The Anti-Kickback Statute


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

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The Anti-Kickback Statute

  1. 1. E^^ 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 Law Office of William Mack Copeland, LLC 513-574-5598
  2. 2. 2 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. Law Office of William Mack Copeland, LLC 513-574-5598
  3. 3. '3 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. Law Office of William Mack Copeland, LLC 513-574-5598
  4. 4. N 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 Law Office of William Mack Copeland, LLC 513-574-5598
  5. 5. 5 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. Law Office of William Mack Copeland, LLC 513-574-5598
  6. 6. ra 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. You can reprint any part of this newsletter by providing the following acknowledgement: quot;Reprinted with permission. William Mack Copeland, .quot; 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. Law Office of William Mack Copeland, LLC 513-574-5598