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Trends for anti-kickback prosecutions in 2020.

In the past few years, the Government’s appetite for anti-kickback prosecutions has grown steadily. There are seemingly no cheat days and Gluten free and vegan options are not part of the menu. It is a pure unadulterated push to increase anti-kickback prosecutions and deter and punish as many bad actors that violate the anti-kickback statute as possible.

Many clients, whether they be doctors, pharmacists, pharmacy owners, marketers, nurses, or Joe Schmo who just transitioned from real estate to selling compounded cream are spared no mercy and are frequently subject to anti-kickback prosecutions.

Many of the ongoing or past Government anti-kickback prosecutions relate to compounding pharmacies, telemedicine arrangements, and what the Government continues to view as illegal marketing arrangements. In fact, it is not much of a stretch to say that the Government views pretty much all marketing as quasi-violative of the Anti-Kickback statute.

Here are some items to continue to look out for in 2020 in Anti-Kickback prosecutions

One. The compounding pharmacy cases and Tricare based cases will migrate more into private payer and other payer AKS cases. For example, the Government has now prosecuted numerous individuals for kickbacks in connection with the Office of Workers Compensation (OWCP) program which administers benefits under the Federal Employee Compensation Act (FECA) which is an Act from 1916. Many of those cases involve over the counter specialty creams and lotions which were unavailable at big box pharmacies. As the clients shift to other payers for products, the Government naturally shifts with them and has taken the position (and will continue to do so) that there is some statute, even if it is not the AKS, that they can use as a hammer to prosecute this conduct.

Two. Relatedly, you will see more Department of Labor and more Office of Personnel and Management (OPM) based investigations into kickback violations. We will also continue to see more telemedicine focused prosecutions. Anticipate seeing defenses such as advice of counsel in those cases (more about this below at 6).

Three. Hospital and laboratory schemes relating to rural hospitals and the use of “reference labs” to refer blood and urine specimens to rural hospitals for testing. It is already well publicized that certain hospitals were mismanaged, run into the ground, and that Blue Cross Blue Shield was left with an enormous tab to pay as a result of some of the lab billing.

Four. Probation officers and judges will continue to grapple with the interpretation of U.S.S.G. Section 2B4.1 and what the term “improper benefit conferred” means in the context of health care cases since that Guideline was promulgated to address commercial bribery schemes  (e.g. NCAA point shaving) which are distinct from health care AKS cases. Indeed, it is time for the Sentencing Commission to possibly reconsider and to promulgate a new Guideline to specifically address this complex, multi-faceted statute.

Five. Courts and the parties will continue to grapple with restitution in AKS cases. Restitution is not mandatory for substantive violations of the AKS. How should it function in 371 conspiracies? How should the court calculate restitution when there is an issue about the medical necessity of the services? Whose burden is it to put on evidence of medical necessity if the ultimate burden rests with the government to demonstrate that restitution is owed and that a victim suffered a loss?

Six. The Government in preparation at any trial will introduce program experts, and they will take especially aggressive measures to guard against the possibility of any advice of counsel defense. Indeed, the advice of counsel defense is a common defense in the AKS realm. The Government’s pre-trial litigation history on this issue also confirms that it is the Government’s Achilles heel. They cannot afford to have attorneys, or their clients, tell a jury that the attorney said this arrangement was OK. To them, that is an unacceptable proposition and a roadmap to a potential loss.  In their view, it is also intended to be a narrow defense. I agree.

Seven. Equally as disenchanting, the Government’s position on the employee safe-harbor to the Anti-Kickbacks statute is essentially no position at all (more about this later). This theme will run throughout AKS prosecutions. The Government’s position, in certain circumstances, is that the safe-harbor and the statutory exception to the AKS only protect employment relationships where the employment is for furnishing a covered service. Put differently, sales and marketing are never (and never have been) covered services. So, if you are an employee paid a commission or a per test or per click compensation, then the safe harbor isn’t so safe because although what you are marketing may be a covered service (DME, medications, lab tests, etc.), you are not personally furnishing that service. Scary but real.

Eight. Hopefully, more trials. Even though Eliminating Kickbacks in Recovery Act (EKRA) bumped up the penalty to 10 years for a substantive anti-kickback offense (paying or receiving kickbacks) for offenses occurring on or after November of 2018, any offense occurring before that and any conspiracy under 371 to commit a kickback offense is capped at 5 years meaning no court could ever punish that person, if convicted, with a sentence of more than 5 years. For this reason, when the amounts are high ($1.5 Million or more), it is likely we will see more trials.

Restitution in anti-kickback cases is a highly under-litigated issue. In these cases, it is not uncommon to agree to stipulate to the amount of restitution based on the total amount of the client’s gain. Although this might be beneficial for the client depending on the specific scenario, the amount of gain, as a matter of law, is not the proper barometer for measuring restitution in AKS cases.

To the contrary, in AKS cases, the Government has the burden of proving that the “victim,” usually a Government health care program, sustained an actual loss because of fraud. 18 U.S.C. Section 3664(e). United States v. Vaghela, 169 F.3d 729 (11th Cir.1999);   See United States v. Martin, 195 F.3d 961, 968 (7th Cir.1999);  United States v. McIntosh, 198 F.3d 995, 1003 (7th Cir.2000); United States v. Liss, 265 F. 3d 1220 (11th Cir. 2001); United States v. Yevgeniy Pikus, 13-Cr-00025-BMC (E.D.N.Y. June 16, 2015)

This is fundamentally different than the calculation the district court must perform in determining a client’s sentence under the AKS which is determined by calculating the “improper benefit conferred.” Depending on the specific factual scenario, that benefit may be limited to the client’s gain (the total amount of kickbacks received) or if the client worked for a company (e.g. for example a marketer working for a pharmacy) some courts might determine that the amount paid to the pharmacy as a result of the client’s marketing efforts represents the improper benefit conferred.

I believe that latter view of the application of the AKS Guidelines is incorrect and courts are using loss as a proxy for the improper benefit conferred. The ill gotten gains is what the Sentencing Commission sought to punish. Otherwise why else would the Commission create 2 separate Guidelines Sections?

The AKS is also not one of the offenses covered by the Mandatory Victims Restitution Act (MVRA) found at 18 USC Section 3663A because it is notan offense which involves “fraud or deceit.” The AKS, even a conspiracy to pay or receive kickbacks under Section 371, does not include fraud, deceit, or intent to defraud as an element of the offense. So, the Government must do more than simply demonstrate that on these dates, the client received these amounts of money, and received these amounts of money by check or wires.   That simply is not good enough to prove a loss, as opposed to a gain which presumably will be undisputed since bank records and other documentary evidence should easily prove that amount of gain.

Equally as important, how does the Government prove a loss caused by fraud in a kickback case?

The Government must either

(1) demonstrate that services were never provided (e.g. home health care never provided or prescriptions never dispensed);

(2) the billing for the services was somehow fraudulent – (a) doctor never authorized the service and someone forged her signature (b) doctor or provider submits a claim for a service which does not represent the actual service provided but services were, in fact, provided (also known as “upcoding”); or

(3) demonstrate that the services were medically unnecessary and/or therefore the specific payer (Medicare/United Health Care) would never have paid for those services.

The first category is the easiest and there should be plenty of evidence to show the fraudulent billing or lack of services provided.

The second category also does not demand much from the Government. Nonetheless, in an upcoding scenario, the client should be able to offset the total loss/restitution amount by illustrating that, had the provider billed for service A and not service B, the government or private payer would have paid for those services and would have paid a set amount of money. If the client is able to demonstrate this point, then the court should offset the loss amount (e.g., service A $100, service B $65 – loss is $35).

This last category of “fraud” is the least compelling in my view unless the provider is the defendant. An excellent discussion of this issue is also found in a recent decision, United States v. Kim Ricard, No. 18-30047 (5th Cir. April 26 2019) (Slip Op.) (“Instead, the government relied solely on the Medicare billing data that showed the total amount paid to Progressive. Additionally, even if the government had pointed to this “red flag” testimony at sentencing, it amounts only to speculation that the services provided were illegitimate. There is no factual evidence, such as testimony from patients or medical personnel at Progressive, or even from the government, which suggests that Progressive was not providing the medical services it billed to Medicare.”)

Even in those cases, where the provider is the defendant, the Government should be ready to introduce expert testimony that the services were not “medically necessary” or implement a reliable extrapolation theory which incorporates actual data.

  How else can the Government meet its burden of proving a service was medically necessary? Well, lets focus on 1 example: an optometrist bills for eye exams. A historical review of his eye examination history reveals that, over the course of 24 months where he was in the office 5 times a week for 10 hours a day, he spent no more than 28 seconds on an eye exam. Under these circumstances, the Government would likely be able to prove that either (a) not all of those eye exams were performed or (b) they were worthless and likely did not satisfy the applicable guidelines for reimbursement.

Accordingly, if the Government is not able to introduce reliable and specific evidence of the loss caused by unnecessary services or services which lack any legitimate value, especially in cases involving multiple services or multiple patients,  without expert testimony or extrapolation or both, district courts should determine that the Government has not met its burden of proof.

For years,  FCPA defense has seemed like an exercise in futility because the Government continues to view the FCPA as a limitless enforcement tool for punishing bribery of foreign officials anywhere in the world even when the nexus to the United States is, at best, tenuous and, at worst, invisible. It is undeniable, for example, that many of the theories espoused by the Government remain untested by federal courts, are not based on any binding legal precedent (e.g. 2012 Resource Guide), and do not necessarily concern conduct that Congress originally contemplated in enacting the FCPA. In fact, due to the absence of FCPA jurisprudence, prosecutors seem to believe that plea agreements and corporate resolutions somehow represent FCPA precedent and that their interpretation of the FCPA  must be correct if a corporate defendant or individual is willing to agree to that interpretation of the FCPA in a factual proffer.

Recently though, FCPA defense lawyers have challenged the Government’s broad theories of  FCPA liability. Most notably, in August of last year, the Second Circuit Court of Appeals decided United States v. Hoskins. The court in Hoskins was posed with the following question – “can a person be guilty as an accomplice or a co-conspirator for an FCPA crime that he or she is incapable committing as a principal?”. The court answered no and, in doing so, rejected the U.S. Department of Justice’s (DOJ) theory of FCPA liability.

More specifically, in Hoskins, the DOJ brought charges against Lawrence Hoskins, a former British citizen based in France, who worked for a U.K. subsidiary of the French company Alstom S.A (Alstom). The DOJ charged Hoskins with conspiring to violate the FCPA based on its longstanding theory that if the DOJ has jurisdiction over one conspirator, it has jurisdiction over all-co-conspirators. Hoskins never worked for Alstom’s American subsidiary in any direct capacity and never traveled to the U.S during the scheme.Yet, the government  alleged that Hoskins  approved the selection of and authorized payments to consultants knowing that a portion of the money was intended to influence Indonesian officials.

In August 2015, Hoskins filed a motion to dismiss the indictment and argued that Hoskins could not be convicted of conspiring to violate the FCPA unless Hoskins was in one of the three categories of persons whom could be directly liable under the FCPA. The trial court agreed and dismissed the indictment.

On appeal, the Second Circuit reviewed the FCPA and the legislative history of the FCPA and concluded:

…The carefully tailored text of the statute, read against the backdrop of a well-established principle that U.S. law does not apply extraterritorially without express congressional authorization and a legislative history reflecting that Congress drew lines in the FCPA out of specific concern about the scope of extraterritorial application of the statute, persuades us that Congress did not intend for persons outside of the scope of the statute’s carefully delimited categories to be subject to conspiracy or complicity liability.

More significantly, the court’s holding debunks the government’s assertion in their 2012 Resource Guide which states:

Individuals and companies, including foreign nationals and companies, may also be liable for conspiring to violate the FCPA—i.e., for agreeing to commit an FCPA violation—even if they are not, or could not be, independently charged with a substantive FCPA violation.

Ultimately, Hoskins is a significant blow to the DOJ’s expansive view of the jurisdictional reach of the FCPA and provides a crucial judicial check on prosecutorial theories seeking to extend the jurisdictional reach of the FCPA much farther than Congress ever contemplated. Hoskins also  provides a critical FCPA defense for non-resident foreign nationals subject to FCPA scrutiny, it supplies significant guidance to foreign nationals in future DOJ prosecutions and enforcement actions, and, most importantly, reinforces the importance of challenging broad DOJ approaches to FCPA liability in federal courts.

The Firm focuses on FCPA defense and has represented a variety of individuals, especially in Latin America, in FCPA defense investigations including in the FIFA and Odebrecht investigations.

Today,  the Department of Justice announced charges against 24 defendants, including the CEOs, COOs and others associated with five telemedicine companies in connection with telemedicine fraud. Additional charges were announced against the owners of dozens of durable medical equipment (DME) companies and three licensed medical professionals, for their alleged participation in health care fraud schemes involving more than $1.2 billion in loss, as well as the execution of over 80 search warrants in 17 federal districts.

The arrests were coordinated by the Health Care Fraud Unit of the Criminal Division’s Fraud Section in conjunction with its Medicare Fraud Strike Force (MFSF), as well as the U.S. Attorney’s Offices for the Districts of South Carolina, New Jersey and the Middle District of Florida.  The MFSF is a partnership among the Criminal Division, U.S. Attorney’s Offices, the FBI and HHS-OIG.  In addition, IRS-CI and other federal law enforcement agencies participated in the operation.

The charges announced today target an alleged scheme involving the payment of illegal kickbacks and bribes by DME companies in exchange for the referral of Medicare beneficiaries by medical professionals working with fraudulent telemedicine companies for back, shoulder, wrist and knee braces that are medically unnecessary.  Some of the defendants allegedly controlled an international telemarketing network that lured over hundreds of thousands of elderly and/or disabled patients into a criminal scheme that crossed borders, involving call centers in the Philippines and throughout Latin America. Telemedicine fraud has been a recent priority of the government. In many instances, telemedicine fraud is one piece of a compensation arrangement, that the government professes, also involves kickbacks.

In the takedowns today, the government alleged that the defendants  paid doctors to prescribe DME either without any patient interaction or with only a brief telephonic conversation with patients they had never met or seen.  The proceeds of the fraudulent scheme were then allegedly laundered through international shell corporations and used to purchase exotic automobiles, yachts and luxury real estate in the United States and abroad. Notably, the defendants in the takedown range from corporate executives to medical professionals. The Government alleges, however, that they used expensive telemedicine platforms to exploit patient access to care by among other things using an international call center that advertised to Medicare beneficiaries and “up-sold” the beneficiaries to get them to accept numerous “free or low-cost” DME braces.  According to DOJ, the international call center allegedly paid illegal kickbacks and bribes to telemedicine companies to obtain DME orders for these Medicare beneficiaries.  The telemedicine companies then allegedly paid physicians to write medically unnecessary DME orders.  Finally, the international call center sold the DME orders that it obtained from the telemedicine companies to DME companies, which fraudulently billed Medicare.  Collectively, the CEOs, COOs, executives, business owners and medical professionals involved in the conspiracy are accused of causing over $1 billion in loss.

The Firm has significant experience in health care fraud and kickback investigations including investigations involving alleged telemedicine fraud.

Health Care Fraud Loss

Frequently, in criminal prosecutions for health care fraud, the deciding factor driving punishment is the health care fraud loss determined by the health care fraud loss Guidelines found at Section 2B1.1 of the federal sentencing Guidelines. What many practitioners forget though is that health care fraud loss is far from an exact science which is why even federal courts permit a finding of loss based 0n a “reasonable estimate.” The government’s estimation of loss, however, may range from reasonable to mere conjecture. Further, especially in cases involving “upcoding” or kickbacks, health care providers may be eligible for a credit against loss.

Indeed, according to §2B1.1 3(E)(I), “loss shall be reduced by…. the fair market value of the…..services rendered, by the defendant or other persons acting jointly, to the victim before the offense was detected.” Below is a list of cases from all over the United States where credits were applied or where the court recognized that credits may be applied against health care fraud loss .

• United States v. Medina, 458 F.3d 1291, 1304 (11th Cir. 2007) (concluding, in health care fraud case involving the payment of kickbacks, that loss under the Guidelines could not include amounts paid forems or services that were medically necessary); see also United States v. Guerra, 307 Fed. Appx. 283, 285 (11th Cir. 2009) (unpublished) (affirming district court’s re-sentencing on remand in Medina; district court correctly read Medina to mean there was no loss because “there was no evidence that an y of the prescriptions per se were not medically necessary”).
• Even in 11th circuit cases where loss credits were denied, the circuit has found that such credits may be appropriate. United States v. Ekpo, 266 Fed Appx 830 (11th Cir. 2008). The court found that defendant DME providers were not entitled to a credit against loss because there was no evidence adduced at sentencing showing that the recipients of the wheelchairs were “eligible” to receive those wheelchairs. Absent such evidence, the court found that it could not conclude that providing wheelchairs to those beneficiaries was the equivalent of providing value.); United States v. Campell, 765 F.3d 1291, 1303 (11th Cir. 2014) (denying any credit against loss to the defendant convicted of public corruption offenses, but reinforced that in billing fraud cases, “the pecuniary harm suffered by the victim is the difference between the amount billed and the amount of the legitimate services rendered.”).
• United States v. Klein, 543 F.3d 206, 213-14 (5th Cir. 2006) (vacating the sentence of defendant doctor convicted of health care fraud based in part on upcoding for treatment of Hepatitis C patients because the PSR failed to account for the value of the drugs that were administered for patients in calculating the total loss amount attributable to defendant).
• United States v. Jones, 475 F.3d 701,706-07 (5th Cir. 2007).The defendant was convicted of Medicare fraud based on claims for cost reimbursement for payments pmade by the billing entity to a third party. Although Medicare regulations required independence between the billing entity and the third party payee to prevent collusion, the defendants committed fraud by failing to disclose the lack of independence between the billing entity and the third party in violation of Medicare regulations. On appeal, the Fifth Circuit reversed the district court’s loss finding, holding that the loss was limited to the amounts proven by the government to have been claimed by the billing entity for payments to the third party that were “either unreasonable or greater than its actual cost.”).
• United States v. Tariq Mahmood, M.D., No. 15-40521 — at *22-23— (5th Cir. April 14, 2016) (Slip Op) (other citations omitted) (vacating defendant’s sentence in health care fraud case after defendant was convicted for resequencing the diagnosis codes at various hospitals in order to bill for more expensive treatments that were not provided. The court, in vacating his sentence, reasoned that that “Medicare receives ‘value’ within the meaning of U.S.S.G. § 2B1.1 comment. (n. 3(E)(i)) when its beneficiaries receive legitimate health care services for which Medicare would pay but for a fraud.”).
• United States v. Rutgard, 116 F.3d 1270 (9th Cir. 1997)( a doctor was prosecuted for Medicare fraud based on the performance of services that were not medically necessary. Ninth Circuit reversed the district court’s loss finding, holding that “Rutgard must be given credit for the medical services that he rendered that were justified by medical necessity. As always, the burden is on the government to establish what services were not medically necessary. The global estimate of loss made by the district court cannot stand.”).

Likewise, there is a growing body of case law in government contract/bid fraud cases authorizing credits against loss. United States v. Schneider, 930 F. 2d 555, 558 (7th Cir. 1991) (remanding for resentencing “without an additional punishment based on a proven loss – for none was proven.”); United States v. Anders, 333 F. App’x 950, 954-55 (6th Cir. 2009) (holding that it was error for district court not to credit value of services provided pursuant to a fraudulent bid contract when defendant contractor performed contract); United States v. Joseph Nagle, No. 16-1543 (3rd Cir. Nov. 30, 2016) (Slip. Op) (holding that defendant convicted of the largest contract bidding fraud scheme in history against the Department of Transportation was entitled to a substantial credit against loss based on the profits obtained by defendant company.); United States v. Sublett, 124 F.3d 693, 695 (5th Cir. 1997) (holding that it was proper to deduct the value of legitimate services actually provided by defendant’s operation under contracts he obtained by falsely misrepresenting his academic credentials to win bid to provide counseling services to IRS employees).

The Firm has substantial experience representing health care providers in health care fraud loss disputes and has obtained favorable results for clients seeking to discredit Government loss figures.

A provider ensnared in a Government investigation should not accept the Government’s estimates or methodology for computing loss at any point in the proceeding (pre indictment or after the filing of an information or indictment) without first conducting an independent investigation and analysis of that health care fraud loss estimate. Assessing loss also depends on the type of provider and the type of service provided.

A provider should not agree to a loss figure in a plea agreement or a loss figure in the factual basis in support of the plea agreement until and unless the provider has conducted an adequate review and confirmed the accuracy of that loss figure.

A provider should, where applicable, argue for credits against loss especially where the case involves services which are provided or services which are medically necessary. In either case, there is a fair market value for those services.

Where applicable, a provider should terminate any discussions regarding loss if the government is assuming a position that is contrary to the law and the facts. In certain cases, if the difference between the government’s figure and the defense figure is stark, then, depending on the strength of the Government’s case and evidence,  the provider should (a) proceed to trial (b) enter a written plea agreement without any provision governing loss or with a provision that outlines the position of the Government and the defense regarding loss and prepare for a sentencing loss hearing; or (c) if the Government will not agree to (b) then consider a potential open plea (best in cases involving 1 count) and prepare for a loss sentencing hearing.