Mapping The New Fraud And Abuse Landscape

Authors: Jacqueline Wolff, Partner, Co-Chair, Corporate Investigations & White Collar Defense, Manatt, Phelps & Phillips, LLP ; Robert Hussar, Counsel, Healthcare Industry, Manatt, Phelps & Phillips, LLP ; Daniele Capasso, Associate, Healthcare Industry, Manatt, Phelps & Phillips, LLP
EDITOR'S NOTE: The article below summarizes a detailed analysis of the fraud and abuse landscape—with insights into tracking trends, strengthening compliance and avoiding FCA actions--that appeared in a recent issue of Bloomberg BNA's "Health Care Fraud Report." To download the full article, click here.
In an age of increased government scrutiny and enforcement, providers, payers, pharmaceutical companies and medical device manufacturers, along with their business partners, must be mindful of the fraud and abuse laws regulating their business operations. The decade-long trend of huge settlements and broader, more sophisticated liability theories has continued this year, with the promise of more to come. To remain on course, it's critical for companies to develop and enhance robust compliance programs—and continually monitor the changing regulatory environment.
In the first half of 2013, the Department of Health and Human Services Office of Inspector General (OIG) expected recoveries of $3.8 billion, consisting of over $521 million in audit receivables and about $3.28 billion in investigative receivables. This includes $642.3 million in non-HHS investigative receivables from the OIG's work in areas such as state Medicaid restitution.
These large figures come on the heels of a record-breaking 2012, when the Department of Justice (DOJ) healthcare fraud recoveries topped $3 billion for the first time in a single fiscal year. In total, since January 2009, DOJ has used the False Claims Act (FCA) to recover more than $10.4 billion.
The OIG's Semiannual Report for 2013 also included exclusions of 1,661 individuals and entities from participating in federal healthcare programs. These included 484 criminal actions and 240 civil actions.
The second half of this year and beyond will bring more of the same. Both the DOJ and OIG have made it clear that FCA cases will remain a priority. Together, the DOJ and the HHS run the Medicare Fraud Strike Force, part of the Healthcare Fraud Prevention and Enforcement Action Team (HEAT). Between 2007 and March 2013, Strike Force efforts resulted in over $887 million in investigative receivables and over 800 criminal actions. As the DOJ said, "[We] have made it part of our core mission…to hold accountable those who steal from the Medicare program to line their own pockets."
Healthcare Enforcement Trends
Although past practices are not a guarantee of future actions, it is useful to review current enforcement trends when developing annual compliance plans and allocating resources. Some recent important enforcement trends include:

• Expanding types of FCA claims. The government has called the FCA its "most potent weapon in addressing fraud." Government theories on FCA liability are expanding from "classic" fraudulent claims and off-label promotion cases to cases involving new and creative violations, such as violations of Good Manufacturing Practices (GMP).
• Using AKS as the basis for FCA cases. The Federal Anti-Kickback Statute (AKS) prohibits offering or soliciting "remuneration" to drive referrals for products or services covered by Medicare or Medicaid. The AKS is now routinely used as the basis for FCA cases. There is no explicit written certification required when submitting for reimbursement that the products or services were not obtained through a kickback arrangement. Therefore, though it's not an airtight argument, prosecutors have resorted to arguing that the request for reimbursement implicitly certifies that no kickback was provided.
• Pursuing off-label marketing cases zealously. The government has continued its dogged pursuit and punishment of off-label promotion in the pharmaceutical and biotech industries, as well as its utilization of FCA settlements as predicates for corporate integrity agreements (CIAs). Recent off-label FCA settlements have been noteworthy for their size, ranging from as high as $500 million to $1.5 billion. They are often based on years—sometimes more than a decade—of submitted reimbursement claims.
• Basing FCA liability on GMP violations. In its emerging theory of FCA liability, the government has targeted manufacturers that have not followed GMPs to satisfy safety, quality and purity requirements for prescription drugs. This theory of liability is built on implied certification of GMP requirements to government healthcare programs by those participating. It already has yielded hundreds of millions of dollars in recoveries, with more expected in the future.
• Questioning medical judgment. The government has increased scrutiny of providers' medical judgment, particularly around determining whether to perform procedures on an inpatient or outpatient basis. Because reimbursement rates for inpatient procedures are higher, OIG and DOJ are increasingly questioning their necessity.
• Prosecuting FCA violations involving Medicare Part D. In one of the first prosecutions under the FCA involving the Medicare Part D prescription drug program, RxAmerica agreed in October 2013 to pay $5.25 million to resolve an FCA lawsuit alleging deceptive drug pricing submissions to Medicare.
• Implementing the Fraud Whistleblower Incentive Rewards Program and Senior Medicare Patrol. On April 29, 2013, the CMS published a proposed rule that will increase incentives for reporting information leading to the recovery of funds related to Medicare fraud and abuse to up to $9.9 million. The proposal follows the administration's announcement in early April that it would be expanding its Senior Medicare Patrol activities, designed to educate Medicare beneficiaries on preventing, detecting and reporting Medicare fraud, waste and abuse.
• Collecting damages based on gross profit with no credit for benefits received. Courts of appeals across the country are allowing district courts to base treble damages on the full amount the defendant received, not the amount the government was overcharged.
• Using predictive modeling. The Fraud Prevention System (FPS), launched July 1, 2011, uses predictive modeling and data analytics to review all Medicare fee-for-service claims for indications of fraud. According to a CMS report, the FPS has helped stop, prevent or identify $115 million in fraudulent payments, generated leads for 536 new investigations and supported 511 ongoing investigations—all in its first year.
• Subjecting "Responsible Corporate Officers" to liability. The OIG is subjecting "Responsible Corporate Officers" to both criminal and civil liability for violations of statutes affecting public welfare. Liability does not depend on the officer's approval or even knowledge of the wrongdoing--just his or her authority to prevent or correct it and failing to do so.
• Bringing wiretaps/dragnets to healthcare fraud investigations. Increased use of wiretaps, videotapes and other enforcement tools not historically part of healthcare fraud investigations has made prosecuting healthcare fraud easier.
• Imputing liability using alternative theories. Another key enforcement trend is the use of alternative theories to impute liability on entities allegedly defrauding federal healthcare programs. State and federal agencies are using workers' compensation statutes, wire fraud, mail fraud and other easier-to-prove statutes to convict individuals of healthcare fraud.
• Enhancing CIA and settlement provisions. Enhanced provisions in CIAs and settlement agreements are increasingly common. Examples include added provisions for claw back of performance pay for executives participating in misconduct, agency certification of management, and retention of compliance experts and outside counsel. The OIG also has been active in enforcing breach notifications.
• Reporting and returning ACA overpayments. Under the ACA (Affordable Care Act), if a person receives an overpayment, he or she is obligated to return it to the payer within 60 days—and notify the payer in writing of the reason for the overpayment. Retaining overpayments beyond the 60-day deadline can lead to significant penalties. Liability may exist even if a company is unaware of the overpayment, if it acted in "reckless disregard" or with "deliberate ignorance."
• Connecting the FCA and the Exchanges. Under the ACA, all payments made by, through or in connection with the Exchanges will be subject to the FCA. This will heighten significantly FCA exposure for insurers operating on the Exchanges—and potential recoveries could be immense.

Understanding the Requirements of Mandatory Compliance Programs
With the ACA's passage, suppliers or providers seeking Medicare or Medicaid reimbursement must establish a compliance program meeting certain minimum requirements. Specific regulations outlining the elements of mandatory compliance programs for providers and manufacturers are still pending. The Accountable Care Organization (ACO) mandatory compliance plan, however, reflects CMS's latest thinking, requiring ACOs to:

• Maintain a dedicated compliance officer who is not legal counsel to the ACO and reports directly to the ACO's governing body.
• Conduct compliance training for the ACO, as well as its participants and suppliers.
• Maintain annual compliance certification.
• Report probable violations to an appropriate law enforcement agency.

Putting Compliance Program Best Practices into Action
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