The document summarizes recent legal developments from Supreme Court decisions and appellate court rulings that have implications for healthcare providers. Key points include: the Supreme Court ruling in North Carolina Board of Dental Examiners v. FTC that state licensing boards composed primarily of market participants do not enjoy automatic antitrust immunity; developments in case law around the False Claims Act and what constitutes a "claim"; and implications of cases related to the Anti-Kickback Statute and Stark Law on compensation arrangements between physicians and healthcare entities.

1. AAFP
2015 State Legislative Conference
Appellate Decisions and Other Recent Legal Developments –
Implications for Healthcare Providers
Thomas W. Beimers
November 5, 2015
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2. Supreme Court Decisions
►North Carolina Board of Dental Examiners v. FTC
► Holding: State licensing boards composed of market participants do not
enjoy automatic immunity from antitrust laws.
► North Carolina had delegated regulation of dentists to a dental board.
By state law, dentists were to fill majority of board seats.
► This type of “self regulation” is common among state licensing boards.
Commentators have noted that it tends to be anti-competitive.
► Board attempted to exclude non-dentists from performing teeth-
whitening services. Sent threatening letters and encouraged mall
operators to prohibit kiosk services.
► FTC brought action against board. FTC argued that state immunity
doctrine requires supervision by state. Because of wholesale
delegation, board was not entitled to immunity. Supreme Court agreed.
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3. Supreme Court Decisions, cont.
►Armstrong v. Exceptional Child Center, Inc.
►Holding: Private healthcare providers cannot sue to challenge
Medicaid reimbursement rates
►Idaho State Medicaid plan provided for “habilitation services”. Section
30(A) of Medicaid Act requires that state plans “assure that payments
are consistent with efficiency, economy, and quality of care” while
“safeguarding against unnecessary utilization of . . . care and
services”
► Court ruled that standard was “judicially unadministrable”
► “difficult to imagine a requirement broader and less specific”
► Provider’s sole remedy is to petition Secretary of HHS
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4. Supreme Court Decisions, cont.
►King v. Burwell
►Holding: Plaintiffs’ proposed interpretation is contrary to overall
statutory scheme and would create problem statute sought to avoid
►Suit challenged federal government's provision of tax credits
(subsidies) to help low- and middle-income people afford health
insurance premiums in states that didn't set up marketplace
► Focused on language of 36B: “Established by the state”
► 34 states refused to establish exchanges
►21 amicus briefs supporting plaintiffs; 34 supporting government
►“Congress passed the affordable care act to improve health insurance
markets, not destroy them.”
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5. Supreme Court Decisions, cont.
► Sorrell v. IMS Health Inc. (2011)
► Holding: A Vermont statute that restricted the sale, disclosure, and use of
records that revealed the prescribing practices of individual doctors violated
the First Amendment.
► Vermont passed prescription confidentiality law in response to VT Medical
Society position that using prescribing history in marketing was intrusion into
the practice of medicine.
► Information was sold to companies by pharmacies without physician
consent
► State argued law should be reviewed as an economic regulation, not speech
► Commercial speech – state must justify restrictions as advancing substantial
governmental interest and not burden more speech than necessary
► Can’t discriminate based on content or viewpoint
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6. First Amendment Decisions/Off-Label Promotion
►Caronia – Sales rep convicted for promoting Xyrem for an off-label
use; Second Circuit overturned conviction
►Several manufacturers, including Allergan and Par, have made First
Amendment argument in context of False Claims Act investigation
►More recently, Amarin and Pacera filed affirmative lawsuits against
FDA to challenge enforcement of off-label restrictions in specific
context, claiming threat of enforcement actions impermissibly “chilled”
their speech
►In a landmark decision, Judge Engelmayer reached merits of First
Amendment argument and agreed with Amarin
► Court ruled that FDA was enjoined from prohibiting Amarin to promote
Vascepa for use in patients with persistently high triglycerides
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7. Other Appellate Decisions
►Perez v. Mortgage Bankers Association (Supreme Court 2015)
► Holding: Agency interpretive changes don't require rulemaking
►Adirondack Medical Center v. Burwell (D.C. Cir. 2015)
► Holding: Secretary acted within discretion in making reimbursement
adjustments for rural, sole community hospital
►Anna Jacque Hospital v. Burwell (D.C. Cir. 2015)
► Holding: Secretary's decision to alter geographic boundaries used to
compute regional wage index was reasonable application of precedent
in light of administrative difficulty in adopting alternative methodology
►Barrows v. Burwell (2d Cir. 2015)
► Holding: Court permitted Medicare beneficiaries to raise argument that
they have a property interest in their hospital admission status under the
Due Process Clause to the Constitution.
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8. False Claims Act (FCA) Background
►31 U.S.C. 3729
►“Lincoln’s Law”
►“False or fraudulent claim for payment or
approval” or “false record or statement
material to” such claim
►
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9. What is a claim?
►Examples include defense contracts, public
works contracts
►Medicare and Medicaid contracts
►Bicycle riders
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10. Consequences of a False Claim
►Liability up to (i) treble damages, (ii)
$11,000 per-claim penalty, (iii)
plaintiff’s attorneys’ fees
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11. The Real Threat
►31 U.S.C. 3730(b) “actions by private persons”
►31 U.S.C. 3730(c) “rights of the parties to Qui
Tam actions”
►31 U.S.C. 3730(d) “award to qui tam plaintiff”
►15 to 30% of proceeds
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12. Common Contractor (i.e., Defendant) Defenses
►F.R.C.P Rule 9(b) “particularity”
requirement
►“Public disclosure” bar
►“First-to-file” bar
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13. Was it a false claim?
►Traditional, classic false claims
►“Worthless services” claims
► U.S. ex rel. Absher v. Momence Meadows Nursing
Center, 764 F.3d 699 (7th Cir. 2014): contractor’s
services must be “truly worthless” to support FCA claim.
►Fraud through silence
► U.S. ex rel. Badr v. Triple Canopy, 2015 WL 105375 (4th
Cir. 2015): submitting invoice “impliedly” certifies
conformance with contract terms.
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14. Medicare & Medicaid FCA Cases
►What is a “referral” (triggering violation of Anti-Kickback
Statute)?
► U.S. v. Patel, 778 F.3d 607 (7th Cir. 2015): “referral” doesn’t mean-
-or require- “recommendation”
►Low rent can turn a Medicare claim into a false claim.
► E.g., Smart v. Christus Health, 626 F.Supp.2d 647 (S.D. Tex.),
aff’d 5th Cir., cert. den (U.S. 2014)
►So can gift baskets to physicians.
► U.S. ex rel. Robinson-Hill v. Nurses’ Registry & Home Health,
2015 WL 4394203 (E.D. Ky. 2015)
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15. Medicare & Medicaid FCA Cases continued
►Same for free parking.
► U.S. ex rel. Bingham v. BayCare Health System, 2015 WL 4878456 (M.D. Fla.
2015)
►But not violations of Medicare Conditions of Participation
► U.S. ex rel. Ortolano v. Amin Radiology, 2105 WL 403221 (M.D. Fla. 2015)
► No violation unless defendant knows gov’t doesn’t owe the claim.
►The “Reverse False Claim”
► “knowingly conceals or knowingly and improperly avoids and decreases an
obligation to pay ... money ... to the Gov’t.” 31 U.S.C. 3729(a)(1)(G)
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16. Medicare & Medicaid FCA Cases continued
►Medicare & Medicaid overpayments as reverse false claims
► When does an overpayment become a false claim?
►Sixty days after it’s “identified.” Affordable Care Act of 2010.
► When is it “identified”?
►When contractor has determined, or should have determined
“through … reasonable diligence” that it has an overpayment.
No requirement of certainty or determination of precise
amount.
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17. Medicare & Medicaid FCA Cases continued
►Application of 60-day rule in court
► U.S. ex rel. Kane v. Continuum Health Partners, 2015 WL
4619686 (S.D.N.Y. Aug. 2015)
►Software vendor glitch results in inadvertent billing Medicaid
approx. 900 times for approx. $1M total.
►Hospitals repaid, but delayed much longer than 60 days after
reasonable notice of overpayments.
►Federal court denied defendant’s motion to dismiss.
►Case goes forward, with potential liability to U.S. for triple the
federal share of the $1M overpayment, plus $9.9M (i.e., 900 X
$11K) and to N.Y. for triple its share of the $1M, plus $10.8M
(i.e., 900 X $12K), for grand total of approx. $23.7M.
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18. Anti-Kickback Statute (AKS)
►Prohibits the offer, payment, solicitation, or receipt of any
remuneration, directly or indirectly, covertly or overtly, in cash or in
kind, for:
► the referral of patients, or arranging for the referral of patients, for the
provision of items or services for which payment may be made under
government health care programs; or
► the purchase, lease, or order, or arranging for the purchase, lease, or
order, of any good, facility, service or item for which payment may be
made under government health care programs.
►Applies to all government health care programs, including Medicare
and Medicaid, but excluding the Federal Employees Health Benefit
Program
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19. Anti-Kickback Statute (AKS)
►Violation is a felony criminal offense, punishable by imprisonment of
up to five years, fines up to $25,000, or both
►All parties to the transaction may be sanctioned
►In addition, individuals or entities that violate the AKS are subject to
certain civil sanctions, including civil monetary penalties and exclusion
from the Medicare and Medicaid programs
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20. AKS Caselaw Developments
►United States ex rel. Riedel v. Health Diagnostic
Laboratory, Inc., et al., Case No. 1:11-CV-02308
(D.D.C.) (consolidated with two cases from D.S.C.)
►Government investigated “long-standing, industrywide
practice” of paying fees to doctors in connection with
drawing blood and processing and handling blood
samples sent to HDL for testing
►HDL settled for $50 million
►Company filed for Chapter 11 protection in April 2015
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21. AKS Caselaw Developments
►U.S. ex rel. Simmons v. Meridian Surgical Partners, LLC, 11-
cv-00439 (M.D. Tenn.)
►Relator was former manager of ASC
►Former manager claimed that Meridian bought out doctors’
interest in ASC at inflated value to obtain majority interest
►Whistleblower alleged that Meridian then offered minority
ownership shares in exchange for referrals
►Case settled for $5.1 million on eve of trial (Sept. 2014)
►Government did not intervene
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22. AKS Caselaw Developments
►U.S. ex rel. Barbetta v. DaVita, Inc. et al., No. 09-cv-02175-WJM-KMT
(D. Colo. 2014)
►Relators alleged that DaVita identified providers with patient
populations suffering renal disease and offered them lucrative
opportunities to partner with DaVita by acquiring and/or selling an
interest in dialysis clinics to which their patients would be referred for
treatment.
► DaVita allegedly ensured referrals through a series of secondary
agreements with the physicians, including non-compete and non-
disparagement agreements that would have prevented the
physicians from referring their patients to other dialysis providers.
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23. AKS Caselaw Developments
►Sanofi (D. Mass. 2012)
► Paid $109 million to settle allegations that company used samples of
Hyalgan as an inducement to purchase that product instead of
competing visco-supplementation products
► DOJ and OIG pursued individual physicians in follow-up enforcement
efforts
►Warner-Chilcott (D. Mass. 2015)
► Paid $125 million to settle allegations that company provided lavish
entertainment and provided free reimbursement and prior authorization
support as inducements for physician practices to use its products
► DOJ stated in press release that it would pursue individuals as part of
follow-on investigation
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24. The Stark Law – Basic Terms
• The Prohibitions
► Unless an exception applies
► if a physician (or an immediate family member) has a
financial relationship with an entity that furnishes designated
health services (DHS Entity), the physician is prohibited from
making a referral to the DHS Entity for designated health
services (DHS)
► a DHS Entity may not submit a claim or bill any payor for
DHS furnished pursuant to a prohibited referral
► no claim may be paid by Medicare that is for DHS
furnished pursuant to a prohibited referral
► if the claim is paid, the DHS Entity is required to refund the
payments
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25. The Stark Law – Basic Terms
► Financial relationships can arise from ownership/investment or compensation
arrangements
► Compensation arrangements arise from any remuneration to or from a physician, subject to
certain exceptions
► Financial relationships can be direct or indirect
• The Stark Law has many exceptions, including 24 compensation
exceptions
• There are compensation exceptions for:
► space leases
► equipment leases
► employment compensation
► personal services arrangements
► physician recruitment incentives and physician retention incentives and
► other common arrangements
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26. The Stark Law – Basic Terms
►Most of the compensation exceptions require that the compensation
to the physician be
► set in advance
► fair market value
► not be determined in a manner that takes into account the volume or value of
referrals or other business generated by the physician for the DHS Entity
(“volume/value standard”)
►Generally, the compensation exceptions require that the arrangement
► Be set forth in a writing signed by the parties
► Have a term of at least one year
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27. Stark Caselaw Developments
►U.S. ex rel. Reilly v. North Broward Health Dist., No. 0:10-cv-60590
(S.D. Fla. 2015)
► Defendant paid $69.5 million to settle whistleblower complaint
► Example of how NOT to structure physician comp
► Each of nine physicians received salary in 7 figures
► Some practices operated at a loss
► District lost $150 million between 2004 and 2011
► “Contribution Margin Report” tracked and rewarded referrals for services
such as radiology and PT
► System penalized physicians for taking on low-paying cases
► One of the physicians showed the contract to his attorney
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28. Stark Caselaw Developments
►United States ex rel. Payne v. Adventist Health Sys./Sunbelt, Inc.,
(W.D.N.C. 2015)
► System with 44 hospitals in 10 states
► Defendant to pay $118 million to federal and state governments
► Separate suits filed by COO and Risk Manager/Compliance Officer
► Plaintiffs claimed compensation for physicians, NPs, and PAs was above
FMV, was not commercially reasonable, and was based in substantial
part on the volume and value of inpatient and outpatient referrals to their
hospital employers
► Government alleged that the defendants paid above FMV compensation
for part-time or non-productive work and that excessive bonuses were
based upon inflated work relative value unit values
► Plaintiffs alleged that practice was part of strategy to control referrals
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29. Stark Caselaw Developments
►United States ex rel. Drakeford v. Tuomey (Tuomey II), No. 13-2219,
2015 U.S. App. LEXIS 11460 (4th Cir. July 2, 2015).
► Two federal court jury trials, two 4th Circuit appeals
► 4th Circuit upholds $237M judgment against Tuomey
► Tuomey appealed, raising
►Volume/value issue
►Scienter issue
►Jury instructions issue
►Size of the award unconstitutional - Eighth Amendment
(Excessive Fines) and Fifth Amendment (Due Process)
► Tuomey lost its appeal
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30. Stark Caselaw Developments
►Tuomey (cont’d)
► Tuomey had bad facts, but court’s analysis raises
concerns
► 4th Circuit handling of the volume/value issue means a
hospital can’t pay even an employed surgeon a
percentage of the physician’s professional collections if
the surgeries are performed in the hospital-employer’s
facilities
►Court did not recognize the true nature of Tuomey’s
volume/value problem; this absurd outcome was
avoidable
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31. Stark Caselaw Developments
►Tuomey (cont’d)
► Tuomey’s guilt/innocence turned on whether it knew or
should have known that its compensation to the
surgeons varied with or took into account the
volume/value of referrals
► Court held Tuomey had requisite scienter because of
one attorney’s negative opinion even though that
attorney did not comment on the volume/value issue
►Court should have focused on what Tuomey knew or
should have known about whether the compensation
offended the volume/value standard
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32. Stark Caselaw Developments
►Tuomey (cont’d)
► 4th Circuit’s constitutional analysis turned on a finding that
Tuomey’s conduct was “reprehensible,” claiming payment from
Medicare for services that Congress deemed to be medically
unnecessary and “worthless”
►Nothing in the Congressional Record supports the notion that
Congress thought that services furnished to Medicare
beneficiaries per Stark-prohibited referrals were worthless and
medically unnecessary
►CMS commentary indicates CMS does NOT take the position
that services furnished to Medicare beneficiaries per Stark-
prohibited referrals are medically unnecessary
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33. Stark Caselaw Developments
► Key lessons from Tuomey
► Stark/FCA cases involve dangerously high financial liability, perhaps too
dangerous to litigate unless settlement demand would put hospital out of
business
► Even a simple refund of Stark-based Medicare overpayments can be Draconian
► Err on the conservative side; or
► Get CMS advisory opinion (but note CMS will not opine on FMV)
► Assure that all attorneys consulted get all the relevant facts, including the
opinions and fact-finding of other attorneys
► Fully account for and address, in writing, negative opinions of counsel that are
not being followed (jury and court thought Tuomey too dismissive of one
attorney’s negative opinion)
► Fully inform the Board or applicable committee of all points of view on an
important legal issue raised by a transaction brought to them
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34. Thanks!
Thomas.Beimers@FaegreBD.com
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