Fraud and Abuse Update and Trends

Lloyd Bookman Hooper, Lundy & Bookman, PC

Jordan KearneyHooper, Lundy & Bookman, PC

Back to Basics

• Why compliance?

• Compliance program elements

Why Have a Compliance Program?

• Help the organization to do the right thing• Establish a culture of compliance• Reduce risk to the organization and individuals Avoiding acts that could create exposure “Scienter” matters

• Reducing sanctions• Avoid creating whistleblowers• Everyone else has one

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Elements of a Compliance Program

• Standards of conduct and policies/procedures• Compliance Officer and other compliance bodies• Education and training• Hotline or other process to receive complaints• System for responding to improper conduct, including

employee discipline• Monitoring compliance through audits and other techniques• Investigation and remediation of systemic problems, policies

to avoid employment of sanctioned individuals

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60 Day Rule

• Must report and return overpayments within later of 60 days of identification or date cost report is due “if applicable”

• Applies to Medicare and Medicaid fee-for-service• Does it apply to payments from an MA plan or an

MCO to a provider?• CMS has issued a Medicare Part C rule and a

Medicare Part A/B rule• No Medicaid or state Medi-Cal rule has been issued

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Overpayment (A/B Rule)

• Funds a provider receives and retains to which it is not entitled “after applicable reconciliation”

• Applicable reconciliation is narrowly defined SSI ratio (used for Medicare DSH) Outlier reconciliation

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Identify (Medicare A/B rule)

• According to the A/B rule, overpayment is identified when it is quantified

• Must exercise reasonable diligence after receiving credible information of an overpayment to identify

• CMS assumes this can be done within six months except in extraordinary circumstances

• Overpayment deemed identified if don’t exercise reasonable diligence

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Credible Information

• A “factual determination”• Information that supports a reasonable belief an

overpayment may have been made• Examples: Credible hot-line complaint Internal audit results Discover excluded individual provided services Government or contractor audit results Unexplained increase in reimbursement

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When is credible information received?

• Potentially, whenever any provider employee has credible information

• Not limited to when information is reported to compliance

• Not limited to information received by management• CMS: “Organizations are responsible for the

activities of their employees agents at all levels.”

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Reasonable Diligence

• “ ‘Reasonable diligence’ includes both proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayment and investigation conducted in good faith in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment.”

• “We believe that compliance with the statutory obligation to report and return received overpayments requires both proactive and reactive compliance.”

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Proactive Compliance

• “We advise those providers and suppliers [that do not have active compliance programs] to undertake such efforts to ensure they fulfill their obligations under section 1128J(d) of the Act.”

• “We believe that undertaking no or minimal compliance activities to monitor the accuracy and appropriateness of a provider or supplier’s Medicare claims would expose a provider or suppler to liability under the identified standard articulated in this rule. . .”

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Reasonable Diligence (cont.)

• Reasonable diligence standard was not in the proposed rule, which said a person “identified an overpayment if the person has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the existence of the overpayment.”

• Final rule moved in effect to a negligence standard.

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Reasonable Diligence (cont.)

• In UnitedHealthCare Co. v. Azar, No. 16-157 (RMC) (D.D.C.) (decision issued September 7, 2018), the Court vacated a similar regulation under the Medicare Part C/D Rule, finding it was an improper “switcheroo” from the proposed regulation, and impermissibly imposed a negligence standard instead of a “knowing” standard included in the statute. Appeal is pending.

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Cost Reports

• Appears that overpayments based on difference between interim and projected final payments need not be repaid until cost report is due

• Must be reported and returned with any filed or amended cost report

• Distinguish claims-based overpayments

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Cost Reports (cont.)

• Provider that self-identifies a cost report overpayment after filing must report and return with 60 days of identification

• Submit an amended cost report with return with sufficient documentation to allow the Medicare Administrative Contractor (MAC) to adjust the cost report

• If overpayment identified by MAC during the audit, MAC determines and demands repayment at final settlement. Provider is responsible for addressing other years

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To Whom Should a Provider Disclose

• The applicable contractor (absent false claims or criminal scienter) Medicare: The MAC (using the MAC’s process) Medi-Cal: DHCS, the Medi-Cal Fiscal Intermediary (FI),

applicable county (behavioral health or drug/Medi-Cal)• Stark Self-Referral Disclosure Protocol (SRDP)• OIG (using the self-disclosure protocol) or DOJ if false claims

or criminal scienter• A Corporate Integrity Agreement (CIA) could require

disclosure to the OIG16

Considerations

• Simple mistake, or evidence of intentional or reckless conduct?

• How much is at stake?• Potential criminal exposure• OIG process is extensive, time consuming, and costly;

requires thorough investigation and reporting regarding responsible individuals

• OIG process may be more favorable regarding Anti-Kickback Statute (AKS) violations and excluded individuals

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Extension or Tolling of 60-day Period

• OIG self-disclosure protocol• SRDP• Extended repayment plan• Report to the DOJ does not extend 60-day period

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Sampling and Extrapolation

• May self-report using sampling and extrapolation• Must describe methodology in the self report• Do not have to separately report and return

overpayments identified in probe or sample until complete diligently pursued sampling

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Look-Back Period

• Six years under Medicare A/B• Seems to be measured from date of the report

and refund• Medi-Cal?• Managed Care?

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Compliance Audits

• Focus is on audits of claims• Other areas could include: Physician arrangements Meaningful use payments Cost reports S-10 and DSH

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Types of Audits

• Scheduled audits Part of organization’s pre-planned “audit program” Focus on high risk areas

• Problem-Focused audits Response to specific problem or “credible

information of overpayment”

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Who does the audit?

• Depends on nature of audit and available resources• Routine audits typically done by compliance or other hospital

staff or through ongoing arrangements with consultants• Problem focused audits:

Evaluate potential exposure/severity of problem Competence and independence of internal resources Perhaps higher level of expertise, broader industry view,

greater independence, and increased credibility if outside firm is used

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Privilege Considerations

• Divergence of views: Some organizations generally want the entire

compliance process to be transparent and are not concerned with privilege

Others want all problem focused audits to be under privilege

Others approach on a case-by-case basis

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Privilege — Pros and Cons

• Cons Expense Delay May have to disclose anyway Heighten employee concerns Process required to effectuate and protect

privilege

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Privilege: Pros and Cons (cont.)

• Pros Promotes candid communications between lawyer

and client Allows decisions to be made in a privileged

environment Can always choose to waive later Cannot apply retroactively

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Privilege Issues

• Attorney-client communications Privilege belongs to the organization

• Attorney work product Privilege belongs to the lawyer In federal court, must be in anticipation of litigation

• Engaging consultants• Matter must be directed by lawyer• Interviews and Upjohn warnings

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Pending Claims

• For scheduled audits and first pass at problem focused audits, consider auditing claims before bills are dropped

• Will this provide adequate information to decide how to proceed?

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Audit Design

• Consider carefully the problem you are addressing• What type of claims to audit?• How far to cast the net?• Which providers?• Which payers?• Limit to pending claims?• How far back to go?• How many claims to review?• How to select claims for review?

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Probe Audits

• Probe is an audit designed to determine whether further auditing is necessary and to inform how to design further auditing if necessary

• Not statistically valid• If no sampling/extrapolation results, must timely

report and return overpayments identified in probe (at least Medicare and Medicaid fee-for-service)

• When does a probe indicate further auditing is necessary?

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Sampling and Extrapolation

• Use when there is an identified overpayment issue and claims are too numerous for a 100% sample

• Carefully design – may wish to use experienced consultant/statistician. Some considerations: Definition of problem being audited Universe of claims Number of claims Time period Simple random sample or stratified? Offsets of underpayments?

• Extrapolate from the median error rate or lower bound?31

Payer Differences

• One size does not fit all• Different payers have different substantive rules and different reporting

and repayment obligations. Examples: Medicare and Medi-Cal rules for mid-level billing Medicare and Medi-Cal rules for teaching physician billing Medicare vs. Medi-Cal hospital outpatient billing

• Lookback periods• Offsets for underpayments• Can create substantial complexity• Some organizations choose to apply Medicare report and repay rules to

all payers. Others look at each separately.32

Managed Care

• Does the 60-day rule apply to Medicare Advantage (MA) plans and Managed Care Organizations (MCOs)?

• Does the payer contract require report and refund? If so, is a violation simply a breach of contract, or

could it lead to False Claims Act (FCA) or Civil Money Penalty (CMP) liability?

• Are there other laws requiring a report and repayment?

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Managed Care (cont.)

• What is the lookback period? Consider one year statute under the Knox-Keene Act

• Consider contract law concepts, such as substantial performance

• Consider whether the issue caused any damages to the health plan?

• Are underpayment offsets available?• Waiver and course of conduct concepts

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FCA And Related Developments

• Address FCA and other DOJ Health Care Fraud developments

• How they relate to compliance activities

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UHS v. Esobar [136 S.Ct. 989 (2016)]

• Supreme court holds an implied certification claim must satisfy two conditions: Claim does not merely request payment, but makes

specific representations about goods or services provided; and

Defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations half-truths

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Materiality

• Court does not clearly define materiality• Appears to mean whether omission would have

affected the government’s payment determination

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Materiality (cont.)

• Not sufficient that government designates compliance with a provision as a condition of payment or that the government would have the option to decline to pay if it knew of the noncompliance

• Not material if noncompliance is minor or insubstantial

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Materiality (cont.)

• Government’s designation of a provision as a condition of payment is relevant but not dispositive

• Proof of materiality can include evidence that the Government consistently failed to pay claims based on noncompliance

• Proof of immateriality where government has paid a particular claim despite knowledge of noncompliance or regularly pays a type of claim despite actual knowledge of noncompliance

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Post-Escobar

• Engendered much litigation• Ninth Circuit recently ruled that the two Esobar conditions

are mandatory to prove falsity• However, found that there was a triable issue of materiality:

Law conditioned payment on complying with rule prohibiting incentive payments

Evidence of past enforcement activities Amount of incentive payments was substantial

• U.S. ex rel. Rose v. Stephens Institute

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Materiality (cont.)

• United States ex rel. Martinez v. Orange Cty. Glob. Med. Ctr., Inc., No. 8:15-cv-01521-JLS-DFM, 2017 WL 9482462, 2017 U.S. Dist. LEXIS 221085 (C.D. Cal. Sep. 14, 2017). Court held submission of allegedly improper claims by a hospital to a managed care plan cannot be material because it does not affect government payments to the plan.

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Application to Compliance Activities

• Suggests that transparent disclosure of potential legal or contractual violations may be a valid defense against an FCA claim

• Raises question of application of materiality standard to the overpayment analysis Is there an overpayment if noncompliance not

material? For example, government has consistently paid your

claims or others knowing of the noncompliance 42

Sub-Regulatory Guidance

• Impact of “rules” that have not been adopted through notice and comment under the Administrative Procedures Act (APA) National coverage determinations Local coverage determinations Manual provisions Agency memos MAC bulletins

• Does non-compliance mean “overpayment”?43

Sub-Regulatory Guidance (cont.)

• Cases suggest failure to comply with sub-regulatory guidance that is a condition of payment can lead to FCA exposure and overpayments

• Example, Cedars-Sinai Medical Center v. Shalala, in which 9th Circuit indicates that the failure to follow a manual provision, or disclose noncompliance, can give rise to FCA liability even if the provision is invalid

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Sessions and Brand Memos

• November 17, 2017 Sessions memo states that DOJ guidance issued without compliance with the APA that will not be binding on parties, cannot be used as a basis to coerce parties to take or refrain from taking any action

• January 25, 2018 Brand (associate AG) memo expands to apply to all agency guidance. In civil enforcement cases: DOJ may not use its enforcement authority to convert agency

guidance into binding law DOJ may not use agency guidance documents as a basis for

proving violations of applicable law• How does this affect FCA exposure and overpayment analysis?

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Local Coverage Determinations (LCDs)

• LCDs are binding on MACs, but not on Administrative Law Judges (ALJs)

• Does receiving payment in violation of an LCD constitute an overpayment?

• Create FCA liability?• If so, how can you challenge LCD validity? Disclose

noncompliance to the MAC?• Are LCDs constitutional?

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Yates Memo Updated

• 2015 DOJ memo requires focus on individual culpability in civil and criminal enforcement cases No cooperation credit for organization without “disclosure of all

relevant facts about the individuals involved in the misconduct” – all or nothing approach

• Nov. 29, 2018, Rosenstein announces some softening: No cooperation credit in criminal cases without identifying all

individuals who were substantially involved in the conduct; focus is on those who played significant roles

Partial credit available for less fulsome disclosures in civil cases; cannot conceal involvement of senior management

Restores discretion to Assistant U.S. Attorneys (AUSAs) to release individuals civilly 47

Granston Memo and Government Dismissals

• Jan. 10, 2018 DOJ memo requires AUSAs to consider seeking dismissal of qui tam cases when declining intervention. Factors: Complaint is facially lacking in merit Preventing parasitic or opportunistic qui tam actions Preventing interference with agency policies and

programs Controlling litigation brought on behalf of U.S. Safeguarding classified information and national security Preserving government resources

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National Health Care Analysis Group (NHCA) Litigation

• According to government, company formed by former Wall Street bankers and investors for purpose of filing qui tams

• Establish a string of LLCs to act as relators• Filed 11 qui tam complaints in seven judicial districts

against 38 pharmaceutical companies and commercial outsourcing vendors over last 2 years

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NHCA Litigation (cont.)

• NHCA pushes back hard Attacks on relator and its tactics are irrelevant NHCA formed as a health care consulting company,

discovered rampant fraud, and has successfully uncovered fraudulent conduct and recovered funds for the government in FCA cases

Tactics are completely within bounds and well known to DOJ Allegations are sufficient to assert FCA and AKS violations, as

one magistrate has ruled Government does not have unfettered discretion to dismiss DOJ cannot rewrite the AKS and FCA 50

NHCA Litigation(cont.)

• Allege following violations of AKS and FCA: Defendants engaged in “white coat” marketing by

hiring independent contract nurses to engage in impermissible undercover promotional activities

Defendants provided free nursing and reimbursement support services to prescribing physicians

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NHCA Litigation (cont.)

• DOJ declines intervention and moves to dismiss, asserts: No insider knowledge Obtained information from potential informant

under false pretenses• Relators claims implicate more than 73 million

Medicare Part D perscriptions• Government states it expanded considerable

resources to investigate the allegations52

NHCA Litigation (cont.)

• D.C. Circuit has held government has unfettered authority to dismiss

• Ninth Circuit has held that government must identify a valid government purpose that is rationally related to dismissal

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NHCA Litigation (cont.)

• Government contends: Based on extensive investigations, government has

concluded that allegations lack sufficient factual and legal support

Government monitoring of case would involve extensive government resources due to breadth of allegations

Conflicts with important policy and enforcement prerogatives of providing educational information and instruction to patients

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State Civil False Claims Acts

• California False Claims Act

• Insurance Fraud Prevention Act

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California False Claims Act

Gov’t Code § 12650, et seq. Civil statute modeled after the Federal FCA Covers claims to the state or to any political

subdivision of the state, including Medi-Cal claims Does not apply to workers’ compensation or

commercial insurance claims

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Insurance Fraud Prevention Act

• Ins. Code § 1871.7• Civil statute, largely modeled after the Federal FCA• Provides for up to treble damages, per claim penalties of

$5,000–$10,000 and equitable relief• Covers claims submitted to commercial insurers, including

for workers’ compensation• Cases can be brought against providers but not against

insurance companies• Seeing an increase in enforcement

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IFPA Prohibits

• Employing “runners, cappers, steerers, or other persons to procure” patients California Department of Insurance (DOI) treats this as a

general anti-kickback provision• Violations of Penal Code 550, including:

Knowingly presenting a false claim under a contract of insurance

Knowingly making or causing to be made a false claim for payment of a health care benefit

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Enforcement of IFPA

• Cases can be brought by: Insurance Commissioner (Dept. of Insurance) Any District Attorney Relator (whistleblower)

• Cases filed under seal, just like Federal and State FCA• Generally filed in state court• Relator cases

District Attorney and/or Insurance Commissioner can intervene If both decline, relator can continue on his/her/its own

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Enforcement of IFPA – Insurers

• Special Investigations Units (SIUs) Insurance companies are required to have SIUs SUIs are “established to investigate suspected

insurance fraud” and are required to refer acts of suspected insurance fraud to DOI.

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Enforcement of IFPA – Insurers (cont.)

• Insurance companies are incentivized to be relators Even if government intervenes, if its relator case is

successful, insurance company gets:• Reasonable attorneys fees, expenses, and costs• All of the money the insurer paid• 30-40 percent of the remaining proceeds

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Takeaways

• Don’t assume that compliance policies and inquiries should only consider government payers DOI sees policies that only apply to government

payers as a red flag Can be legitimate reasons to treat different payers

differently (e.g., different reimbursement structures)• Take SIU inquiries seriously, as you would a Medicare

or Medi-Cal audit

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References

• YatesMemo (https://www.justice.gov/archives/dag/file/769036/download)

• Rosenstein Announcement (https://www.justice.gov/opa/speech/deputy-attorney-general-rod)

• Sessions Memo (https://www.justice.gov/opa/press-release/file/1012271/download)

• Brand Memo (https://www.justice.gov/file/1028756/download)• Granston Memo

(https://assets.documentcloud.org/documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf)

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Questions?

Thank You

Lloyd BookmanHooper, Lundy & Bookman, PClbookman@health-law.com

Jordan KearneyHooper, Lundy & Bookman, PCjkearney@health-law.com