Discusses the Federal Anti-Kickback Statute and its Implications for the Federal Civil False Claims

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BILL COPELAND'S
HEALTH LAW INSIGHTS
Spring 2008
The Medicare and Medicaid Anti-Kickback Statute and its Implications for the
Federal Civil False Claims Act
As you are no doubt aware, the United States District Court for the Southern
District of Ohio recently unsealed a whistler-blower suit naming The Christ Hospital,
The Health Alliance of Greater Cincinnati and The Ohio Heart Health Center as
defendants. The Department of Justice has intervened in the suit and plans to file its
own suit.
The suit alleges improper financial incentives in the form of kickbacks to
cardiologists in exchange for generating revenue for the hospital. The whistle-blower in
the case is a cardiologist who is not a member of The Ohio Heart Health Center.
In addition to The Christ Hospital case, the United States Attorney for the
Northern District of Texas announced on March 17, 2008 that his office has entered into
a settlement agreement with Hardeman Memorial Hospital to resolve a False Claims
Act case involving kickbacks in the form of an improper lease arrangement with a
physician on the hospital's staff.
With these cases in mind, I would like to review both the False Claims Act and
the Anti-Kickback Statute and how they interface. First, let us review the False Claims
Act.
The Federal False Claims Act (quot;FCAquot;) is a federal statute that prohibits,
among other things, anyone from presenting a false or fraudulent claim for payment to
the Federal Government, or causing the use of a false record to get a claim paid by the
Federal Government. In the health care context, this would include billing for work not
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performed, upcoding, billing for unnecessary services, and even billing for services that
were obtained in violation of other regulations (such as the anti-kickback statute).
The FCA provides a financial incentive for people with knowledge of false claims
against the Federal Government to come forward. It does so by awarding a successful
relator (the plaintiff in a FCA case) with between 15-30% of any recovery from a
defendant.
The relator files a FCA suit (also called a quot;qui tamquot; suit) on behalf of the United
States. It is filed under seal (not a public document), along with a disclosure statement
providing evidence to the government.
While under seal, the government investigates the allegations, and decides
whether to intervene. During this period, the defendant may not even be aware of the
case. If the government intervenes, the government is the primary prosecutor (although
the relator still has input), and the relator receives 15-25% of any recovery. If the
government does not intervene, the relator can still go forward with the suit and, if
successful, receives 25-30% of any recovery.
To prove an FCA violation, the relator must show that the defendant was
responsible for a false claim to the Federal Government. The relator initially presents
this evidence in a quot;disclosure statement,quot; submitted to the Government when the
complaint is filed. This disclosure statement sets forth all of the evidence the relator
possesses regarding the false claim, and generally points the Government to additional
persons or documents that would substantiate the allegations.
The evidence provided needs to be as detailed as possible. It is not sufficient to
base a complaint on rumors of wrongdoing; there should be specific allegations
showing the time, date, place and content of any false claim. It is also helpful to have
documentation supporting the allegations.
The false claim must be shown by the civil standard - preponderance of the
evidence (more likely than not); it does not have to be shown by the criminal standard -
beyond a reasonable doubt. The relator does not have to show specific intent to
defraud. The statute defines quot;knowinglyquot; to include acting with quot;deliberate ignorancequot;
or quot;reckless disregardquot; of the truth or falsity of the information.
The 1986 amendments to the FCA clarified and relaxed these burdens of proof, in
part to prevent the ostrich or quot;head in the sandquot; defense. For example, a physician
signing off on a HCFA 1500 form would find it difficult to defend an FCA violation by
claiming that he knew nothing of the billing practice and left it all to his staff.
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Anyone with knowledge of the illegal conduct can bring an FCA suit. This is
often a current or former employee of a defendant. However, if the relator quot;planned
and initiatedquot; the false claims violation, the award to the relator may be reduced; if the
relator is criminally convicted for his or her role, they must be dismissed from the suit.
However, there are limits on bringing an FCA suit; you must bring the case six
years from the date of the false claim, or within three years after the Government knows
or should have known of the false claim, but in no event later than ten years after the
false claim. In addition, if the allegations in the FCA suit were already quot;publicly
disclosed,quot; the relator has to be the quot;original sourcequot; of the allegations who brought the
information to the Government before filing an action. One cannot bring an FCA suit
where the allegations are already the subject of a civil suit or administrative civil
monetary penalty proceeding where the Government is a party.
Filing a suit is not without risk, however. Once the Government decides
whether to intervene, the case is unsealed. At that point, service of the complaint is
made on the defendant and the defendant knows the identity of the relator. This may
lead to retaliation by a defendant. However, a section of the FCA provides strong
protections for whistleblowers; whether or not the relator proves the underlying FCA
violation, this provision provides significant protection to the relator. In addition, if the
defendant prevails in the suit, and the court finds the suit was clearly frivolous,
vexatious or brought for harassment, then the court may find the relator liable for the
defendant's expenses and fees.
The original 1863 False Claims Act provided for civil penalties of $2,000 per
claim. Adjusted for inflation, that is $41,000 in 2007 dollars. Currently, civil penalties
are $5,500 to $11,000 per false claim. 1 Since 1986 when the False Claims Act was
amended, lawsuits under the False Claims Act have returned $20 billion to the US
Treasury, $2 billion in 2007. Whistle-blower lawsuits resulted in $1.45 billion of the
2007 amount.'
Health care fraud has become one of the primary targets of FCA suits. Not only
has the number of FCA cases risen dramatically since 1986, but also there is a distinct
trend toward health care fraud cases. In 1994, only 18% of the cases involved health
care fraud; of the current cases, in excess of 50% involve health care fraud.
1
Taxpayers Against Fraud, False Claims Act Update and Alert, April 15, 2008.
' Sen. Charles Grassley, Press Release, November 1, 2007.
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The Medicare/Medicaid Fraud and Abuse Anti-Kickback Statute (the quot;Statutequot;)
provides that the offer or payment, as well as the solicitation or receipt, of quot;any
remunerationquot; in exchange for referrals of any good, facility, service, or item for which
payment may be made in whole or in part under Medicare/Medicaid is prohibited.
The prohibited activity is a two way street, and both the payer and the receiver
are equally culpable. The definition of remuneration, however, is a gray area. While the
Statute provides that remuneration includes quot;any kickback, bribe or rebate,quot; it does not
define these terms. Further, there is a prohibition against remuneration quot;directly or
indirectly, overtly or covertly, in cash or in kind.quot;
Clearly, direct cash payments in exchange for referrals violate the Statute. What
is less clear, however, is what constitutes quot;indirect payments.quot;
To date, the courts have interpreted the Statute in a very expansive manner. If
remuneration flows from one party to another and if referrals (or the opportunity to
provide goods and services) flow back, the potential for criminal prosecution exists
regardless of the presence of good business reasons for the venture.
Paying for referrals, directly or indirectly, overtly or covertly, violates the
Statute. Changing the form of the payment will make it no less a violation.
The Medicare and Medicaid Patient and Program Protection Act of 1987
modifies the criminal provisions of the Statute by requiring the promulgation of
regulations (the quot;Safe Harborsquot;) specifying those payment practices that will not be
subject to criminal prosecution and that will not provide a basis for civil monetary
penalties or exclusion from the Medicare or Medicaid programs.
Strict compliance with the criteria for each applicable Safe Harbor is necessary to
obtain immunity under these rules. In other words, to comply with a Safe Harbor and
escape enforcement, one must meet all criteria for the particular Safe Harbor. However,
it is important to note that failure to comply fully with a Safe Harbor's criteria does not
necessarily mean that a particular practice or arrangement violates the Statute. The OIG
will evaluate activities that fail to meet Safe Harbor requirements on their own merits
for compliance with the Statute.
Please note that under the rules, payment is not the important element. Intent to
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induce a referral is the key factor.
It is very important to be sure you are in strict compliance with the anti-kickback
safe harbors that are appropriate to the transaction. Failure to do so can result in
substantial legal penalties (even if a criminal trial finds you not guilty) if the authorities
decide to pursue an investigation. In the Alvarado case in San Diego last year the
hospital and its CEO have had to bear the cost of two criminal trials and an exclusion
action.
In addition, let us not forget civil monetary penalties: In the March 2008 case of
Hardeman County Memorial Hospital, Texas, referenced above, the hospital agreed to
pay $398,230.56 to resolve its liability under the civil monetary penalties provisions
applicable to kickbacks. The hospital leased space to a physician at a rate below fair
market value.3
Violation of the anti-kickback statute is a sufficient basis for an action under the
False Claims Act. In the case of McLaren Regional Medical Center, Illinois, a
whistleblower brought an action under the Federal False Claims Act, alleging that
defendants, McLaren and Family Orthopedic violated the Statute by disguising
kickbacks for both physical therapy and occupational therapy as lease payments
between the parties. The district court, while finding that the lease agreement was an
arms length transaction and was consistent with fair market value nevertheless held
that violation of the Statute was basis for a False Claims Act case
The lesson here is if you are going to engage in these activities, it is
i mperative that you play by the rules. The San Diego case brings to mind the
Kansas City case of not too long ago. In that case, after a nine-week trial in the
federal district court, a jury found two physicians and two hospital executives guilty of
violating the Statute. The physicians were members of a medical group that provided
care to patients in nursing homes. Medicare covered most of these patients.
On several occasions, clients have asked that I structure transactions that
obviously implicate the statute so that they are legal. My response is that there is no
way to rob a bank legally, and, likewise, no way to make violations of the statute legal,
except, by following the safe harbors to the letter.
3
United States Attorney Northern District of Texas, Press Release, March 17, 2008.
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I have seen a definite increase in ventures between parties where there is a
referral relationship. It is extremely important that competent counsel practicing in the
fraud and abuse area review these ventures to ensure that no violation of the Statute
exists. Improper structure can have catastrophic consequences.
© 2008 William Mack Copeland.
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The information contained in this newsletter does not constitute legal advice. No claims, promises
or guarantees about the accuracy, completeness, or adequacy of the information contained
herein. As legal advice must be tailored to the specific circumstances of each case, and laws are
constantly changing, nothing provided herein should be used as a substitute for the advice of
competent counsel.
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