Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

Federal Health Care Reform: A Renewed Commitment to Program Integrity

New federal legislation has transformed the regulatory environment for health care providers’ participation in federally funded health care programs. Heightened risks of liability mean health care providers and the lawyers who advise them need to be more aware of what the federal government expects.

The Patient Protection and Affordable Care Act of 20101 (Affordable Care Act) is landmark legislation that changes the legal landscape in health care. Over the past 20 years lawyers have become familiar with the civil and criminal risks that health care providers face through their participation in federally funded health care programs. The Federal False Claims Act2 (FCA) has been the basis for huge civil monetary penalties as the result of government enforcement actions and whistleblower-initiated lawsuits. The Federal Anti-Kickback Statute3 has been the basis for criminal sentences and penalties when providers have been convicted of receiving or offering illegal remuneration for the referral of business or patients. “Program Integrity” is the euphemism used by the federal government for these statutory and related regulatory provisions designed to either prevent or ferret out fraud, waste and abuse with respect to Medicare, Medicaid and other federally funded programs. Although prior efforts to encourage corporate compliance in the health care industry have raised awareness of the generalized risks associated with the billing of Medicare, Medicaid and related programs, the Affordable Care Act has upped the ante by greatly expanding already intense Program Integrity efforts. The changes are significant and likely to impact health care providers at the micro and macro levels; moreover, they raise a number of issues that will be of concern and interest to attorneys.



The Why of Reform

It is important to first state the obvious in terms of why the Affordable Care Act targets fraud, waste and abuse. The Congressional Budget Office projects that such efforts will return $1.75 for each dollar spent and maybe much more than that when one takes into account the payments made as a result of self-disclosures of mistakes and/or improper conduct. High-profile and high-buck cases are frequent newsmakers, but even relatively low-dollar settlements can cause significant pain. For example, on April 27, 2010, the Department of Justice announced that AstraZeneca LP and AstraZeneca Pharmaceuticals LP would pay $520 million to resolve allegations that AstraZeneca illegally marketed the antipsychotic drug Seroquel® for uses not approved (“off-label”) as safe and effective by the Food and Drug Administration (FDA). The company signed a civil settlement to resolve allegations that by marketing Seroquel® for unapproved uses, the company caused false claims for payment to be submitted to federal insurance programs. On the other end of the spectrum, in 2009, a physician in Texas paid the government $534,000 in a settlement after the Office of Inspector General (OIG) alleged he had submitted false or fraudulent claims by using billing codes that would generate a higher reimbursement than what was documented or that he submitted claims without any documentation. Although this latter amount is not “shocking,” the hidden monetary and emotional costs of defending against such charges can be enormous. In any event, given the rate of return, it is no wonder that the Affordable Care Act provides over $700 million in new funds to fight health care fraud over the next decade.

The How of Reform
Title VI of the Affordable Care Act, Transparency and Program Integrity, is the primary vehicle for enhancing the government’s enforcement efforts. It is no surprise that in the age of information technology, the Affordable Care Act contains new provisions that provide for enhanced electronic data collection, screening, and mining and broader data access by government enforcers, both of which are designed to aid in identifying problem areas and problem providers. Another section of the Affordable Care Act establishes a 60-day time line for the return of health care program overpayments that penalizes late payments by treating the underlying transaction related to the payment as a false claim under the Federal False Claims Act. Other provisions of the Affordable Care Act impose higher financial penalties when regulatory requirements are not met and make it easier for the government to make its case when it brings charges through changes in scienter requirements. The Affordable Care Act also provides a convenient ladder for whistleblowers over what had previously been the high wall of proof imposed by the Federal False Claim Act’s “original source” requirements. The Affordable Care Act also contains provisions mandating health care compliance programs across the spectrum of health care providers and imposing transparency requirements on the relationships between health sciences companies and individual providers and provider entities. All of these changes are incremental, but considered as a whole, they reflect a dramatic change in the enforcement environment.
Data Mining
Data mining techniques used in the past to identify health care providers for scrutiny will be supercharged as massive amounts of new data, mandated to be entered into the Integrated Data Repository of the Centers for Medicare and Medicaid Services (CMS), become available.4 Under the Affordable Care Act, all claims and payment data from the Medicare (including parts A-D) and Medicaid programs will be entered into the repository and then, as appropriate, claims and payment data from other government health care programs such as the Veterans Administration and Social Security will be added. CMS is also mandated by the Affordable Care Act to enter into “data sharing and matching” agreements with other arms of the federal government “under which such individuals share and match data in the system of records of the respective agencies of such individuals with data in the system of records of the Department of Health and Human Services for the purpose of identifying potential fraud, waste, and abuse … .” Finally, the Affordable Care Act requires states to report encounters between Medicaid enrollees and providers recorded in the Medicaid Statistical Information System (MMIS) or face federal withholding of matching payments.
Having prepared the data feast, the Affordable Care Act invites the federal Department of Health and Human Service’s Office of Inspector General (OIG) to dine, giving it “authority” to obtain this information and do what it does best: uncover fraud, waste, and abuse and go after miscreants of all stripes. Finally, in what some may view as a bit of overkill, since the authority already exists, the Affordable Care Act explicitly states that the OIG is entitled to timely access to records associated with claims for services or products. In a new provision, failure to “grant timely access, upon reasonable request (as defined by the Secretary in regulations) to the Inspector General of the Department of Health and Human Services, for the purpose of audits, investigations, evaluations, or other statutory functions of the Inspector General of the Department of Health and Human Services” can result in penalties of $15,000 per day for the delay.5
Application Screening
When a physician or physician group, or any other provider entity such as a Medicare Advantage plan or Part D supplier, “knowingly makes or causes to be made any false statement, omission, or misrepresentation of a material fact in any application, agreement, bid, or contract to participate or enroll as a provider of services … ” under federal health care programs, they may face a load of hurt.6 Along with possible program exclusion, the Affordable Care Act provides for $50,000 civil monetary penalties under the Civil Monetary Penalties Law, (42 U.S.C. §1320a-7a) for each false statement or misrepresentation of a material fact in an “application, agreement, bid, or contract to participate or enroll as a provider of services or supplier and up to three times the amount of claims related them.”7 These provisions, together with a new CMS screening requirement for initial and renewal enrollment of providers, means that health care providers should pay close attention to the accuracy of enrollment documentation and not just sign off on what is put in front of them.
The screening changes will take place in one year with respect to new providers and in two years with respect to currently enrolled providers. Under the Affordable Care Act, the “Secretary shall determine the level of screening conducted … according to the risk of fraud, waste, and abuse, as determined by the Secretary, with respect to the category of provider of medical or other items or services or supplier.” What will make the screening easier is the requirement that all providers who are eligible for a National Provider Identifier number (NPI) will have to include the NPI on all enrollment applications and all claims for payment. In fact, CMS has already issued interim final regulations that implement this requirement as of July 1, 2010.8
Reporting of Overpayments
The Affordable Care Act creates substantial risks for health care providers who are prone to drag their feet or hide their heads in the sand (devotees of the Tortoise and Ostrich syndromes) when it comes to deciding whether and when to report Medicare or Medicaid overpayments. As described by DHHS in a brochure entitled: “What Health Care Providers and Other Suppliers Should Know About Overpayments”9
Overpayments are Medicare funds a provider or beneficiary has received in excess of amounts due and payable under the Medicare statute and regulations. Once an overpayment is determined, the amount of the overpayment is a debt owed to the Federal Government. Federal law requires the CMS to seek recovery of overpayments, regardless of how an overpayment is identified or caused.
An overpayment occurs when Medicare pays more than the proper amount. This is often due to the following:
  • Duplicate submission of the same service or claim
  • Payment to the incorrect payee
  • Payment for excluded or medically unnecessary services
  • Payment made as primary payer when Medicare should have paid as secondary payer
Until the Affordable Care Act, there had never been a deadline for returning overpayments identified through internal audits and reviews. Now, once one knows of an overpayment, the law requires that the overpayment be reported and returned to “the Secretary, the State, the intermediary, a carrier, or a contractor, as appropriate” by the later of: “(A) the date which is 60 days after the date on which the overpayment was identified”; or“(B) the date any corresponding cost report is due, if applicable.”10
Even though legal hairs will be split over when an overpayment is “identified,” health care providers will be well-advised to work with legal counsel to establish a clear and defensible process that can be enshrined in policy that their business offices will be required to follow. The internal policy should set out a process that describes how and when data regarding potential overpayments are brought to the attention of those who can make the factual and legal determination that overpayments have been “identified” in order to comply with the 60-day repayment obligation. The reason for this is that if overpayments are not returned in time, the Affordable Care Act deems them to be “obligations” subject to the Federal False Claims Act which can lead to penalties far in excess of the overpayment amount(s). This change in the law also eliminates any shred of confusion regarding interpretation of changes in the Federal False Claims Act regarding such obligations made by the Fraud Enforcement and Recovery Act of 2009 (FERA).11
Mandatory Compliance Plans
Health care organizations have long had corporate compliance plans that adopt the elements of OIG model compliance plans such as the “Office of Inspector General’s Compliance Program Guidance for Individual and Small Group Physician Practices” issued in October of 2000.12 However, such programs have been voluntary, scalable, and were not required in order to participate in government health care programs. Under the Affordable Care Act, however, all of that will change.
With respect to Medicare, the Affordable Care Act requires CMS to identify “core elements” for inclusion in compliance programs for “providers or suppliers with a particular industry or category” and a timeline for implementation of those elements as a condition of participation.13 Skilled Nursing Facilities and Nursing Facilities are singled out elsewhere in the Affordable Care Act and will be required to have “Compliance and Ethics” programs in place by March of 2013.14 State Medicaid programs must also require that providers have compliance programs as a condition of participation. Compliance programs will no longer be simply a good idea for health care organizations that want to receive government payments; they will be essential.
Health care providers will want to pay attention to the type of compliance program their organization presently has in place, whether it is followed or not, and be alert to the “core elements” as they are developed by CMS. This may be a very good time for legal counsel to recommend an outside audit/gap analysis to see whether existing compliance programs are up to snuff. Once the compliance requirements are in place, the certifications that providers make in their program applications and renewals will constitute a legal acknowledgment that they are following the law. These can in turn lead to False Claims Act (FCA) liability. Although a false certification of compliance with a statute or regulation cannot serve as the basis for a qui tam action under the FCA unless payment is conditioned on that certification, compliance with Medicare statutes is just such a prerequisite to payment.
Ignorance Is Not Bliss
In the past, health lawyers would tell their physician-clients that before they could be found in violation of the Federal Anti-Kickback Statute and face criminal penalties the government would have to demonstrate the physician’s specific intent to violate the law or what is called scienter. The Affordable Care Act has changed the standard so that now “a person need not have actual knowledge of this section or specific intent to commit a violation of this section.”15 In other words, participating providers are expected to know what the law requires of them. In the context of complying with federal statutory and regulatory requirements as a participating provider, their ignorance, if any, will certainly not be bliss. Ergo, the reason why compliance programs are so important for clients needing to “toe” the regulatory line. To add insult to injury, the Affordable Care Act also clarifies that a claim for reimbursement submitted in violation of the Anti-Kickback Statute also constitutes a “false claim” under the False Claims Act which can be punished with civil penalties.16 This change comes on the heels of the Fraud Enforcement & Recovery Act of 2009, which significantly improved the government’s odds of imposing false claims liability in a number of scenarios.
New Self Disclosure Protocol
The federal Stark law17 limits physician referrals for certain designated health services to entities with which they have a financial relationship. Failure to follow Stark can have severe consequences, including the imposition of False Claims Act penalties. Since the Affordable Care Act has put more teeth into enforcement it only seems appropriate that it should also require the Secretary to develop a new protocol that allows health care providers who have violated the federal Stark restrictions to disclose actual or potential violations.18 This, believe it or not, is a good thing for health care providers and will provide an open door to the government that had been shut in their faces back in 2009 when the OIG in an “Open Letter” indicated that it would not accept self-disclosure of Stark-only violations under its existing voluntary disclosure program.19
Back Door to Qui Tam
One of the most difficult hurdles for plaintiffs to overcome when bringing an action under the Federal False Claims Act relates to overcoming the defense that they were not an “original source” of the information upon which the false claims allegations are made. The Affordable Care Act has opened a back door for qui tam plaintiffs by expanding the definition of original source to include an individual “who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.” In essence, this means that an individual, who knows that what the government or news media has discovered is only the tip of the iceberg, is provided with the opportunity to file an action under the FCA and be in line to collect part of any recovery, depending on the materiality of the information provided.  This likely means that the 8th Circuit, which in Hays v. Hoffman, 325 F. 3d 982, (8th Cir. 2003) specifically rejected what some have called the “catalyst” theory regarding the value of the information provided by an FCA plaintiff, will be revisiting this issue in a future case.

It will be interesting to see how this provision works in practice. Proactive health care providers that are the subject of either a government or media investigation will want to dig faster and deeper to know what is going on and make full disclosures to shut the back door. Another outcome, however, may be that employees will find the qui tam back door too inviting to pass up.

Life Science Disclosure
Minnesota has had its share of controversy over the past few years regarding relationships between corporate entities, such as pharmaceutical and medical device companies (“life science companies”) and physicians, who conduct sponsored research, act as consultants, give sponsored presentations, or otherwise engage in transactions that raise potential conflicts of interest and/or potential conflicts with various legal limitations. Properly structured, these relationships are legal and ethical. The problem, however, is that until recently, there has been limited public transparency about their existence which in turn may lead to legal scrutiny. This will all change under the Affordable Care Act when so-called “transparency reports” start flowing in on March 31, 2013. The transparency reports will require detailed reporting of payments or transfers from “applicable manufacturers” to “covered recipients,” which can be individuals or entities.20
Except for Kleenex® offered after a sneeze, pretty much everything else is covered. There will be penalties for noncompliance, but the real impact won’t be felt until the transparency reports are published by CMS on a public and easily searchable website beginning in September of 2013. What this means is that life sciences and “covered recipients” have until the end of 2011 to make sure that their relationships are pristine and reflect positively in this new and very bright public light. Maybe the Economics 101 professors have it right when they say there is no such thing as a free lunch … we shall see!
Keep Your Eyes Open
Clearly, there are numerous other provisions of the Affordable Care Act that will be of great interest to lawyers across the spectrum. For example, ERISA attorneys will want to pay attention to new authority for the Department of Labor that provides for administrative, summary, cease-and-desist orders and summary seizure orders against multiple employer welfare arrangements in financially hazardous condition.21 Defense counsel will want to review the changes to federal criminal subpoena authority relative to health care and other changes related to health fraud enforcement.22 Health plan attorneys will want to follow developments regarding the requirement that a “group health plan and a health insurance issuer offering group or individual health insurance coverage shall implement an effective appeals process … .”23 Attorneys who represent patients will want to understand the various limitations that will be placed on health plans beginning as early as September 23, 2010. For example, as of that date, health insurance plans can no longer exclude children for preexisting conditions and may no longer impose lifetime limits on coverage for all patients with plan years beginning after that date. As Sonny and Cher (really old act for those under 50) used to sing: “… and the beat goes on!”
Take Home Lesson
Now more than ever, health care providers and the lawyers that advise them need to be more aware of what the federal government expects in terms of complying with the myriad laws and regulations that form a moat around federal health care programs. They should also begin preparing for the virtual tsunami of regulatory changes that are sure to come. Knowledge is a beautiful thing and the more of it Minnesota lawyers have about the Affordable Care Act and its implementing regulations, the better off we and our clients will be.

1 The main Affordable Care Act is embodied in H.R. 3590, P.L. 111-148 (March 23, 2010). The reconciliation bill language is contained in H.R.4872, P.L. 111-152.
2 31 U.S.C. §3729-3733 – (as amended March 23, 2010, P.L. 111-148).
3 42 U.S.C. §1320a -7b(b) – (as amended March 23, 2010, P.L. 111-148).

4 H.R. 3590 at p. 635, Title VI, Subtitle E, §6402 (a).
5 H.R. 3590 at p. 653, Title VI, Subtitle E, §6408 (a)(9).
6 H.R. 3590 at p. 637, Title VI, Subtitle E, §6402(d)(1)&(2).
7 Id. at. §6402(d)(2)(A)(10).
8 Federal Register,Vol. 75, No. 86 (Wednesday, May 5, 2010)(Rules and Regulations), p. 24437.
10 Title VI, Subtitle E, §6402(d)(2).
11 S. 386, enacted as P.L. 111-21 (May 20, 2009).
13 H.R. 3590 at p. 633, Title VI, Subtitle E, §6401 (a)(7).
14 H.R. 3590 at p. 584, Title VI, Subtitle E, §6102.
15 H.R. 3590 at p. 641, Title VI, Subtitle E, §6402(f)(2)(h).
16 Id. at §6402(f)(1)(g).
17 42 U.S.C. §1395nn.
18 H.R. 3590 at p.654 , Title VI, Subtitle E, §6409(a).
19 OIG Open Letter to Health Care Providers, March 24, 2009, limiting the Self-Disclosure Protocol to potential anti-kickback statute violations.
20 H.R. 3590 at p.671 , Title VI, Subtitle A, §6002.
21 H.R. 3590 at. p. 663, Title VI, Subtitle G, §6005.
22 H.R. 3590 at pp. 880-891, Subtitle F, Sec. 10606. Health Care Fraud Enforcement.
23 H.R. 3590 at p. 19, Title I, Subtitle A, §1001.

© 2010 Gordon J. Apple. All rights reserved

Gordon J. Apple is a health law attorney in private practice in St. Paul, Minnesota. He served two terms as chair of the Health Law Section of the Minnesota State Bar Association in the 1990s and served as a vice chair of the American Health Lawyers Association Health Information and Technology Practice Group from 2002-2006. He is a 1982 graduate of the University of Wisconsin School of Law and has an AV® rating with Martindale-Hubbell. He has been a member of the Minnesota Bar since 1985.

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