FCA Now

A federal judge recently ruled that submission of electronic data to the government can, under appropriate circumstances, give rise to liability under the False Claims Act. In U.S. ex rel. Marc Silver et al. v. Omnicare Inc. et al., 1:11-cv-01326 (D.N.J. Apr. 13, 2021), U.S. District Court Judge Noel C. Hillman granted a relator’s motion to amend his complaint to assert FCA claims premised on the submission of patient prescription data to state and federal agencies administering Medicaid and Medicare reimbursements. Order, ECF No. 544. According to the amendments, the lawsuit arose out of an alleged “swapping” scheme. See generally Fourth Amend. Compl. (“Amended Complaint”), ECF No. 548. Defendants, providers of pharmacy services to nursing homes, allegedly offered commercially unreasonable prices to nursing homes for their Medicare Part A patients’ prescription drugs in exchange for the opportunity to provide the same drugs—at significantly higher cost—to the nursing homes’ Medicaid and Medicare Part D patients. Id. ¶¶ 4-8. Relator alleged that defendants’ conduct was an illegal “swapping” arrangement prohibited by the Anti-Kickback Statute, among other laws. Id. The “swapping” scheme framed the alleged false claims. The Amended Complaint alleged that when defendants dispensed drugs to Medicare Part D beneficiaries, they submitted claims to those beneficiaries’ Part D Plan Sponsors. Id. ¶¶ 59-87. Defendants also certified that (1) they knew their claims would be used to seek federal funds and (2) they had complied with applicable laws. Id. The Part D Plan Sponsors then allegedly used defendants’ claims to notify CMS that prescriptions had been dispensed by submitting a document known as a “prescription drug event” (“PDE”). Id. CMS relied on those PDEs to reimburse the Part D Plan Sponsors, which reimbursed the defendants. Id. Medicaid has a similar reimbursement structure involving state agencies. Id. ¶ 244. Against that alleged factual backdrop, the defendants argued Relator’s amendments were futile and his motion to amend should be denied because Relator could not prove that defendants presented a claim, let alone a false claim. The court disagreed, issuing an Opinion that found the PDEs were “claims for payment” under the False Claims Act. Order at 17-20. The court began by observing that other courts had concluded that PDEs “clearly” were claims for payment because they were the “only record . . . that triggers CMS’s payment obligation” for reimbursement of Medicare Part D patients’ prescriptions drugs. Id. at 18 (citations omitted). The court concluded that the same analysis applied to data submissions to state agencies in connection with Medicaid reimbursement. Id. at 19-20. Next, the court ruled that PDEs allegedly tainted by kickbacks were “false” claims that could give rise to liability under the False Claims Act. Id. at 20-23. The court rejected the defendants’ argument that the PDEs were not “false” because they contained accurate information regarding the underlying drug prescriptions. Id. at 22-23. The court observed that “[a] claim is ‘legally false’ when the claimant misrepresents that he or she has complied with ‘statutory, regulatory, or contractual requirement[s].’” Id. at 20 (citation omitted). Since Relator alleged that the defendants had made that representation—while simultaneously participating in an allegedly illegal “swapping” scheme—Relator sufficiently alleged the PDEs were “false” claims under the FCA. Id. at 23. The case serves as a reminder of the often contentious battles between parties in FCA litigation over whether claims for payment have truly been presented and, if so, whether such claims are indeed false.  Moreover, the Opinion emphasizes that the submission of records and data—like PDEs—may constitute claims even if they are not labeled as such, and, according to the court, claims tainted by kickback schemes can be false.

The False Claims Act (“FCA”) is an ever-present concern among health care providers and counsel, which is why it is no surprise that the Department of Health and Human Services' (HHS) recent “Regulatory Sprint to Coordinated Care” may impact FCA enforcement trends.  Dorsey’s Health Law Blog team has been closely monitoring the “Regulatory Sprint,” including the sweeping set of proposed regulations issued by the HHS Office of Inspector General (“OIG”) and Centers for Medicare & Medicaid Services (“CMS”) that introduce significant new value-based terminology, safe harbors and exceptions to the federal anti-kickback statute (“AKS”) and federal physician self-referral law (“Stark Law”), respectively. These developments are of note for potential FCA enforcement trends, particularly because the AKS provides that a claim that includes items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the FCA.  Further, the federal government and qui tam relators are increasingly pursuing alleged violations of the Stark Law under the FCA, based on arguments, for example, that claims submitted in violation of the Stark Law are false claims for FCA purposes.  The new proposed AKS safe harbors and Stark exceptions and policy clarifications from the agencies that are intended to ease compliance burdens may potentially lead to fewer alleged violations of non-compliance with these laws, and thus fewer FCA actions based on non-compliance with them. To read more about the Regulatory Sprint, Dorsey’s FCA Now blog is pleased to refer you to Dorsey’s Health Law Blog landing page for an overview and link to further resources.

For those who pay close attention to FCA settlements, the January 22 press release from the United States Attorney for the Southern District of New York of a $60 million settlement against Walgreens related to its Prescription Savings Club (“PSC”) program should not come as a complete surprise. In an earlier press release, almost two years ago to the day, the Southern District of New York announced a $50 million settlement with Walgreens for paying kickbacks to induce beneficiaries of government healthcare programs under its PSC program to fill their prescriptions at Walgreens’ pharmacies. The prior 2017 action was filed by relator Marc D. Baker and then settled after the government intervened. But the 2017 settlement agreement did not release all claims, indicating the $50 million price tag was just a down payment for a final resolution down the road. The non-released claims, however, remained unknown because that portion of the agreement was redacted. Two years later, we finally know the claims plaintiffs’ reserved and what appears to be the resolution of Baker’s qui tam action against Walgreens. That is, to resolve Baker’s complaint against Walgreen’s PSC program, the Department of Justice announced a $60 million settlement with Walgreens, because Walgreens “submit[ed] claims to Medicaid programs of 39 states and the District of Columbia (collectively, “States”) in which the prices it identified as the usual and customary (“U&C”) prices for certain prescription drugs that it sold through the PSC program were higher than the prices it charged for those drugs pursuant to the PSC program and thereby . . . obtaining more money in reimbursements from the States’ Medicaid programs for sales of such drugs than it was entitled to receive.” This time the 2019 settlement agreement is unredacted, revealing the language—the last sentence of paragraph six in both agreements—that was presumably redacted in the 2017 agreement. Together, Walgreens will have paid $110 million in settlements as a result of Relator Baker’s claims. The saying goes that lightning never strikes the same place twice, but that’s not the case when a relator reserves claims in a settlement agreement. It just may take a while—in this case, two years—for the bolt to strike the second time.

Federal scrutiny of charities that assist patients with accessing prescription drugs has increased with rising prescription drug prices.  Some prescription drug charities receive funding from medical providers or drug manufacturers, which can raise questions about whether the charities’ funders are using the charities to generate improper recommendations or referrals. In December 2017, the U.S. Department of Health and Human Services Office of Inspector General rescinded a 2006 advisory opinion that had assured a patient-assistance charity that its subsidies for individuals’ prescription drug purchases would not subject it to federal Anti-Kickback Statute liability. The OIG’s rescission could signal shifting federal policy towards increased scrutiny of drug charities funded by drug manufacturers. Amidst these changes, a new decision from the U.S. Court of Appeals for the Third Circuit is a good reminder that AKS compliance issues do not automatically translate into FCA violations. In United States ex rel. Greenfield v. Medco Health Sols., Inc., --- F.3d ‑‑‑‑, 2018 WL 473158, at *1 (3d Cir. Jan. 19, 2018), the court held that an FCA claim premised on an AKS violation must show that a particular patient was exposed to an illegal recommendation or referral and that a claim for payment for care for that patient was submitted to the government. Medco concerned Accredo Health Group, Inc., a specialty pharmacy servicing patients with hemophilia. Accredo supported hemophilia charities, two of which allegedly recommended Accredo as a preferred provider through communications to their members. The relator alleged that this amounted to an AKS violation, which gave rise to an FCA claim because Accredo had certified compliance with the AKS when submitting its reimbursement claims to government payors. Accredo successfully argued to the trial court that the relator’s claim failed because he could not show any evidence that any beneficiaries of federal programs chose Accredo because of its alleged improper payments to the charities. On appeal, the relator argued that this amounted to a requirement that he show each patient subjectively sought Accredo’s care because of Accredo’s charitable donations. The court in Medco set out to identify “what ‘link’ is sufficient to connect an alleged kickback scheme to a subsequent claim for reimbursement: a direct causal link, no link at all, or something in between.” The United States, as amicus curiae in support of neither party, urged the court to hold that no proof of a patient’s subjective intent to utilize Accredo because of the charities’ recommendation was required to establish an FCA violation. The court agreed, holding that proof of an FCA violation required evidence that at least one of Accredo’s claims sought reimbursement for care provided in violation of the AKS, but that a patient’s subjective reason for choosing Accredo need not be proven. Nevertheless, the referral or recommendation that violated the AKS must be the referral or recommendation that resulted in the false claim. The court held the relator had failed to show that any of Accredo’s 24 federally insured patients were exposed to the recommendation of the hemophilia charities or that they were even members of the charities. The court explained that “[a] kickback does not morph into a false claim unless a particular patient is exposed to an illegal recommendation or referral and a provider submits a claim for reimbursement pertaining to that patient.” The court rejected the relator’s request that the court infer the patients were members of the charities based on the relator’s assertion that “[e]ssentially all hemophelics” in the geographic area Accredo served were members of the charities to which Accredo donated. This inference was not enough because it was impossible to rule out the chance that none of the patients was a member and that none was exposed to the charities’ recommendation. Thus, the relator’s evidence failed to “link Accredo’s alleged kickback scheme to any particular claim” and so Accredo did not face FCA liability. The court pointed out several issues it did not address in its opinion. It expressed no view as to whether Accredo’s relationship with the charities was an AKS violation in the first place. Nor did the court reach the issues of whether the relator could satisfy the FCA’s materiality requirement, even if he had shown a link between the patients exposed to the charities’ recommendation and Accredo’s claims. And although not addressed by the court, the low number of federally insured patients at issue—24—means the court did not have an opportunity to address claims against a provider who services a large number of federally insured patients. Medco does not explain what evidence would be sufficient to show at least one of a large number of patients were exposed to an improper referral or recommendation. Still, the Medco decision is a useful reminder that the AKS and FCA have separate elements, and an AKS violation does not automatically translate to FCA liability.  Organizations in the healthcare space--particularly charities--should take heed.

Under 42 U.S.C. § 1320a-7b(b)(1)(A) it is a felony for a physician to solicit or receive a kickback “in return for referring” a Medicaid or Medicare patient to another medical provider. But as a recent decision by the Eighth Circuit in United States v. Iqbal demonstrates, physicians are not the only ones capable of making illegal referrals under the statute—consultants can, too. Defendant Iqbal was a consultant that managed a group of physicians. He approached a medical provider (“PCP,” a home care agency) with a profit-splitting scheme: he would send physicians’ patients to PCP in exchange for fifty-percent of PCP’s profits for serving the patient. PCP contacted authorities about the scheme and thereafter accepted Iqbal’s proposal while working undercover with authorities. The sting operation resulted, at first, in a March 2011 meeting between Iqbal and PCP. At that meeting Iqbal touted his strong relationship with the group of physicians and his ability to refer their patients to PCP, and reiterated his fifty-fifty profit sharing scheme to which PCP agreed. Iqbal’s physicians later referred two patients to PCP, which PCP served and received Medicaid and Medicare reimbursement. PCP sent Iqbal separate payments in June and August for his fifty-percent share of the profits that PCP made from serving the two patients. Iqbal was charged with three counts of illegal kickbacks: One, for soliciting illegal kickbacks during his March 2011 meeting with PCP; Two, for receiving an illegal kickback in June; and Three, for receiving an illegal kickback in August. All three counts were “in return for referring” patients to PCP under § 1320a-7b(b)(1)(A). Iqbal challenged the sufficiency of the evidence, and conceded that the statutory phrase “in return for referring” meant that one must cause or induce the referral. The two-judge majority willingly assumed as much, declined to interpret the statute any narrower, and found the evidence sufficient to affirm his convictions. Although the majority’s reasoning was not surprising, Judge Kelly in a partial dissent and concurrence took up the task of interpreting the statutory phrase, “in return for referring.” The Eighth Circuit had not previously defined the term. Judge Kelly relied on cases from other circuits in similar contexts to adopt the interpretation “that a person refers an individual for a service only when, as a practical matter, the person exercises decision-making control over the selection of the service provider.” As a result, Judge Kelly utilized a narrower definition than Iqbal and the majority. Under that definition, Judge Kelly found insufficient evidence to affirm Iqbal’s convictions for receiving a kickback for referring the two patients, because the government failed to show that Iqbal exercised decision-making control over the physicians’ referrals. Judge Kelly, however, affirmed Iqbal’s conviction for soliciting a kickback during his March meeting with PCP because Iqbal held himself out to PCP as having the ability to make the referrals, regardless of his actual ability to do so. So physicians, consultants, and everyone in between dealing with Medicaid and Medicare patients should keep in mind that while decision-making control over a referral is likely necessary evidence to prove a “referral” in return for an illegal kickback, solicitations do not require such decision-making control. All that is required is representing that one has the ability to do so.

On January 6, 2017, two new safe harbors to the federal anti-kickback statute (the “AKS”) will become effective pursuant to a final rule published by the United States Department of Health and Human Services Office of the Inspector General (the “OIG”) on December 7, 2016. The final rule also codifies safe harbors for certain AKS exceptions and makes a technical correction to the existing safe harbor for referral services.  The OIG is authorized to promulgate safe harbors to protect various business arrangements from criminal prosecution under the AKS even though the arrangements potentially may be capable of inducing referrals of federal health care program business.  The final rule as published in the Federal Register is available here. New Safe Harbors Created The two new safe harbors share a focus on making medical-related transportation more affordable. The first new safe harbor protects reductions or waivers of a federal health care program beneficiary’s obligation to pay copayment, coinsurance or deductible (“cost-sharing”) amounts for emergency ambulance services provided by a state-, municipality- or tribal-owned ambulance supplier and paid for under a fee-for-service payment system if specified requirements are satisfied (e.g., the reduction or waiver must be offered on a uniform basis to all residents, tribal members or transported individuals). See 42 C.F.R. § 1001.952(k)(4).  The second new safe harbor protects free or discounted local transportation provided by an “eligible entity” (i.e., any individual or entity, except for individuals or entities that primarily supply health care items) to federal health care beneficiaries in the form of a “shuttle service” if certain conditions are met. See 42 C.F.R. § 1001.952(bb). AKS Exceptions Codified as Safe Harbors The final rule also protects certain pharmacy reductions or waivers of cost-sharing amounts (see 42 C.F.R. § 1001.952(k)(3)), remuneration between a federally qualified health center (“FQHC”) and a Medicare Advantage (“MA”) organization and (see 42 C.F.R. § 1001.952(z)), and discounts by manufacturers on drugs furnished to beneficiaries under the Medicare Coverage Gap Discount Program (see 42 C.F.R. § 1001.952(aa)). Focus on Safe Harbor for Pharmacy Cost-Sharing Waivers While all of the safe harbors are noteworthy, some additional commentary on the scope and requirements of the safe harbor for pharmacy cost-sharing waivers is warranted. First, the scope of the final rule’s pharmacy cost-sharing waiver safe harbor includes both the Medicare Part D program and the Medicaid program, whereas the similar AKS statutory exception covers only Medicare Part D. Second, the OIG clarified in its comments to the final rule that the safe harbor requirement that the reduction or waiver not be part of an “advertisement or solicitation” would be violated by a pharmacy posting information on its Web site regarding the reduction or wavier, but generally would not be violated by responding to an inquiry from a particular patient in person. Third, with respect to the safe harbor requirement that the reduction or waiver not be “routine,” the OIG stated in its comments that what is “routine” depends on the facts and circumstances of a particular case but that giving a reduction or waiver could be common enough without being automatic and still be routine. Fourth, the OIG declined to specify any particular method of determining whether a beneficiary has a “financial need,” permitting pharmacies flexibility, by way of examples, to use a multiple of the poverty guidelines or to use a combination of the poverty guidelines plus family medical expenses. The key to satisfying the requirement is that the pharmacy must apply a reasonable determination method of financial need uniformly. And while not requiring a written policy describing the pharmacy’s determination method, the OIG did say that having such a written policy, along with evidence that the policy was followed, would be “useful” in asserting the safe harbor’s protection. Fifth, if a patient is not in financial need then the pharmacy must make “reasonable collection efforts” before waiving the cost-sharing amount. The OIG recognized in its comments that the amount of the copayment or the historical inability to collect from a particular patient might be factors in a pharmacy’s decision regarding what collection efforts to take. However, a preemptive decision by a pharmacy not to request payment from, or not to pursue any collection efforts regarding, a particular patient would not satisfy this requirement. Parties intending to fit within a particular safe harbor are advised to review all of the applicable requirements. In addition, as illustrated by the discussion of the safe harbor for pharmacy cost-sharing waivers above, reviewing the OIG’s responses to comments in the final rule can help interpret the regulatory language.