1st Circuit Court of Appeals Upholds Tax Refund In False Claims Act Case

August 18, 2014 By

The United States Court of Appeals for the First Circuit upheld the district court’s decision allowing Fresenius Medical Care Holdings, Inc. (f/k/a National Medical Care, Inc.) to deduct $95 Million from a $385 Million dollar civil settlement under the False Claims Act (“FCA”).  Accordingly, the First Circuit affirmed the district court’s tax refund judgment in favor of Fresenius in the amount of $50,420,512 (Fresenius Medical Care Holdings, Inc. v. United States, August 13, 2014, Case No. 13-2144).

The First Circuit held that, in determining the tax treatment of a FCA civil settlement, the court may consider factors beyond the presence or absence of a tax characterization agreement.  In reaching its decision, the Court applied generally accepted principles of tax law to depart from earlier contrary authority in Talley Industries Inc. v. Commissioner, 116 F.3d 392 (9th Cir. 1997).

Because Fresenius and the government did not agree on the tax characterization of the FCA civil settlement, the critical consideration in determining deductibility was the extent to which the disputed settlement payment was compensatory as opposed to punitive.  The Court acknowledged that no deduction may be made for fines or penalties paid to the government for legal violations, whereas compensatory damages paid to the government, which are deductible, do not constitute a fine or penalty.  26 U.S.C. §162(f).

The First Circuit rejected the government’s argument and interpretation of Talley, in part, based on the notion that substance prevails over form in tax characterizations of transactions between private parties, and that amounts paid or received in settlement should receive the same tax treatment, to the extent practicable, as would have applied had the dispute been litigated to judgment.

Judge Selya, who is known for using uncommon words and phrases to draw an intersection between jurisprudence and interesting prose, authored the Fresenius opinion for the First Circuit and he did not disappoint.  The opinion, makes use of several intriguing words and phrases, such as:  gallimaufry, explicated, ordained, asseverates, asseveration, talismanic, ferocity, expedient, indistinct beacon, inters, the graveyard of forgotten canons, perforce, infelicitous asymmetry, judicial fiat, paint the lily, remonstrance, calumnizes, patina of plausibility, pari passu, and praxis.

For additional information regarding the False Claims Act, please contact Adam Snyder.

 

 

Filed Under: False Claims Act, Tax Tagged With: ,

2014 OIG Work Plan Contains New Priorities Specific to Hospitals

February 27, 2014 By

The Department of Health and Human Services, Office of the Inspector General (OIG) recently released its Fiscal Year (FY) 2014 Work Plan.  The Plan contains new priorities specific to Hospitals in areas related to Policies and Practices, Billing and Payments, and Quality of Care and Safety.  For a complete copy of the OIG 2014 Work Plan, please click here.

The OIG Work Plan provides a description of what the OIG will be focusing on in the coming year, giving providers insight into identifying corporate compliance risk areas and providing focus for ongoing efforts relating to compliance program activities, audits, and policy development.  Some of the hospital-specific priority areas identified as ‘New’ include the following:

A.      Policies and Practices

  1.  2 Midnight Rule: As of FY 2014, physicians should admit inpatients where they expect the patient’s care to last at least 2 nights in the hospital.  This modification is due to the OIG’s previous findings of over payments for inpatient stays, inappropriate billings and inconsistent billing practices.  OIG plans to review the impact of this new admission criteria and how billing varies among hospitals.
  2. Defective Medical Devices: OIG will review the increased costs to Medicare resulting from additional services necessitated by the use of defective medical devices.
  3. Comparison of Provider-Based and Free-Standing Clinics:  OIG will compare the payments made in provider-based settings and free-standing clinics with respect to similar procedures to determine the potential impact to the Medicare program for hospitals claiming provider-based status, and presumably, whether providers claiming provider-based status meet the criteria in 42 CFR § 413.65(d).

B.      Billing and Payments

  1.  Outpatient Evaluation and Management Services:  OIG will review payments made for outpatient E/M services to determine if they were appropriately billed as “new” or “established.”  Patients are generally considered “new” unless they were seen as a registered inpatient or outpatient within the past 3 years.
  2. Cardiac Catheterization and Heart Biopsies:  Billings for right heart catheterizations will be reviewed to determine if they were appropriately billed separate and apart from billings for heart biopsies.
  3. Payments for Patients Diagnosed with Kwashiorkor:  Due to the high level of reimbursement, billings for Kwashiorkor will be reviewed to determine whether diagnoses are supported by the medical record.
  4. Bone Marrow or Stem Cell Transplants: OIG will review procedure and diagnosis codes to determine the appropriateness of bone marrow and stem cell transplantation.

C.      Quality of Care and Safety

  1. Pharmaceutical Compounding:  In light of a recent meningitis outbreak resulting from contaminated injections of compounded drugs, OIG will review the oversight and accreditation assessment of pharmaceutical compounding in Medicare-participating acute care hospitals.
  2. Review of Hospital Privileging:  OIG will review how hospitals consider medical staff candidates prior to granting initial privileges, verification of credentials, and review of the National Practitioner Databank.

For additional information regarding the 2014 OIG Workplan or hospital/corporate compliance please contact Adam Snyder.

 

 

Filed Under: Compliance, Hospitals, OIG Tagged With: , , ,

New Law Would Limit Liability for Innocent Billing Errors

August 9, 2013 By

The Fairness in Health Care Claims, Guidance and Investigations Act, H.R. 2931  would amend the False Claims Act (“FCA”) by requiring that regulators satisfy procedural steps before embarking on costly fraud investigations.  The Bipartisan legislation, introduced by Representatives Howard Coble (R), North Carolina and David Scott (D), Georgia, would raise the burden of proof under the FCA, would except matters that do not exceed a ‘de minimus’ threshold, and would establish safe harbors for reliance on regulator guidance and implementation of model compliance programs.

The American Hospital Association issued a letter in support of the proposed legislation as well as a memo describing the legislation.

For more information regarding the False Claims Act or Government Investigations, please contact Adam Snyder at 206.447.7000.

Filed Under: Compliance, False Claims Act, OIG Tagged With:

Tacoma Physician Group Pays $14.5 Million To Settle Medicare Over-Billing Allegations

July 7, 2013 By

Sound Physicians, a Tacoma-based, national physician group that employs more than 700 hospitalists, paid $14.5 million to settle claims that it over-billed Medicare.  Former Sound Physicians’ employee Craig Thomas filed a whistleblower lawsuit under the qui tam provisions of the False Claims Act.  The lawsuit alleges that the company knowingly submitted inflated claims where documentation did not support the level of service billed.  Qui tam relators are generally entitled to 15 – 30 percent of the government’s recovery; Thomas will receive $2.7 million, or approximately 18.6%, of the $14.5 million settlement.  The settlement represents one of several recent settlements between the government and health care providers under the False Claims Act.

To read the Department of Justice press release click here.

To read qui tam Relator Craig Thomas’ statement click here.

For more information about government investigations, Medicare compliance, or the False Claims Act, please contact Adam Snyder.

Filed Under: Compliance, False Claims Act, Medicare, Washington Tagged With: ,

OIG ISSUES SPECIAL FRAUD ALERT ON PHYSICIAN-OWNED DISTRIBUTORSHIPS

March 26, 2013 By

On March 26, 2013, the Office of Inspector General (“OIG”) issued a Special Fraud Alert regarding physician-owned entities or distributorships (referred to as “PODs”) that generate revenue from the use of implantable medical devices ordered by their physician-owners for use in procedures performed by such physician-owners at hospitals or ambulatory surgery centers (“ASCs”).

While the Special Fraud Alert focuses on certain characteristics of PODs that create substantial risk of fraud and abuse and potential danger to patient safety, the OIG cited other prior pronouncements and guidance it issued over the past twenty-four years regarding its long-standing concern over physician investments in entities to which they refer.  Prior OIG guidance cited included the 1989 Special Fraud Alert on joint Venture Arrangements, published in 1994  and a letter dated October 6, 2006, regarding physician investments in the medical device industry.

It is clear that the OIG believes that significant risk of patient or program abuse, including but not limited to potential violations of the Federal Anti-Kickback statute, may flow from arrangements between and among physicians, device manufacturers and other device vendors.  The Anti-Kickback statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, referrals of items or services reimbursable by a Federal health care program.

In its current Special Fraud Alert regarding physician-owned entities, the OIG recounted its view of certain questionable features regarding selection and retention of investors, solicitation of capital contributions, and distribution of profits, all of which potentially raise four general concerns typically associated with kickback arrangements:

1.  Corruption of medical judgment;

2.  Over-utilization;

3.  Increased costs to the Federal health care programs and beneficiaries; and

4.  Unfair competition.

The OIG is particularly concerned in this arena because the physician may play a significant role in the selection of the type of device and which manufacturer to use.  The OIG cautions that disclosure of financial interest may not be sufficient to cure what would otherwise amount to fraud and abuse, and identifies the following specific characteristics of arrangements that would cause concern:

— The size of the investment offered varies with anticipated volume or value of devices used by the physician.

— Distributions are made on the basis of volume as opposed to ownership interest.

— Conditioning referrals based on the use of certain devices on entities to which physicians refer.

— Arrangements that incentivize a physician’s use of certain devices or penalizes the physician for the failure to use certain devices.

— PODs ability to buyout physicians interests on favorable terms based on physician’s failure to meet certain volume requirements.

— The POD is a shell entity that is not truly engaged in the business, or provides no oversight related to distribution functions.

— Physicians fail to identify conflicts of interest through their involvement with PODs related to Hospital or ASC conflict of interest processes.

This Special Fraud Alert reiterates the OIG’s longstanding position that a physician’s ability to profit from referrals may lead to violations of the Federal Anti-Kickback statute.  Finally, the OIG reminds concerned parties that the OIG Advisory Opinion process is available.   For more information about physician-owned entities, the applicability of the Anti-Kickback statute, and the OIG Advisory Opinion process, please contact Adam Snyder or Don Black at (206) 447-7000.

Filed Under: Anti-Kickback/Stark, Compliance, Medicare, OIG Tagged With: , , ,

CMS APPROVES 106 NEW ACCOUNTABLE CARE ORGANIZATIONS

January 22, 2013 By

On January 10, 2013, the Centers for Medicare & Medicaid Services (“CMS”) announced that it selected 106 new Accountable Care Organizations (“ACO’s”) to participate in the Medicare Shared Savings Program.

CMS Acting Principal Deputy Administrator Jonathan Blum blogged about the aim of ACO’s and described them as having the potential to improve the US health system:  

“In other words, great health care requires a team that will work together at every stage of your care, which can lead to better health at lower cost.  That’s the aim of the ACOs.  Affordable Care Act reforms such as ACOs have helped to set Medicare on a more sustainable path today and into the future, as well as serve as a model for what improvements are possible for our nation’s health care system.”

Northwest organizations were included on the complete list of 106 new ACO’s, including the Billings Clinic in Montana, Franciscan Northwest Physicians Health Network, LLC in Washington, and St. Luke’s Clinic Coordinated Care, Ltd. serving Idaho and Oregon. 

CMS plans to issue dates for the January 2014 application cycle sometime during the spring, 2013.  For more information about ACO’s and ACO development, please contact Adam Snyder at (206) 442-1317.

Filed Under: Accountable Care Organizations

NCQA Awards First ACO Accreditations

January 10, 2013 By

The National Committee for Quality Assurance (“NCQA”) awarded its first Accountable Care Organization (“ACO”) accreditations in December, 2012.  Established as a voluntary accreditation program in 2011, the NCQA awarded accreditations to the following organizations:  Billings Clinic, Crystal Run Healthcare, HealthPartners and Kelsey-Seybold Clinic.   The NCQA website contains detailed information regarding ACO Accreditation.

In general, NCQA Accreditation includes evaluation of seven categories:

  • ACO Structure and Operations
  • Access to Needed Providers
  • Patient-Centered Primary Care
  • Care Management
  • Care Coordination and Transitions
  • Patient Rights and Responsibilities
  • Performance Reporting and Quality Improvement

In contrast to those organizations that raced to the ACO accreditation finish line, overall ACO readiness has been elusive for hospital/health system ACOs.  The Commonwealth Fund published a report from the Premier Research Institute (Premier) in December, 2012, finding a generally low level of readiness across 59 hospital organizations who were members of the Premier Partnership for Care Transformation (PACT) Readiness Collaborative.

To assess readiness, Premier assessed ACOs progress by evaluation of six core components:  a patient-centered foundation, primary care medical home, a high-value network, payer partnership, population health data management, and ACO leadership.  Although the hospital organizations were part of PACT for the purpose of easing the transition to accountable care, the report finds that no organization achieved full implementation of the six core components and several failed to undertake a single activity relative to the core components.

For more information contact Adam Snyder at 206.442.1317 or asnyder@omwlaw.com

Filed Under: Accountable Care Organizations Tagged With: , , ,

OIG Opines Favorably on Hospital Emergency Department Call Coverage Arrangement

October 31, 2012 By

On October 23, 2012, the Office of Inspector General (“OIG”) issued a favorable response to a hospital’s request regarding its payment of per diem fees to various physician specialties in exchange for emergency department call coverage and related services.  Based on the facts as certified by the hospital-requestor, the OIG concluded that, although the arrangement could violate the federal anti-kickback statute if the parties intended the arrangement to induce or reward referrals of federal health care program business, it would not impose administrative sanctions.  While only the requestor may rely on this advisory opinion, it represents the third time the OIG issued a favorable Advisory Opinion regarding hospital pay for call arrangements.  The OIG similarly reached favorable conclusions in Advisory Opinion No. 07-10 and Advisory Opinion No. 09-05.

In the Opinion, the requestor is a tax-exempt hospital that operates a full time emergency department.  Under the arrangement, the hospital pays per diem fees to physicians to provide call coverage.  The physicians on call are required to be available and respond to calls from the ED within 30 minutes and must provide follow up care, regardless of a patient’s ability to pay.  The Hospital certified to the OIG that 19% of its patients seen in its ED receive uncompensated care, that it offers the arrangement to all specialists on its medical staff who are required to participate in call coverage, that it sets an annual allocation per specialty based on various “burden” factors, that it experienced shortages in the availability of physicians to take call, and that it monitors ongoing performance under the program.  Based on an independent consultant’s review of the per diem rates, the requestor certified to the OIG that the rates are consistent with fair market value and do not take into account the volume or value of referrals or other business generated between the parties.

The OIG concluded that the arrangement fails to qualify for the safe harbor under the federal anti-kickback statute for personal services and management contracts because aggregate compensation is not set in advance (See Safe Harbor, 42 C.F.R. 1001.952(d))    In addition, the arrangement failed to precisely specify a schedule of part-time service intervals.  Because the arrangement does not fit squarely within the safe harbor, the OIG analyzed the totality of the facts and circumstances to determine if the arrangement presents minimal fraud and abuse risk.

Just as it did in the previous Advisory Opinions, the OIG applied the following general “rule of thumb”:

“The general rule of thumb is that any remuneration flowing between hospitals and physicians should be at fair market value for actual and necessary items furnished or services rendered based upon an arm’s-length transaction and should not take into account, directly or indirectly, the value or volume of any past or future referrals or other business generated between the parties.”  70 Fed. Reg. 4858, 4866 (Jan. 31, 2005).

While the OIG generally recognized that hospitals may properly structure pay for call arrangements within the general “rule of thumb,” it also generally identified the same problematic compensation structures that it listed in previous opinions:  (1)  Arbitrary “lost income” compensation, (2) payment for no identifiable service, (3) aggregate on call payments disproprotionately high compared to regular practice income, and (4) payment for services for which the physician already receives separate reimbursement from payors or patients.

The OIG concluded that, overall, the arrangement presents a low risk of fraud and abuse for the following reasons:

  1. The requestor certified that, based on an independent valuation, the per diem rates are fair market value and the hospital meaningfully contemplated call burden to set rates;
  2. Uniform administration of per diem payments without regard to referrals or volume of business generated;
  3. Physicians required to provide actual and necessary services for which they are not otherwise compensated;
  4. The arrangement is offered on a consistent basis to all specialists who are required to take call; and
  5. Costs are not passed on to federal health programs.

The OIG was ultimately convinced that this arrangement contains sufficient safeguards to reduce the risk that the per diem fees are intended to generate referrals of Federal health care business.

For more information about ED call coverage or the Anti-Kickback and Stark rules in general please contact Adam Snyder.

Filed Under: Anti-Kickback/Stark, Medicare, OIG Tagged With: ,