All posts by : Andrew Feldman

Health Care Fraud Opinion Affirming a Conviction Deserves a Second Look

In a recent Eleventh Circuit opinion, United States v. Houser, No. 12-14302 (11^th Cir. June 19, 2014), the Court of Appeals affirmed the health care fraud conviction of George Houser, a graduate of Harvard law school and the owner and operator of several skilled nursing facilities in Rome, Georgia. On appeal, Mr. Houser’s counsel argued that the conviction should be reversed since it was premised on a “worthless services” theory of health care fraud which is more appropriate in the context of civil False Claims Act prosecutions and that, for this reason, the health care fraud statute as applied to Mr. Houser was unconstitutionally vague.

The Court rejected these arguments reasoning, in part, that the “district court’s order of conviction also rested, at least in part, on the facilities’ failure to provide necessary services,”for example, residents never received the medications that they were supposed to have, residents went without diapers and medical care for their wounds,laboratory services were not performed, and residents were not transported for dialysis or provided with physical therapy.  So while the government reinforced that George was the modern day equivalent of a skilled nursing home slum lord, cutting corners and providing substandard, essentially “worthless care,” part of the district court’s determination was based on George’s wholesale failure to provide services for which he billed or caused to be billed to government health care programs and private insurance companies.

Thus, the Court properly resisted the temptation to directly address, what arguably was, the most significant issue in this case: whether or not the government could have prosecuted Mr. Houser for a violation of the health care fraud statute under a “worthless services” theory when Mr. Houser billed Medicare and private insurance companies for services that were deficient, inadequate, and otherwise substandard.

So, the question remains: if George Houser (or anyone else) provides services that are simply “worthless” because they are substandard, inadequate, or, in some cases, downright offensive, then can the perceived worthlessness of those services provide the government with the legal basis for prosecuting a provider or supplier for a violation of the health care fraud statute?

Further, the Houser prosecution is only one of several cases nationwide in which the government used a quasi-civil theory of liability related to quality of care as a basis for a criminal health care fraud allegation. Notably, the government in these cases is also relying heavily on 18 U.S.C. Section 1035 (False Statements in Related Health Care Matters).

Thus, Houser is certainly relevant because of the novel “worthless services” defense raised by Mr. Houser, but the other ongoing criminal health care prosecutions directly addressing medical necessity and quality of care issues should be closely monitored.

OIG Elaborates on Fraud and Abuse Concerns, Including Prescription Drug Fraud in Miami

Yesterday, Brian Martens, Office of Inspector General, Assistant Special Agent in Charge based in the Miami Region testified before Congress and emphasized how taxpayers can prevent and protect against Medicare fraud.

Mr. Martens first noted that, due to law enforcement efforts last year, the government realized a $8 to $1 return on investment. In other words, they collected eight times what they spent on their budget in connection with recoveries and settlements related to fraud and abuse. Mr. Martens also singled-out Florida and Miami as “ground zero” for healthcare fraud. On this point, he further explained that:

In Florida, we are seeing fraud schemes quickly evolve. As enforcement efforts target certain schemes, new permutations of those schemes arise. Not only are fraud schemes mutating, they are migrating – geographically and even between parts of the Medicare program.

One example of these permutations was in the conduct related to HIV fraud schemes. In Florida and Detroit, they investigated one of the first Medicare B HIV fraud schemes. According to Mr. Martens, however, some of those schemes appear to have migrated to Medicare C managed care plans.

During his testimony, Mr. Martens also highlighted his office’s success in deterring the amount of fraud related to community healthcare centers in Florida and underscored other areas of serious concern including home health agencies in Florida and pharmaceutical fraud. Indeed, Mr. Martens testified that:

Medicare Part D, specifically pharmacy fraud, is an area where we are seeing the largest increase in our South Florida case work. Prescription drug fraud is a complex crime that can involve many co-conspirators – drug distributors and traffickers, health care professionals, patient recruiters, drug-seeking patients, and pharmacies may all play a role. Criminal enterprises are also becoming an increasing presence in prescription drug fraud.

It is important to note that OIG prescription drug fraud cases are not limited to investigating schemes involving only controlled substances. Our work is increasing in matters involving high-cost, non-controlled, name brand prescription drugs such as respiratory, anti-psychotic, and HIV/AIDS medications.

According to Mr. Marten, in the Part D world, OIG’s caseload has also quadrupled in the last five years and, moreover, prescription drug fraud in Miami continues to be a serious concern.

The full transcript of his testimony is available here

Florida Patient Self-Referral Act: Is It a Private Cause of Action?

That was one of the questions that a court in the Middle District of Florida answered several months ago, but which has not garnered much attention.

More specifically, in State Farm Mutual Automobile Insurance Company v. Physicians Group of Sarasota, LLC, No. 8:13-CV-1932-17-TGW (M.D. Fla. March 25, 2014), plaintiff State Farm alleged that defendants, a physician group, and their principal interest holder, along with various shell companies, and a consulting company, orchestrated a fraudulent referral scheme to unlawfully collect automobile accident victims’ PIP coverage and Medical Payment Coverage benefits for treatment services rendered by the defendant- physician group throughout Florida.

Plaintiff filed a complaint describing the above scheme in detail and alleged several different causes of action, including fraud, unjust enrichment, violations of the Florida Deceptive Unfair Trade Practices Act (FDUPTA), and, of importance here, a violation of the Florida Patient Self-Referral Act (Florida PSRA).

Defendants filed a motion to dismiss the complaint, including Count IV in Plaintiff’s complaint alleging a cause of action under the Florida PSRA, which the court denied and reasoned that:

Defendants argue that Florida’s Patient Self-Referral Act does not provide a private right of action. The provision in dispute states, “[n]o claim for payment may be presented . . . for a service furnished pursuant to a referral prohibited under this section. . . . If an entity collects any amount that was billed in violation of this section, the entity shall refund such amount on a timely basis to the payor or individual, whichever is applicable.” Fla. Stat. § 456.053(5)(c)-(d). In determining whether a statute provides a private cause of action, the court must determine whether the statute purports to establish civil liability or “merely makes provision to secure the safety or welfare of the public[.]” Villazon v. Prudential Health Care Plan, Inc., 843 So. 2d 842, 852 (Fla. 2003). In answering this question, the intent of the legislature should be the court’s primary consideration. Murthy v. N. Sinha Corp., 644 So. 2d 983, 985-986 (Fla. 1994). There also exists an assumption that the legislature does not create a statutory right absent some means of enforcing it, “for where a statute gives a right, there, although in express terms it has not given a remedy, the remedy which by law is properly applicable to that right follows as an incident.” Smith v. Piezo Tech. & Prof’I Adm’r, 427 So. 2d 182, 184 (Fla. 1983).

The language of Section 456.053(5)(d) clearly establishes a payor’s right to a refund, and the provision cannot rightfully be considered as a tool to ensure the public’s safety or welfare. Accordingly, Defendants’ motion to dismiss Count IV is DENIED.  (emphasis ours)

Thus, as the district court noted, a closer reading of Fla. Stat. Section 456.053(5)(d) appears to permit plaintiffs to allege a private cause of action under the Florida PSRA to collect monies obtained in violation of the Florida PSRA.

HHS Contractors May Have Additional Disclosure Obligations As Contractors 

Earlier this week, I posted Part I which dealt specifically with the Guidance released by OIG-HHS on contractor disclosures and the relevant Sections included in the Guidance.

Today, I will focus on why OIG’s guidance is a bit, well, misguided. In issuing its guidance on disclosure on its site, OIG-HHS stated, in unambiguous terms, as follows:

The HHS OIG’s contractor self-disclosure program provides a means for contractors to self-disclose potential violations of the False Claims Act and various Federal criminal laws involving fraud, conflict of interest, bribery or gratuity. The Federal Acquisition Regulation (FAR) requires certain Federal contractors (those with contracts valued over $5,000,000) to disclose when they have credible evidence of one of these violations. These contractors are required to make their disclosures to the Office of Inspector General. HHS OIG accepts contractor self-disclosures regarding contracts awarded by any HHS Operating or Staff Division.

At first blush, someone reading this statement might believe that the disclosure requirement above only applies to contactors with contracts valued at more than $5 million. Technically, this is correct.  The mandatory disclosure requirement mentioned above is set forth in 48 C.F.R. Section 52.203-13 (“Contracts Clause”), which applies to contracts with a value of more than $5 million.

Yet, in practice, it would be borderline reckless to advise a contractor client that disclosure may only be required when the contractor client has entered into a contract with HHS with a value of more than $5 million because a failure to timely disclose “credible evidence” of  certain Title 18 criminal violations, a violation of the False Claims Act, or any “significant overpayments,” entitles HHS to suspend or debar the contractor. This is true regardless of the amount or value of the contract.

Indeed, pursuant to 48 C.F.R. Sections 9.406-2, 9.407-2, the debarring official may debar a contractor, based upon the preponderance of the evidence, for any of the following:

a knowing failure by a principal, until three years after final payment on any government contract awarded to the Contractor, to timely disclose to the Government, in connection with the award, performance, or close out of the contract or subcontract… credible evidence of a (i) violation of the False Claims Act, (ii) a violation of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18, or (iii) significant overpayments, other than overpayments resulting from contracting finance payments..

Accordingly, HHS contractors (and contractors, generally) should view disclosure more broadly.

Further, there are significant differences  (e.g., to whom, when, what, and how a violation must or should be reported) between the suspension and debarment disclosure provisions found at 48 C.F.R. Sections 9.406-2, 9.407-2 and the mandatory disclosure provision or Contracts Clause found at 48 C.F.R. Section 52.203-13  as follows:

1. Who Should Report. Pursuant to the suspension and debarment provision, a “principal” includes an owner, director, partners, or person having management or supervisory responsibilities within a business entity; head of a subsidiary, division, or business segment, and similar positions, whereas the affirmative disclosure requirement set forth in the Contracts Clause only applies to the “Contractor.”

2. How to Report. Under the Contracts Clause, disclosure must be made in “writing” to OIG  (so, the Guidance provided by OIG-HHS on this point is helpful), but the suspension and debarment clause states that disclosure is to be made to the “Government,” which, read literally, could be a phone call or a letter to the Contracting Officer. Furthermore, in this context, a failure to disclose is a ground for debarment. So, the contractor may want to disclose the violation to the Contracting Officer and may also prefer to disclose “credible evidence” of the violation and any steps that the contractor has taken to remediate the violation (internal investigation, discipline, etc) to the SDO and/or HHS debarment counsel. After all, the SDO decides whether to debar a contractor.

3. When to Report. The Contracts Clause does not expressly provide a time limitation governing when a disclosure must be made, whereas the suspension and debarment provision contains a three year period governing disclosure. In fact, once a final payment on the government contract at issue has been made, the three year clock starts running on when a “principal” should disclose “credible evidence” of a violation in order to potentially avoid receiving a Notice of suspension and proposed debarment from HHS. As such, deciding when “final payment” on the contract occurs is a critical determination since it will determine when the 3 year clock begins running. Regardless of when the final payment occurs, contractors should not “sit on” their disclosure because, in practice, SDO’s may be less inclined to view such disclosures as “timely.”

Contractors of Department of Health and Human Services Receive Additional Guidance for Disclosing Violations to OIG

Broadly speaking, organizations that enter into contracts with the Department of Health and Human Services (HHS) are generally considered government contractors. As government contractors, organizations also have mandatory disclosure requirements, which are separate and apart from other, voluntary disclosures that health care providers or suppliers might make to the Office of the Inspector General (OIG) for HHS. For example, contractor disclosure is mandatory when there is “credible evidence” (which is a higher standard than “reasonable grounds to believe”)  of a violation  the False Claims Act, or a violation of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18.

To this end, OIG-HHS recently posted an (8) page guidance document to its website, Guidance for Submitting a Contractor Self-Disclosure, providing a road map for submitting a contractor disclosure to OIG.

The Guidance document contains the standard government disclaimer which clarifies that: “Contractor self-disclosures are made with no advance agreement regarding possible OIG resolution of the matter and with no promises regarding potential civil or criminal actions by the Department of Justice. Prompt disclosure, full cooperation, completed access to necessary records, restitution, and adequate corrective actions are key indicators of an attitude of contractor integrity even in the wake of self-disclosures of potential criminal liability.”

Further, the Guidance document contains (3) Sections which merit additional discussion.

Section E – Disclosure

Provide a full description of the nature of the violation being disclosed, including the period during which the violation occurred, the names of individuals involved, and an explanation of their roles in the alleged conduct and the relevant periods of their involvement. This field must be completed to submit a disclosure.

Comment: It is not uncommon to see these types of requirements as part of a disclosure (e.g. OIG Provider Self-Disclosure Protocol) or as a condition of a deferred prosecution agreement (DPA). The Contractor should therefore expect to make these types of disclosures if the contractor wants to continue doing business with the government. The Contractor should also expect that counsel for the individuals “involved” might challenge the descriptions provided in the self-disclosure assuming counsel is able to obtain a copy of the disclosure provided to OIG.

Section F – Overpayments

Did an Overpayment Occur?

Comment: Contractors should broadly construe the word “overpayment” to include all overpayments and not just overpayments that result from violations of the False Claims Act. Read literally, a contractor might be permitted to simply write “yes” or “no” in its disclosure. But, if the overpayment results from a violation of the FCA, then perhaps an additional description of the circumstances surrounding the violation should be included in the disclosure either in this Section or Section E.

Estimated Amount of Overpayment

Comment: Again, this leaves open the possibility that the Contractor can simply write in a number since it does not expressly require the Contractor to undertake any analyses or implement any specific method for calculating the overpayment.

Nonetheless, where an overpayment is not easily quantifiable, the Contractor should adopt a reasonably acceptable method for calculating the overpayment and should attach any corresponding reports to support the overpayment noted in the disclosure. Although OIG may take issue with the method used to calculate the overpayment, the report and the analyses contained in the report will demonstrate to OIG that the Contractor has made a good faith effort to calculate the overpayment.

Finally, while the Guidance Document recommends a workable format for submitting a disclosure and does not provide any guidance on when, or how, to reimburse the government for an overpayment, the Contractor might consider submitting a check with the overpayment report and determination since the preamble to the Guidance document specifically references “restitution” as one of the “key indicators of an attitude of contractor integrity..”

Section G – Company Internal Investigation

Has an investigation been conducted?

Comment:This Section reinforces the importance of conducting an internal investigation. Further, conducting an internal investigation is already a factor that the Suspension and Debarment Official (SDO) and HHS will consider in deciding whether a contractor is sufficiently responsible to continue to do business with the government. Likewise, this is consistent with OIG’s Provider Self-Disclosure Protocol, which requires a provider to conduct an internal investigation.

Enter a description of the records reviewed and the number and positions of the employees interviewed.

Comment:Answering this question ensures that the internal investigation was thorough, complete, and, hopefully, independent.

Is the Company Willing to Provide a Copy of the Investigative Report?

Comment: Providing the investigative report is certainly a factor that the Suspension and Debarment Official (SDO) will consider in deciding whether the contractor is “presently responsible,” but it also may contain attorney-client communications. Thus, a decision to provide the Report may also be a decision to waive attorney-client privilege communications, which might apply to a wide variety of communications, (e.g. internal emails) which are not included in the Investigative Report.

Measures Taken to Prevent Recurrence

Comment: The measures taken to prevent recurrence will depend on the particular violation and the size of the organization. Was the violation continuous and egregious? Was it committed by senior members of the organization? Or, was the violation an isolated incident that can be easily resolved without significant changes to the organization?

Disciplining or terminating wrong-doers, even if they are in senior management positions, will demonstrate to the SDO that the contractor is serious about its commitment to a culture of compliance. Similarly, making significant changes internally to the organization’s system of reporting and the organization’s internal audit policies and procedures, should send the proper message to the SDO. And, where appropriate, the organization might ask whether the organization needs to strengthen its compliance program by hiring a new chief compliance officer.