranded products introduced into interstate commerce
Paid $22.5 M
Synthes (parent) pled guilty to one misdemeanor count Criminal penalties $669,800
Civil penalties for false claims – $138,000
Repayment of unallowable costs
Forced to sell Norian to avoid exclusion
© 2011 Winston & Strawn LLP 27
Synthes – Norian
Norian sale Assets sold to Kensey Nash for $22 M cash ($.5M less than
the fine)
Four executives Pled guilty to misdemeanors a “responsible corporate
officers”
Paid $100,000 fines
In June 2011 presentencing hearing, government asked for prison terms
© 2011 Winston & Strawn LLP 28
Example: Maxim Healthcare Services
Civil investigation RCO issues and indictments
Home health service provider charged with: $61 M of fraudulent billing – overstated number of hours of
services provided
Licensed offices billed for services provided by unlicensed offices hidden from government inspectors
Fraudulently represented that supervision was provided
Settlement $20 M criminal penalty
$130 M civil penalties
Deferred prosecution agreement
© 2011 Winston & Strawn LLP 29
Maxim
6 individuals (lower-level executives) were indicted
Company terminated senior executives and other employees identified as responsible for the conduct
Company established and filled positions of CEO, Chief Compliance Officer, COO/Chief Clinical Officer, Chief Quality Officer/Chief Medical Officer, Chief Financial and Strategy Officer, and VP of Human Resources, hired a new General Counsel
Not clear if other indictments will issue
© 2011 Winston & Strawn LLP 30
Criminal Enforcement: Prosecutions
New & Aggressive FDCA Prosecution Agenda 1/2011: FDA: New Guidance and Procedures re Strict
Liability Criminal Prosecutions FDA to “increase the appropriate use of misdemeanor
prosecutions”
Knowledge of, involvement in, or negligence re offense is notrequired for prosecution
New Regulatory Procedures Manual (RPM) provisions relax prosecution criteria and erode 21 U.S.C. § 335 protections
Criminal enforcement based on discretionary agency consideration of three primary and seven discretionary factors
© 2011 Winston & Strawn LLP 31
Criminal Enforcement: Prosecutions
2011 Primary Factors in Recommending RCO/Park Prosecutions: Individual’s position in the company;
Individual’s relationship to the violation;
Individual’s authority to correct or prevent the violation.
© 2011 Winston & Strawn LLP 32
Criminal Enforcement: Prosecutions
2011 Additional, discretionary factors: whether the violation involves actual or potential harm to the public;
whether the violation is obvious;
whether the violation reflects a pattern of illegal behavior and/or failure to heed warnings;
whether the violation is widespread;
whether the violation is serious;
the quality of the legal and factual support for the proposed prosecution; and
whether the proposed prosecution is a prudent use of agency resources.
© 2011 Winston & Strawn LLP 33
Criminal Enforcement: Prosecutions
Not unreasonable to expect Government to extend aggressive FDCA prosecution agenda to other areas of criminal health-care enforcement and statutes
Medicare Strike Force takedowns
High concern for patient well-being
Concern for public fisc
Congressional pressure to incent corporate compliance through individual officer accountability
© 2011 Winston & Strawn LLP 34
Criminal Enforcement: NPAs and DPAs
Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs) Trend toward standardization (including of provisions giving
USG sole discretion to determine breach) Heaviest use remains FCPA but some health care and SEC
Elan Corp – NPA Drug Misbranding – $203 M penalty; 5 yr CIA Forest Labs – NPA Drug Misbranding – $313M penalty; 5 year CIA
May 2011: U.S. Atty Declares Wright Medical Breach of DPA Sept 2010 DPA resolving Anti-Kickback allegations DPA gave U.S. Atty “sole discretion” to determine breach Collateral consequences; resignations; potential shareholder claims
© 2011 Winston & Strawn LLP 35
Example: Forest Labs
Civil FCA claims and investigation criminal pleas by the company but NO permissive exclusion of CEO
September 15, 2010 Levothroid (hypothyroidism) Sold without FDA approval
Celexa and Lexapro (anti-depression drugs) Promoted off-label pediatric use
Paid kickbacks (grants, consulting fees, expensive meals, and entertainment) to physicians to prescribe
False claims resulted
© 2011 Winston & Strawn LLP 36
Forest Labs
Criminal and Civil Penalties Against the Company Criminal Offenses and Guilty Pleas
Distributing a misbranded drug (Celexa)
Distributing an unapproved new drug (Levothroid)
Felony obstruction of FDA investigation into Levothroid
Criminal Penalties $150 M fines and $14 M asset forfeiture
Civil Charges & Liability $149 M False Claims Act liability
© 2011 Winston & Strawn LLP 37
Forest Labs
April 2011 OIG issued intent to exclude letter to CEO Howard Solomon
Basis for exclusion Solomon was a managing employee of a sanctioned entity
No allegation of wrongdoing
September 2011 OIG decided to close the case without exclusion
HHS cited as the basis for the decision “review of the information in our file and consideration of the information that your attorneys provided to us”
© 2011 Winston & Strawn LLP 38
Exclusion
Professional death sentence Cannot work in, for, or provide any item to any entity that
received federal or state health-care program funds
Imposed by HHS OIG
Mandatory (SSA § 1128(a)) Following certain criminal convictions
Permissive (OIG discretion) (SSA § 1128(b)) October 2010 OIG guidance and factors trigger
“presumption” in favor of exclusion
© 2011 Winston & Strawn LLP 39
Mandatory Exclusion
Mandatory exclusion – 5 year+ minimum periods Conviction of program-related crimes (5 yrs)
Felony conviction relating to health-care fraud (5 yrs)
Conviction relating to patient abuse or neglect (5 yrs)
Convictions of two mandatory exclusion offenses (10 yrs)
Conviction on 3 or more occasions of mandatory exclusion offenses (permanent exclusion)
Felony conviction involving controlled substance (5 yrs)
© 2011 Winston & Strawn LLP 40
Permissive Exclusion
Permissive exclusion under § 1128(b) of the Social Security Act – 15 different grounds One subsection permits exclusion “from participation in
any Federal health care program … [of] [a]ny individual … who is an officer or managing employee … of [a sanctioned] entity”
“Managing employee” means: “individual . . .who exercises operational or managerial control . . . or who directly or indirectly conducts the day-to-day operations of the entity.”
A “sanctioned entity” is an entity that has been convicted of an offense that qualifies for mandatory exclusion or has otherwise been excluded.
© 2011 Winston & Strawn LLP 41
Permissive Exclusion
Offenses resulting in 1 or 3-year minimum exclusion:
Misdemeanor conviction relating to health care fraud (3 yr)
Conviction relating to non-health care program fraud (3 yr)
Conviction relating to obstruction of an investigation (3 yr)
Misdemeanor conviction involving controlled substance (3 yr)
Claims for excessive charges, unnecessary services, services that fail to meet standards of health care, failure of an HMO to furnish medically necessary services (1 yr)
© 2011 Winston & Strawn LLP 42
Permissive Exclusion
Offenses where exclusion keyed to triggering event Exclusion under federal or state health-care program (min.
of other exclusion)
Entity controlled by a sanctioned individual (same as the individual)
Individuals controlling a sanctioned entity (min. same as entity)
Entities controlled by a family or household member of an excluded individual where there has been a transfer of ownership/control (same as individual)
© 2011 Winston & Strawn LLP 43
Permissive Exclusion
Offenses with no minimum exclusion period Fraud, kickbacks, and other prohibited activities
Failure to disclose required information, supply requested information on contractors and suppliers, or supply payment information
Failure to grant immediate access
Failure to take corrective action
Making false statements or misrepresentations of a material fact
© 2011 Winston & Strawn LLP 44
October 2010 OIG Exclusion Guidance
Individuals with ownership or control interest in sanctioned entity May be excluded if knew or should have known of the
conduct that led to the sanction
Presumption in favor of exclusion
Presumption may be overcome if OIG finds significant factors weigh against exclusion
© 2011 Winston & Strawn LLP 45
October 2010 OIG Exclusion Guidance
Officers and managing employees
Prong 1: Presumption of Exclusion Applies where there is evidence that an individual officer or
managing employee knew or should have known of the conduct giving rise to corporate conviction or exclusion.
The individual bears the burden of showing significant factors against exclusion to overcome the presumption.
Prong 2: No Presumption In the absence of evidence that the individual knew or should
have known of the conduct, the individual may still be excluded. HHS will consider several factors in determining whether exclusion is warranted.
© 2011 Winston & Strawn LLP 46
October 2010 OIG Exclusion Guidance
Discretionary Exclusion Factors:
Circumstances/Seriousness of Misconduct
Nature and scope of misconduct (any other misconduct, level of company where occurred)
Was criminal sanction imposed on entity or related entities or on individuals (amount of criminal or civil penalty, length of entity exclusion)
Evidence of actual or potential harm to individuals or financial harm to a federal health-care program or other entity
Isolated incident or pattern of wrongdoing over a significant period of time
© 2011 Winston & Strawn LLP 47
October 2010 OIG Exclusion Guidance
Discretionary Exclusion Factors:
Individual’s Role at Sanctioned Entity
Current position, positions held over time and at time of misconduct, degree of individual’s managerial control
Relation of individual’s position to the conduct, was it within the individual’s chain of command
© 2011 Winston & Strawn LLP 48
October 2010 OIG Exclusion Guidance
Discretionary Exclusion Factors:
Individual’s Response to Misconduct
Did individual take steps to stop or mitigate the conduct
Did the individual disclose the misconduct, cooperate in investigation?
© 2011 Winston & Strawn LLP 49
October 2010 HHS OIG Guidance
Discretionary Exclusion Factors:
Information About the Sanctioned Entity
Has the entity previously been convicted or a crime or found to have administrative or civil liability, or settled with the government; what was the prior conduct?
Size of the entity (employees, revenue, product lines)
Corporate structure (how many subs and their size)
© 2011 Winston & Strawn LLP 50
Strategies
Consider more aggressive compliance and defense approaches to civil liability and FCA cases
Attempt to leverage joint DOJ-HHS investigations
Consider and attempt to avoid corporate exclusion as a consequence of civil settlement
Removes a predicate for certain individual exclusions
Know and understand statutory and OIG grounds for permissive exclusion and account for them in Stipulated Facts or settlement documents
© 2011 Winston & Strawn LLP 51
OIG Areas of Particular Interest
Home Health Agencies Payments to third parties for items included in HHA payment
Whether claims meet coverage requirements
Appropriateness of services
Relationships between hospices and SNFs
Appropriateness of outpatient therapy services
Payments for off-label anticancer pharmaceuticals and biologicals
© 2011 Winston & Strawn LLP 52
Self-Disclosure
OIG program Anti-Kickback violations
Stark Law violations only if also involves a kickback
Must meet minimum threshold
Will likely have to pay back a multiple of the amount
CMS program for Stark Law New
Disclosure to U.S. Attorney (DOJ)
Reporting and Return of Program Overpayments PPACA amendments to FCA effective March 2010
© 2011 Winston & Strawn LLP 53
Overpayments: Reporting & Return
PPACA identifies the “retention of any overpayment” as decreasing an “obligation” to the Government in violation of the FCA
Overpayments must be reported in writing and returned to the Government by the later of 60 days after “identification” (undefined) or, for cost-reporting entities, the date the relevant cost report is due
Overpayment violations can FCA liability, treble damages, and monetary penalties, administrative exclusion
“Claims” may be calculated as number of contracts or number of invoices or services
Section 2 of the Improper Payments Information Act of 2002 (31 U.S.C. § 3321 note), as amended, contains some helpful definitions
© 2011 Winston & Strawn LLP 54
Compliance
Corporate Executives cannot monitor every company function or claim submission
Companies can implement programs and mechanisms to detect fraud and other wrongdoing
DOJ and OIG expect robust Compliance Programs
The larger the company, the more sophisticated the program
PPACA mandates Compliance Programs HHS Guidance on compliance programs has issued
HHS Rules on mandatory PPACA programs are forthcoming
© 2011 Winston & Strawn LLP 55
Essential Elements of a Compliance Program Compliance Officer – should report to Board
Policies and Procedures designed to preventwrongdoing and identify wrongdoing that occurs
Reporting mechanism – “hot line”
Serious actions against wrongdoers
Protection of individuals who report violations and potential violations in good faith
Culture of Compliance
Only thing worse than not having a program is not enforcing it
© 2011 Winston & Strawn LLP 56
PPACA Provisions re Compliance Plans
PPACA Compliance Program Provisions Programs required for Medicare/caid and CHIP
providers
OIG to develop core elements
§ 6102—nursing and skilled nursing facilities by March 23, 2013
Must be effective in preventing and detecting criminal, civil, and administrative violations and in promoting quality of care consistent with regulations developed by the HHS
§ 6401—all health care providers – no statutory timetable
© 2011 Winston & Strawn LLP 57
OIG Compliance Guidance
February 2, 2011 Federal Register request for comments re PPACA §§ 6102/6401 Compliance Program Elements
2010 Federal Sentencing Guidelines (FSG) Manual Criteria would be basis for core elements:
Written policies & procedures
Designated compliance officers & committee
Training and education programs on policies and procedures
Designated reporting channels that allow anonymous reporting
Internal monitoring and periodic self-audits
Enforcement through publicized disciplinary policy
Respond to offenses and document corrective actions
© 2011 Winston & Strawn LLP 58
General Compliance Strategies
Internal reporting and certification Adhere to statutory provisions & rules requiring compliance programs
Review HHS OIG & FDA Rulemakings and Guidance Monitor HHS rulemakings on required compliance elements
OIG website: Compliance Program Guidance (CPG) manuals and case examples
Consider outside billing and coding consultants to identify risks
Understand express and implied certifications
Mitigating potential exclusion and criminal exposure Take steps to minimize corporate exclusion
Review 10/2010 OIG Guidance and factors for permissive exclusion
Know Jan 2011 FDA RPM revisions and RCO guidelines Review internal structures and civil stipulations/settlements carefully
© 2011 Winston & Strawn LLP 59
Questions?
© 2011 Winston & Strawn LLP 60
Thank You.
© 2011 Winston & Strawn LLP 61
Contact Information
Marion GoldbergHealth Care
Washington, D.C.(202) 282-5788
Elizabeth PapezLitigation
Washington, D.C.(202) 282-5678
Tom MillsHealth Care
Washington, D.C.(202) 282-5714