Health Reform Whitepaper: Strengthening the Fraud and Abuse Laws

The fourth and final installment of our health reform series focuses on how the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (referred to together herein as “PPACA”) strengthens the enforcement of health care fraud and abuse laws. Just last month, Department of Health and Human Resources Inspector General Daniel R. Levinson testified on Capitol Hill that PPACA “…will significantly enhance our effectiveness in fighting waste, fraud, and abuse in the Medicare and Medicaid programs.” Levinson added that the perpetrators of health care fraud and abuse range from “street criminals” to “Fortune 500 companies.”

In 2009, the U. S. Department of Justice (“DOJ”) recovered over $1.6 billion from fraudulent and abusive actors in the health care industry. And according to a recent Wall Street Journal article, the DOJ has approximately 985 pending health care fraud investigations. On their face, these statistics indicate that the federal government’s toolbox is already well stocked to confront those who seek to abuse or defraud our nation’s health care system. While the government’s arsenal is indeed potent, PPACA enacts a broad-ranging enhancement of the health care fraud and abuse laws. Our summary of some of the more significant fraud and abuse provisions in PPACA follows. 

1. Return of Overpayments  

PPACA sets forth an affirmative obligation for any health care provider, supplier, or managed care organization to report and return Medicare and Medicaid overpayments within sixty (60) days after the date on which the overpayment was identified, or the date that any corresponding cost report is due, whichever is later. This repayment must be accompanied by a written statement of the reasons why the overpayment occurred. It is unclear what the term “identified” means (e.g., is actual knowledge required or is something less like reckless disregard sufficient). At a minimum, any party with actual knowledge of an overpayment must report and repay it within sixty (60) days, or face costly penalties. Not only is the illegal retention of an overpayment subject to civil monetary penalties of $10,000 per claim plus treble damages, but it also now exposes the party to False Claims Act liability (another change in law accomplished by PPACA). 

2. Stark Law Self-Disclosure Protocol 

The complex Stark Law generally prohibits a physician from referring his or her patients to an entity (including his or her own practice) with which the physician maintains a financial relationship for the performance of certain designated health services, including but not limited to laboratory, imaging, outpatient hospital, and inpatient hospital services. While there are numerous exceptions to this general prohibition, the failure to comply with the Stark Law results in strict liability for an improper referral. In an attempt to improve compliance with the Stark Law, while at the same time limiting the potential damage for unintended violations, PPACA mandates the development of a new Stark self-referral disclosure protocol. Under this new law, Stark violations can be self-reported to the Centers for Medicare and Medicaid Services (“CMS”). The actual protocol issued on September 23, requires a description of the matter being disclosed, as well as a financial analysis identifying the total amount that is actually or potentially due and owing during the period of Stark non-compliance. Significantly, PPACA grants the Secretary of HHS the authority to reduce penalties for Stark violations based upon such factors as the timeliness of the self-disclosure, the nature and extent of the improper practice, the degree of cooperation by the self-disclosing entity, and the financial position of the self-disclosing entity. The new PPACA obligation to repay an overpayment within sixty (60) days (see discussion above) is suspended upon submission of a Stark law self-disclosure to CMS. 

3. Physician-Owned Hospital Changes 

The Stark Law previously included two (2) exceptions allowing for physician ownership of hospitals – the whole hospital ownership exception and the rural provider exception. Both of these exceptions have been narrowed by PPACA to allow compliance with the Stark Law only if the physician-owned hospital has a provider agreement in place with the Medicare program on December 31, 2010. The future development of physician-owned hospitals after that date would be subject to the Stark Law’s general referral prohibition. For physician-owned hospitals that are “grandfathered” by PPACA (i.e., they have a provider agreement in place by December 31, 2010), their expansion of both beds and procedure rooms is significantly restricted. PPACA also prohibits “grandfathered” hospitals from increasing the percentage of their physician ownership interests. Reporting requirements concerning all physician owners and investors of the hospital are mandated both to the Secretary of HHS and to the general public under PPACA.  

4. Disclosures Related to MRI, PET, and CT Referrals 

Another exception under the Stark Law, known as the in-office ancillary services exception, allows a physician to refer a patient for radiology services within his or her own practice if certain conditions are met. PPACA adds to those conditions by requiring any physician who makes an in-office referral for MRI, PET, or CT scanning to notify the patient in writing that he or she may obtain the same service from an entity other than the referring physician’s practice. The proposed regulations issued this summer would require the written notice to list at least ten (10) alternative suppliers within 25 miles of the physician’s office. The written notice must also include the name, address, phone number, and distance from the physician’s office of each alternative supplier, and must be signed by the patient. The proposed regulations establish January 1, 2011, as the effective date for such written disclosures. 

5. Clarification of Intent Standard for the Anti-Kickback Statute 

The Anti-Kickback Statute provides criminal penalties for the “knowing and willful” payment of remuneration in exchange for the referral of patients for items or services reimbursable under Medicare and Medicaid. Prior to PPACA, there had been inconsistent interpretations by the federal courts of the level of intent needed to violate the Anti-Kickback Statute. In Hanlester Network v. Shalala, the 9^th Circuit narrowly concluded that a defendant must know that his or her specific conduct was prohibited by the Anti-Kickback Statute, and that he or she had engaged in conduct with the specific intent to violate that law. PPACA rejects this strict construction by the Ninth Circuit. It says that a person need not have actual knowledge that the Anti-Kickback Statute prohibits a particular conduct, and that the government is not required to prove a specific intent to commit a violation of the law. Mere knowledge that his or her conduct is unlawful will suffice. 

6. Expansion of Qui Tam Whistleblower Provisions 

The False Claims Act permits a whistleblower to bring a civil action alleging health care fraud and abuse, and to share in the recovery of any improperly paid claims. These civil actions, known as qui tam actions, have historically required whistleblowers to be the “original source” of the report of misconduct, meaning the individual must have “direct and independent” knowledge of the non-publicly disclosed allegations. PPACA greatly expands who can be an “original source” by eliminating any requirement for “direct” knowledge by the whistleblower. It allows a whistleblower to proceed even after the public disclosure of the allegations if the whistleblower’s information is independent of and materially adds to the publicly disclosed allegations. “Public disclosure” of the allegations of wrongdoing is` no longer an automatic and jurisdictional bar to qui tam actions as a result of PPACA. 

7. Compliance Programs 

Corporate compliance programs by health care providers, while strongly encouraged by CMS for years, have been legally required only as part of corporate integrity agreements and other government-imposed sanctions. PPACA changes that going forward. PPACA now makes compliance programs mandatory for certain types of providers. The Secretary of HHS has the authority to specifically designate which types of providers will be required to have compliance programs in place as a condition to their certification. To date, this designation has not been announced by the Secretary. 

8. DME and Home Health Certification Requirements 

PPACA requires physicians, physicians’ assistants, nurse practitioners, and nurse midwives to perform face-to-face encounters with patients before they may certify the need for durable medical equipment (“DME”) or home health services. This face-to-face encounter must occur within six (6) months of the certification, or such lesser time as may be designated by the Secretary. 

9. Transparency Provisions for Manufacturers of Drugs, Devices, Biologicals, and Medical Supplies 

PPACA requires manufacturers of drugs, devices, biologicals, and medical supplies to report to the Secretary of HHS any payment or transfer of value to physicians and teaching hospitals. The term “payment or transfer of value” includes gifts, payments for meals, travel expenses, honoraria, research fees, certain consulting and educational payments, investment interests, royalties, profit distributions, dividends, and option grants, among other types of payments. The report must include the name of the physician, the amount of payment, and the name of the product to which the payment is related. The distribution of product samples and payments worth less than $10 (unless the aggregate annual payments to a recipient exceed $100) are exempt from reporting under PPACA. State laws which require a more robust method of reporting payments are not preempted by the PPACA reporting requirements. The first year that such expenditures must be reported is 2012. Failure to report may result in fines of up to $10,000 for each unreported payment, and up to $100,000 for each knowing failure to submit a report. 

10. Additional Enforcement Funding 

To fuel all of these additional enforcement initiatives, PPACA increases funding to the DOJ and HHS by $350 million over the next five years. This money will be used to hire more fraud investigators and prosecutors. The funding for fraud and abuse programs is already in excess of $1 billion in FY 2010.

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