Month: April 2020

As we previously reported here, on March 30, 2020, CMS issued 18 “blanket” Stark law waivers designed to put “patients over paperwork” and permit providers to engage in certain transactions meant to aid in the fight against COVID-19 but which might otherwise run afoul of technical requirements of Stark law.  The blanket waivers (“Blanket Waivers”) sought to relax certain regulatory requirements for purposes “solely related to COVID-19” response,” including waiving the requirement that payments from hospitals and providers to rent equipment or receive services from physicians (or vice versa) be within “fair market value.”

Following issuance of the Blanket Waivers, providers raised a plethora of questions and concerns. In response, on April 22, 2020, CMS issued “Explanatory Guidance” relating to the “scope and application of the blanket waivers to certain financial relationships,” and to address certain issues and queries raised by stakeholders about the waivers.

Interestingly, in the introduction to the Explanatory Guidance, CMS appears to suggest that the intent of the parties will be considered by the government in False Claims Act (FCA) cases alleging Stark law violations for arrangements that may be covered by the Blanket Waivers. Specifically, CMS stated here that “the Secretary [of HHS] will work with the Department of Justice to address False Claims Act relator suits where parties using the blanket waivers have a good faith belief that their remuneration or referrals are covered by a blanket waiver.” Given that the Stark law is a “strict liability” statute under which intent is ordinarily irrelevant, this could be a significant development limiting the specter of FCA cases based on alleged Stark law violations in the wake of the COVID-19 crisis. 

In the Explanatory Guidance, CMS also addressed the following specific issues related to the Blanket Waivers:

• Compliance with Non-Waived Requirements of an Applicable Exception: Here, CMS clarified that while the Blanket Waivers eliminate or amend only some requirements of existing Stark law exceptions, providers still have to satisfy all non-waived requirements of an applicable exception.

• Amendment of Compensation Arrangements (During Emergency Period): Here, CMS clarified that if parties amend the remuneration terms of an existing arrangement during the “emergency period” based on the “Blanket Waivers,” (1) the amended arrangement still must satisfy all non-waived requirements of the applicable Stark exceptions(s), and (2) that following expiration of the emergency period the renumeration terms may again be modified to return to the original terms or to effectuate additional necessary modifications.

Interestingly, CMS used this opportunity to state that, contrary to many providers’ (and attorneys) belief, that it interprets the preamble guidance in the Fiscal Year 2009 Inpatient Prospective Payment System (FY 2009 IPS) final rule (73 FR 48434) to allow amendments to the remuneration terms of compensation agreements even within the first year after an initial amendment of the remuneration terms of the arrangement, provided that: (1) each time the remuneration terms are amended all requirements of an applicable Stark exception are still satisfied; (2) the amended remuneration is determined before the amendment is implemented; (3) the formula for the amended remuneration does not take into account the volume or value of referrals or other business generated by the referring physician; and (4) the overall arrangement remains in place for at least 1 year following the arrangement. This additional nugget – in particular the statement that CMS expects such arrangements to “stay in place” rather than be for “terms” of at least 1 year – is itself confusing, and is bound to lead to more questions regarding this “guidance” in the future.

• Applicability of Blanket Waivers to Indirect Compensation Arrangements: Here, CMS clarified that while the Blanket Waivers only related to “direct” compensation arrangements under the Stark law, parties “may request an individual waiver” with respect to “indirect” compensation arrangements.”  CMS further noted here that arrangements where physicians own the subject physician organization, the arrangement may not need to be analyzed as an “indirect” compensation arrangement and instead should be analyzed as a “direct” arrangement based on the “stand in the shoes” provisions of the Stark law.

• Repayment Options for Money Loans Between a DHS Entity and a Physician (or the Immediate Family Member of a Physician): Blanket Waivers # 10 and # 11 address remuneration in the form of loans with interest rates below FMV or on terms that are unavailable from lenders not in a position to make referrals to or generate business for the party making the loan. Regarding these waivers, CMS responded to providers’ inquiries about form of loan repayment by stating that cash payments are not required to satisfy the debts and that instead, borrowers could repay the loans through in-kind payments (including potentially through the provision of office space, items, or service to the physician lender) so long as the aggregate value of in-kind repayments are consistent with the amount of the loan balance being reduced through the in-kind payments and are commercially reasonable. CMS cautioned here, however, that Blanket Waivers # 10 and # 11 do not waive sanctions related to referrals and claims related to the repayment of the loan. In other words, the loans must be repaid (whether through cash or in-kind payments), and loan forgiveness may form the basis for liability under the Stark law (and the Antikickback statute as well).

• (Timing of) Repayment of Loans, Rent Abatement, or Other Amounts Due Following the End of the Emergency Period: Here CMS clarified loans, rent abatements, or for other items (such as office space, equipment, items, or services) provided at below fair market value do not have to be repaid prior to the termination of the Blanket Waivers and that, instead, appropriate repayment obligations agreed to prior to termination of the Blanket Waivers may continue beyond such termination without running afoul of the Stark law.

• Restructuring of Existing Recruiting Arrangements with Income Guarantees: In response to inquiries about restructuring existing physician recruiting arrangements such as income guarantees to address practice interruptions, CMS clarified that the Blanket Waivers do not address or relax the requirement that the terms of a physician recruitment arrangement cannot be altered once the physician has relocated his or her practice. However, CMS did note that Blanket Waivers # 5 (waiving sanctions for referrals related to below FMV rental charges) and # 10  (waiving sanctions for loans to physicians with below FMV interest rates) may be available to waive sanctions for remuneration from hospitals (or other entities) to assist physicians whose medical practices experience interruption from the COVID-19 outbreak in order to maintain the availability of medical care and related services for patients and the community during the national emergency.

If you have any questions about the Explanatory Guidance or the Blanket Waivers generally, please contact us and we will be happy to assist.

April 13, 2020

As we discussed in some of our past updates below, Attorney General Barr has directed the Department of Justice (DOJ) to prioritize the detection, investigation, and prosecution of illegal conduct related to the COVID-19 pandemic.  DOJ has already announced a number of enforcement actions related to COVID-19 fraud, including action against a company selling fake coronavirus “vaccine kits” on the internet, and all indications are that the federal government will continue to vigorously investigate and prosecute Coronavirus-related fraud.

Along with increased government-initiated actions, we also expect an increase in whistleblower, or “private attorney’s general” actions under the federal False Claims Act (FCA) as a result of COVID-19-related healthcare fraud and abuse.  While there has already been much written on increased “direct” FCA activity stemming from COVID-19 related fraud, precious little has been written on the potential for provider liability under the “reverse” false claims provisions of the FCA for failure to timely investigate, report, and return overpayments to the government during the current state of emergency. In this post, we briefly explore the concept of “reverse” false claims in the healthcare context, and explain how the current “state of emergency” appears to automatically extend providers’ deadlines for investigating, reporting, and returning “retained overpayments.”

Reverse False Claims in the Healthcare Context

In typical “direct” FCA claims regarding healthcare services, a whistleblower alleges that a healthcare provider submitted claims to the government for services that were either: (i) not performed or (ii) were performed so deficiently, that payment should not have been made to the provider for the services.  “Reverse” false claims, or “retained overpayment claims,” however, are premised not on the submission of claims to the government, but rather, on providers’ allegedly retaining and failing to repay payments that were improperly made to them by the government.  The most common example in the healthcare context is when the government inadvertently or accidentally overpays the provider for healthcare services provided to covered patients and the provider does not return the overpayments to the government. Prior to 2009, the “reverse” false claims provisions of the FCA imposed liability on a person who “knowingly made, used, or caused to be made or used” a “false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the [g]overnment.” Under this standard, claims could only be the subject of FCA claims if they were knowingly false at the time they were submitted to a government payor – which required that a party either falsify information during a reconciliation period or otherwise act knowingly and improperly to avoid a repayment and thus precluded liability under the FCA for unintentional “retained overpayments.” This significantly limited the ability of the government and whistleblowers to hold providers liable for “retained overpayments” under the FCA.

FERA Amendments to the FCA – the “60 Day Rule“

So, in 2009, Congress passed the Fraud Enforcement and Recovery Act (“FERA”) which, inter alia, extended and broadened the scope of those provisions by creating the “60 Day Rule” under which overpayments can become “false claims” if not repaid within 60 days of “identification.” Under the 60 Day Rule, if such funds are not repaid within 60 days of “identification,” on the 61^st day the failure to repay becomes a “false” claim” under the FCA.

Unfortunately, Congress did not define the term “identification” in FERA or the ACA, which left whistleblowers, the government, and providers uncertain as to when a potential overpayment would be considered “identified” for purposes of the FCA. Specifically, while the government and whistleblowers proposed that an overpayment was “identified” at the first indication there might be an overpayment, providers proffered that an overpayment could not be “identified” until it had been expressly verified with the exact amount of the overpayment determined.  This debate ultimately came to a head in U.S. ex rel. Kane v. Continuum Health System, an FCA case brought in the Southern District of New York in which the whistleblower claimed that the Continuum Health System (Continuum) failed to timely “identify” certain overpayments that had been accidentally made to Continuum as a result of a software glitch. In that case (in which, in full disclosure, your author was one of the attorneys representing Continuum), SDNY District Judge Ramos held, in denying Continuum’s Motion to Dismiss, that an overpayment is “identified” (so as to start the 60-day clock) when a provider is put “on notice” of a potential overpayment and that where there is an “established duty” to pay money to the government, FCA liability will attach even if the precise amount due has yet to be determined. In so holding, the Court held that Continuum’s alleged failure to act quickly enough to report and return overpayments could have fallen outside the “60-day” period, and thus, that the case could not be dismissed pre-discovery.

CMS Issues “Provider Friendly” Final Rule That Broadens Definition of “Identified” and Extends Time For Returning Overpayments in “Extraordinary Circumstances“

A few months after the Court’s decision in the Continuum case, in February 2016, CMS issued a new final rule (42 C.F.R. § 401.305) that adopted a more provider-friendly interpretation of the term “identified.” In the Final Rule, CMS expressly disavowed the “all deliberate speed” benchmark that had previously been proposed for adoption, and instead established that providers must refund overpayments no more than 60 days after the amount of the overpayment is quantified if the entity acted with “reasonable diligence, which is demonstrated through the timely, good faith investigation of credible information which is at most 6 months from receipt of the credible information, except in extraordinary circumstances.”  If an entity does not act with “reasonable diligence,” however, overpayments must be returned within 60 days after the entity “learned” that an overpayment “may have” occurred.”

Critically for our current purposes, CMS’s comments to the Final Rule go on to state that “a total of 8 months (6 months for timely investigation and 2 months for reporting and returning) is a reasonable amount of time, absent extraordinary circumstances affecting the provider, supplier, or their community.”  Id. at 7662 (emphasis added). According to CMS, “[w]hat constitutes extraordinary circumstances is a fact specific question” but that it “may include . . . natural disasters or a state of emergency.”  Id.

Given this explicit language, savvy healthcare attorneys (like the partners of AEL, for example) will argue that the present circumstances – a global pandemic and a declared national state of emergency – constitutes “extraordinary circumstances” permitting providers additional time beyond the ordinary “8 month period” for investigating, reporting, and returning overpayments, without fear of “reverse” false claims act liability.  We think that a reasonable interpretation under the circumstances would be that the 8-month period was “tolled” as of March 13, 2020, the day “President” Trump announced the state of emergency, and that once that declaration is lifted, the period for investigating, reporting, and returning overpayments would resume.

So, fear not, healthcare provider friends — for while the potential liability for “reverse” false claims can be quite high, there is an argument that the time periods you have to investigate, report, and return overpayments appear, by the plain language of the applicable rule, to be extended during the current state of emergency.  Those ongoing internal investigations into overpayments can thus go on the “back burner” while you focus on the more pressing matters of coronavirus response and direct patient care, and can come back to the fore once the current state of national emergency is lifted (at which point, if you need the assistance of expert outside counsel experienced in internal overpayment investigations and disclosures, AEL will be happy to assist!).

On the heels of CMS’s “blanket” waivers (the “Blanket Waivers”) of Stark Law enforcement during the COVID-19 crisis (about which we wrote about on March 31, 2020 below), the HHS Office of Inspector General (“OIG”) – the federal agency responsible for the Anti-Kickback Statute (“AKS”) – has issued a Policy Statement announcing that it will not impose administrative sanctions for certain financial arrangements related to COVID-19 services that are exempted from Stark Law liability under the Blanket Waivers but which might still run afoul of the AKS.  

In its Statement, OIG recognized how crucial it is for the healthcare industry to focus on delivering efficient and effective patient-care services during the COVID-19 crisis, which may require parties to enter into arrangements that might not otherwise neatly fit within an AKS “safe harbor.” To avoid the need for parties to “undertake a separate legal review under the [AKS] for” financial arrangements protected by the Blanket Waivers, OIG has agreed to exercise “enforcement discretion” and refrain from imposing administrative sanctions under the AKS with respect to any remuneration between parties that is “exempted” from Stark law liability by sections II.B.(1) through (11) of the Blanket Waivers. For administrative efficiency, all of the conditions and definitions that apply to the Blanket Waivers shall apply to the OIG policy.

Notably, this policy does not apply to remuneration associated with referrals described in sections II.B.(12)-(17) of the Blanket Waivers, for which OIG is asking parties to submit questions to [email protected] for further guidance.  This policy also has no bearing on arrangements that implicate the AKS that are not covered by the Blanket Waivers, such as direct financial relationships between pharmaceutical or device manufacturers and physicians or between providers where there is no physician involved. It should also be noted that this policy only applies to conduct occurring on or after April 3, 2020 and that it shall terminate on the same date as the date that the Blanket Waivers terminate. As expected, the government continues to issue waivers, guidance, and changes to healthcare law and policy at a rapid rate as the COVID-19 crisis continues to test and strain national healthcare resources.  If you have any questions about this policy or any other policy changes, or wish to submit questions to OIG regarding any COVID-19 related arrangements, please contact us at [email protected] or call us at (646) 970-7340 and we will be happy to assist you.