Monthly Archives: June 2014

Special Fraud Alert Relating to Laboratory Payments to Physicians

The Office of the Inspector General for the Department of Health and Human Services (HHS-OIG) issued its first Special Fraud Alert relating to Laboratory Payments to Physicians. The Alert addressed two specific high risk arrangements which implicate the Federal Anti-Kickback Statute and, by extension, the False Claims Act: (1) blood specimen collection, processing and packaging arrangements and (2) registry arrangements.

Blood Specimen Collection, Processing, and Packaging Arrangements

OIG stated that it has become aware of “arrangements under which clinical laboratories are providing remuneration to physicians to collect, process, and package patients’ specimens” which typically involve payments from laboratories to physicians for certain specified duties which may include collecting the blood specimens, centrifuging the specimens, maintaining the specimens at a particular temperature, and packaging the specimens to avoid damage during transport. Often these arrangements involve a per-specimen or per-patient fee structure and include highly specialized tests.

OIG then set forth some of the characteristics of these arrangements that may be “evidence of unlawful purpose” as follows:

• Payment exceeds fair market value for services actually rendered by the party receiving such payment.
• Payment is for services for which payment is also made by a third party, such as Medicare.
• Payment is made directly to the ordering physician rather than to the ordering physician’s group practice, which may bear the cost of collecting and processing the specimen.
• Payment is made on a per-specimen basis for more than one specimen collected during a single patient encounter or on a per-test, per-patient, or other basis that takes into account the volume or value of referrals.
• Payment is offered on the condition that the physician order either a specified volume or more tests performed using different methodologies that are intended to provide the same reimbursable clinical information), or tests that otherwise are not reasonable and necessary or type of tests or test panel, especially if the panel includes duplicative tests (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information).
• Payment is made to the physician or the physician’s group practice, despite the fact that the specimen processing is actually being performed by a phlebotomist placed in the physician’s office by the laboratory or a third party.

OIG clarified, however, that physicians may still use CPT Code 36145 (blood draw/venipuncture collection fee) and CPT Code 99000 (preparing a specimen to send to a laboratory) in connection with the collection, processing, and transport of blood specimens.

Patient Registry Payments

In addition to blood specimen collection arrangements and attendant fees, the Special Fraud Alert underscored that OIG has become aware of “arrangements under which clinical laboratories are coordinating or maintaining databases, either directly or indirectly or through an agent, purportedly to collect data on the demographics, presentation, diagnosis, treatment, outcomes, or other attributes of patients who have undergone, or who may undergo, certain tests performed by the offering laboratories,” generally, specialized expensive tests. Labs that participate in these types of registry arrangements boast that they are intended to advance clinical research to promote treatment, to provide physicians with valuable knowledge for patients with similar disease profiles, and to provide other benefits to physicians generally.

According to OIG, characteristics of such registry arrangements that may implicate the Federal Anti-Kickback Statute are as follows:

• The laboratory requires, encourages, or recommends that physicians who enter into Registry Arrangements perform the tests with a stated frequency (e.g., four times per year) to be eligible to receive, or to not receive a reduction in, compensation.
• The laboratory collects comparative data for the Registry from, and bills for, multiple tests that may be duplicative (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or that otherwise are not reasonable and necessary.
• Compensation paid to physicians pursuant to Registry Arrangements is on a per-patient or other basis that takes into account the value or volume of referrals.
• Compensation paid to physicians pursuant to Registry Arrangements is not fair market value for the physicians’ efforts in collecting and reporting patient data.
• Compensation paid to physicians pursuant to Registry Arrangements is not supported by documentation, submitted by the physicians in a timely manner, memorializing the physicians’ efforts.
• The laboratory offers Registry Arrangements only for tests (or disease states associated with tests) for which it has obtained patents or that it exclusively performs.
• When a test is performed by multiple laboratories, the laboratory collects data only from the tests it performs.
• The tests associated with the Registry Arrangement are presented on the offering laboratory’s requisition in a manner that makes it more difficult for the ordering physician to make an independent medical necessity decision with regard to each test for which the laboratory will bill (e.g., disease-related panels).

Federal Health Care vs. Non-Federal Health Care Business

Another significant takeaway from the Alert is that OIG concerns are not abated when these arrangements apply only to specimens collected from non-Federal health care program beneficiaries since arrangements that “carve out” Federal health care program business may still violate the Anti-Kickback statute. Indeed, if the remuneration from non-federal health care business is designed to influence future referrals related to Federal health care program business, that arrangement may well implicate the Anti-Kickback Statute. According to OIG, “[b]ecause physicians typically wish to minimize the number of laboratories to which they refer for reasons of convenience and administrative efficiency, [arrangements] that carve out Federal health care business may nevertheless be intended to influence physicians’ referrals of Federal health care program business to the offering laboratories.”

The Special Fraud Alert is available here

OmniCare’s One Hundred Million Dollar False Claims Act Settlement

The Department of Justice recently announced Omnicare’s One Hundred Million Dollar False Claims Act settlement ($124 million, to be precise).

Omnicare Inc., the nation’s largest provider of pharmaceuticals and pharmacy services to nursing homes, has agreed to pay $124.24 million for allegedly offering improper financial incentives to skilled nursing facilities in return for their continued selection of Omnicare to supply drugs to elderly Medicare and Medicaid beneficiaries, the Justice Department announced today .   Omnicare is headquartered in Cincinnati, Ohio. “Health care providers who seek to profit from providing illegal financial benefits will be held accountable,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “Schemes such as this one undermine the health care system and take advantage of elderly nursing home residents.”

“Omnicare provided improper discounts in return for the opportunity to provide medication to Medicare and Medicaid beneficiaries,” said Steven M. Dettelbach, United States Attorney for the Northern District of Ohio. “Nursing homes should select their pharmacy provider based on the best quality, service and cost to the residents, not based on improper discounts to the nursing facility.”

The settlement resolves allegations that Omnicare submitted false claims by entering into below-cost contracts to supply prescription medication and other pharmaceutical drugs to skilled nursing facilities and their resident patients to induce the facilities to select Omnicare as their pharmacy provider.  The facilities were participating providers under agreements with Medicare and Medicaid.   In addition to the facilities’ own claims for reimbursement from Medicare for short-term rehabilitation treatment rendered to patients, Omnicare submitted additional claims for reimbursement to Medicare and Medicaid for drugs Omnicare supplied.

Another False Claims Act Complaint Against Hospitalists  

Recently, the government filed another False Claims Act complaint against hospitalists in United States ex rel Bijan Oughatiyan v. IPC Hospitalist Co., 1:09-CV-05418 (N.D. Ill. June 16, 2014) (DE-48).  IPC Hospitalist Company, through IPC Hospitalist Management Company and its subsidiaries, employs more than 2500 hospitalists across the U.S. across 28 states.

The complaint alleges that IPC Hospitalist Company, IPC Hospitalist Management Co., and their affiliates and subsidiaries, engaged in a systemic pattern of submitting records to IPC’s billing department for the most expensive services claiming higher and more expensive levels of medical services than were actually performed, i.e. “upcoding,” for hospitalist services. According to the complaint, IPC uses an online portal and virtual system to continuously monitor its financial and clinical performance. In addition, IPC audits the billing information entered by hospitalists for completeness and accuracy.

Of import, the complaint also analyzes IPC’s compensation structure which includes a “physician incentive plan.” In addition to receiving a base salary and benefits, IPC hospitalists receive bonuses pursuant to IPC’s physician incentive plan that are based upon the amount billed by the hospitalist. In fact, IPC calculates the total amount billed by each hospitalist on a monthly basis, and subtracts from that amount the cost of the hospitalist’s salary and benefits. Of the remainder, IPC keeps 30 percent and pays the hospitalist 70 percent. Thus, according to the complaint, the more IPC hospitalists bill, the more IPC takes home and the easier it is for IPC to meet their investors’ earnings and revenue expectations.

Further, IPC ranks hospitalists against one another based on their individual billing patters, IPC routinely discussed and compared hospitalist billing patterns at pod meetings, and IPC hospitalists who consistently use lower or moderate billing codes are pressured by IPC trainers to change that practice.

For these reasons, the government alleges that corporate management knowingly pressured hospitalist employees to engage in the pattern of upcoding and to maximize their billings through the physician incentive plan and that was part of a systemic scheme to maximize billings and submit upcoded claims for payments to the U.S.

In light of the recent noteworthy multi-million dollar settlements with Halifax and Tuomey involving physician incentive compensation arrangements between hospitals and physicians, the complaint against IPC Hospitalist is yet another reminder that the government will closely scrutinize these relationships and compensation arrangements although the government’s theory of False Claims Act liability in the IPC Hospitalist complaint is more straightforward than the theories of liability employed in Halifax or Tuomey because it highlights a corporate culture that essentially aided and abetted upcoding.

Nonetheless,the emphasis in IPC on the “physician incentive plan” demonstrates that arrangements between physicians, physician-management companies, and hospitals should be properly evaluated to ensure that any bonuses are based on quality or performance metrics and are not entirely based on the potential to influence or induce referrals to the hospital. Indeed, even if a physician is an employee, the protections provided to physician-employees are not absolute and must comply with applicable self-referral and anti-kickback laws.

Andrew S. Feldman Speaks at Trinity College Reunion Weekend

Mr. Feldman attended his ten year reunion at Trinity College reunion weekend in Hartford, Connecticut over this past weekend. During the reunion, Mr. Feldman enjoyed the unique opportunity to discuss trends in white collar crime and the enforcement priorities of the Department of Justice and the Securities and Exchange Commission.

 New Challenges for Pharmacy Compounding in Florida

Historically, compounding has occupied a significant role in U.S pharmacy practice. In fact, by 1938, the United States Pharmacopeia had been providing compounding instructions for more than 100 years. State pharmacy practice acts also regulated and included the term compounding. Far from restricting compounding, the states specified that state-registered or licensed health care professionals were permitted to engage in the practice of compounding.

One issue that remains important is whether or not the FDA has authority to regulate compounding – a question which depends on whether compounding qualifies as manufacturing new drugs since FDA has the authority to approve newly manufactured drugs and devices.  The Fifth Circuit, for example, held that the definition of a new drug was never intended to apply to compounded medications.

Since 2005, however, a series of tragic incidents have occurred resulting from unsafe or unsterile compounding practices. Most significantly, the meningitis outbreak in Massachusetts caused by injectable drugs compounded at New England Compounding Center (NECC) resulting in a $100 million settlement, caught the attention of public and legislators. Similarly, the deaths of 21 polo horses resulting from unsterile compounding practices in Florida prompted strong reactions and rhetoric from federal regulators and state boards of pharmacy.

Most recently, compounding pharmacies in Texas and other states, sometimes through physician spokespeople or sales representatives, have also offered physicians lucrative investment opportunities in compounding pharmacies which has caught the attention of the national news media,

Lastly, the FDA has executed numerous onsite inspections (reactive and proactive) at compounding pharmacies since October of 2012, and in many cases, has issued a Form 483 which signals quality problems, including contaminated products and sterile practices that create risks of contamination. In addition, in its recent non-binding recommendations regarding compounding pharmacy the FDA reiterated that if compounding pharmacies do not meet very specific criteria to compound drugs, then they will be subject to good manufacturing practices (GMP), newly approved drug application requirements, and the labeling of drugs for adequate use requirements. More importantly:

“If FDA determines that an individual or firm compounds a drug product that does not meet the conditions of section 503A, then ….the individual or firm that compounds the drug product may also be subject to a warning letter, seizure of product, injunction, and/or criminal prosecution..”

Florida Special Permit Rule and Proposed Rule for 2015

At the end of 2013, based on the influx of compounding pharmacies in Florida, Florida reevaluated some of these important issues and passed Florida Statute Section 465.0196.

Among other things, the new law requires all pharmacies engaging in sterile pharmacy compounding and any new establishments seeking to engage in sterile pharmacy compounding, with the exception of Special Parenteral/Enteral (Stand Alone) and Special Parenteral/Enteral (Extended Scope) pharmacies, are required to obtain special permits. The deadline for obtaining permits was March 21, 2014.

Prior to obtaining a special compounding permit, a new establishment must also:

• Submit copies of fingerprints electronically to a Live Scan vendor and
• Must undergo an inspection.

Requirements for all (existing and new) special permit holders also include:

• Completing a 35 question application focusing, primarily, on quality assurance and quality control procedures and the extent to which certain special equipment and special techniques will be used.
• Development of a policies and procedures that will be maintained for the compounding, delivery, and dispensing of sterile preparation prescriptions;
• Documented ongoing quality assurance program that monitors personnel performance, equipment, and preparations; and
• Quality assurance audits at regular planned intervals, including infection control and sterile technique audits.

Compounding Quality Act (CQA) and Compounding Clarity Act (CCA)

In response to the recent tragic events resulting from unsafe compounding practices, Congress proposed the Compounding Clarity Act (CCA), and the Compounding Quality Act (CQA).

The CAA seeks to amend Section 503A of the FDCA, although, thus far, the only change to 503A is that compounders may now advertise their compounding services without running afoul of the misbranding provisions as long as the advertising is “not false or misleading.”

Indeed, the following sentence in Section 503A has been deleted entirely:

A drug may be compounded under subsection (a) of this section only if the pharmacy, licensed pharmacist, or licensed physician does not advertise or promote the compounding of any particular drug, class of drug, or type of drug.

The Senate has not yet considered the remaining provisions of the CCA and it may very well die in Committee.

According to the current version of Section 503A, compounders are exempt from the FDCA requirements concerning current good manufacturing practices, the labeling of drugs with adequate directions for use, and the approval of drugs under new and abbreviated drug applications, provided that they meet specific criteria.

The CQA amends Section 503B of the Food Drug and Cosmetics Act (FDCA). According to the CQA, certain compounded medications will not be subject to (1) FDA’s misbranding provision (2) FDA’s new drug application filing requirements or (3) Section 582 of the FDCA, which sets forth rules governing what substances are generally recognized as safe for their intended use provided thatthey meet eleven requirements for registration as an outsourcing facility.

Some bright line rules regarding outsourcing facilities:

• A facility only compounds “sterile drugs” which are drugs intended for parenteral administration, an ophthalmic or oral inhalation drug in aqueous format, or a drug that is required to be sterile under State or federal law.
• Drugs must be compounded in an outsourcing facility under the direct supervision of a licensed pharmacist.
• An outsourcing facility, by definition, is not required to be a licensed pharmacy .

Furthermore, outsourcing facilities are subject to:

• Annual reporting requirements each June.
• Unannounced inspections based on several predetermined “risk factors.”
• Adverse event reporting requirements.
• FDA’s rigorous Good Manufacturing Practices (GMP) standards.

Florida versus FDCA

At a minimum, there are two significant issues with respect to the differences between the current version of 503A of the FDCA and the Florida Administrative Code governing pharmacy compounding.

First, 503A does not specifically exempt office use compounding from certain FDCA requirements related to  misbranding, new drug application filings, or substances generally recognized as safe for their intended use pursuant to Section 582 of the FDCA. By comparison, if a series of requirements are met, Florida specifically permits a pharmacist to dispense a quantity of a compounded drug to a practitioner in a health care facility or treatment setting, including a hospital, ambulatory surgical center, or a pharmacy.

Second, Florida’s definition of compounding is open to broad interpretation and includes “incorporating ingredients to create a finished product for dispensing to a patient for administration by a practitioner or the practitioner’s agent” and “preparing a unique finished product containing any ingredient or device” covered by the definitions of medicinal drugs or an institutional formulary system.  By contrast, 503B of the FDCA states that compounding is “the combining, admixing, mixing, diluting, pooling, or reconstituting, or otherwise altering of a drug or bulk drug substance to create a drug.”

Open Questions

• To what extent will FDA delegate some of its 503A enforcement decisions to State Boards of Pharmacy?
• Will the FDA rely on the definition of compounding in 503B for purposes of enforcement?
• To what extent will compounders seek the protections provided by the outsourcing facility safe-harbor?
• How aggressively will FDA monitor and enforce outsourcing facility compliance with GMP regulations  given that compounders, traditionally, have not been subject to or familiar with GMP?
• Based on the new regulations, will relators continue to allege new False Claims Act theories of liability based on FDCA violations? Will such theories gain more traction than before under a worthless services theory?
• Will compounders now more aggressively market compound medications to physicians and others given the official deletion of the language in Section 503 restricting advertising?
• Will compounders continue to argue, based on applicable federal case law, that compounding is not manufacturing, and therefore, the FDA has no authority to impose additional requirements or restrictions on the century old practice? In light of the CQA and the current version of 503A of the FDCA, such an argument seems tenuous, at best. Importantly, the CQA makes it clear that the FDA still considers compounded drugs to be new drugs unless the compounding pharmacy satisfies the extensive requirements provided in Section 503A or 503B.
• What steps will compounding pharmacies currently compounding controlled substances, e.g., pain creams, take to simultaneously comply with DEA registration requirements, Florida special permit requirements, and, where applicable, Section 503A of the FDCA?
• Will the rigorous special permit application requirements in Florida discourage new entrants in the market?
• Will the current regulatory environment lead to more misbranding prosecutions, inspections, or Form 483s? Will the regulations make compounding pharmacies more vulnerable to unknowing violations of the misbranding statute, which is a criminal statute?