United States: Health Care Reform: More Aggressive Fraud Enforcement And Broader Government Oversight Are On The Horizon

Much of the current debate surrounding health care reform has focused on entitlements and the mechanisms for paying for them. Less attention is being paid to important provisions in pending House and Senate bills that would:

• Make it significantly easier for the government to prove certain health care fraud allegations;

• Greatly expand the government's fraud enforcement authority and resources;

• Increase and expand penalties and sentences for certain offenses;

• Impose new compliance mandates; and

• Make the process of becoming a Medicare provider slower, more intrusive and more difficult.

These proposals seem to have generated little controversy on Capitol Hill, and could very well end up in the final legislation if no opposition materializes. If these new provisions become law, health care companies and investors will have to aggressively monitor and mitigate new fraud enforcement risks.

Among the few bright spots in the pending reform bills are provisions that would help health care companies resolve Stark law violations. Assuring compliance with the Stark regulations can be difficult, and the consequences of non-compliance are severe: providers may not bill Medicare for any services delivered under an arrangement prohibited by the Stark Law. Providers who discover violations and fail to repay Medicare risk additional liability under the False Claims Act, but there is currently no formal administrative mechanism permitting or incentivizing voluntary disclosures of Stark-related overpayments. The pending proposals would remedy that situation by:

• Establishing a formal protocol for self-disclosing Stark law violations, and

• Expressly authorizing the Secretary of Health and Human Services to settle these matters without requiring providers to repay the total amount billed to Medicare while the violation was occurring.

The attached annex summarizes the proposals discussed above, as well as other key enforcement-related provisions in the pending reform bills.

Annex A

The Ten Most Important Fraud-Related Provisions in the Pending Reform Bills

The Senate is attempting to consolidate two major reform bills: the America's Healthy Future Act (S.1796, sponsored by Senator Max Baucus), and the Affordable Health Choices Act (S. 1679, also referred to as the Senate HELP bill).

In the House, H.R. 3962 was introduced on October 29th; it is a compromise bill that replaces H.R. 3200 and incorporates other legislative proposals. The Baucus bill is likely to serve as the template for the final Senate bill, just as H.R. 3200 was the foundation for the compromise bill that emerged in the House.

A companion bill to the two major Senate reform bills is the Health Care Fraud Enforcement Act (S. 1959), introduced by Senator Ted Kaufman on October 28th. Some of the provisions in the Kaufman bill, which focuses primarily on the government's ability to enforce certain health care laws, overlap with provisions in S.1796 and H.R. 3962.

1. Increased Risks Associated with Civil and Criminal Prosecutions

• Elimination of a Key Defense in Kickback Prosecutions: The Baucus bill would make it easier for the government to obtain convictions under the anti-kickback statute ("AKS"), a criminal law that prohibits the payment or solicitation of any kind of remuneration in return for referrals for services reimbursed by federal health care programs. 42 U.S.C. § 1320a-7b(b). The significance of this proposed change is not limited to criminal cases: health care companies have paid billions of dollars to resolve civil False Claims Act cases that are based on alleged violations of the AKS. By making the underlying AKS violation easier to prove, this amendment would shift the balance of power more firmly on the side of whistleblowers and the government in these disputes.
  The anti-kickback statute currently requires the government to prove that the defendant's conduct was willful, meaning - according to some courts - that the defendant had to have the specific intent to violate the statute. This standard is sensible, because it avoids the situation where benign conduct - such as gifts and entertainment - could be transformed into criminal conduct without the defendant intending to commit the offense.
  The Baucus bill is a step backward from this commonsense limitation on liability. Under the bill, "a person need not have actual knowledge" that the anti-kickback statute prohibits a particular conduct, and the government would no longer be required to prove "specific intent to commit a violation of" that law. The Kaufman bill contains similar language, although it goes further by also applying the same "reduced" intent standard to the federal health care fraud offense, 18 U.S.C. § 1347.

• Re-Defining Loss Calculations: The Kaufman bill amends the basis for calculating loss in criminal health care fraud cases, which will result in higher criminal fines and longer prison terms for offenders.

• Making More Offenses the Basis for Criminal Forfeiture: The Kaufman bill adds kickback and other health care offenses to the definition of a "Federal health care fraud offense," meaning that the proceeds of those offenses will be subject to criminal forfeiture and money-laundering laws.

2. Self-Disclosure Protocol for Stark Law Violations

In what most providers and suppliers will view as a positive development, the House and Baucus bills establish a formal protocol for self-disclosing violations of the Stark law, confirming that the HHS Secretary has authority to resolve such matters. Both bills expressly confirm that the Secretary is authorized to reduce statutory damages from the full amount of the affected claims, based on mitigating factors such as the nature and extent of the improper practice, the timeliness of the disclosure, and the level of cooperation provided by the disclosing party. The Baucus bill requires the Secretary to establish a new self-disclosure protocol for both Stark law and AKS violations.

These amendments are a response to a March 24, 2009 letter issued by the HHS Office of Inspector General, announcing that providers would no longer be accepted into the OIG protocol if the disclosure related to self-referral violations that did not also involve kickback violations. The OIG's stated rationale was that kickbacks pose a more serious risk to federal programs, and that its resources would be allocated more effectively if self-referral violations without associated kickbacks are excluded from the OIG protocol. The OIG's position, while perhaps justified from a resource perspective, had the strange effect of discouraging disclosures of less culpable behavior and rewarding disclosures of more serious violations of the law.

3. Significantly Reduced Time to Submit Claims and Return Overpayments

Under both the Baucus bill and H.R. 3962, the maximum time for submitting Medicare claims would be reduced by as much as one year. As it stands now, such claims must be submitted no later than the close of the calendar following the year in which services were provided. Under the new legislation, all claims must be submitted within 12 months of the service. The justification, according to the House, is to reduce opportunities for providers to observe and exploit Medicare claims processing patterns. However, speeding up the claims process will likely create pressure on providers to file claims without adequate internal review, increasing their risk of False Claims Act liability.

• Both bills would require an overpayment to be reported and returned within 60 days of discovery of the excess reimbursement or mistake. Under H.R. 3962, the 60-day period begins when the person "knows" of the overpayment, with knowledge defined to include the same "reckless disregard" standard codified in the civil False Claims Act ("FCA"), 31 U.S.C. § 3729.

• H.R. 3962 specifies that any known overpayment retained beyond 60 days becomes an "obligation" as defined in the recently amended FCA, and therefore would be subject to liability under the amended "reverse false claims" provision section in the FCA, 31 U.S.C. § 3729(a)(1)(G).

• The Baucus bill requires Medicare and Medicaid overpayments identified in an internal compliance audit to be repaid, and states that the 60-day Medicare repayment requirement would extend from the date the overpayment was identified, or from the date on which a corresponding cost report was due, whichever is later.

4. Mandatory Compliance Programs

Both the House and Baucus bills would require most providers and suppliers to establish and implement compliance programs as a condition of participating in the programs. Under H.R. 3962, only physicians and skilled nursing facilities ("SNFs") would be excluded from this broad compliance program mandate. SNFs would be subject to other "compliance and ethics program" requirements and quality of care obligations under the House bill. Physicians would not be exempt from participating in compliance programs established by other providers (for example, hospitals at which the physician has admitting privileges) or their employers.

5. New Administrative Sanctions

Both the House and Senate bills propose expanded liability under the Civil Monetary Penalties Law ("CMPL") and increased penalties for violations. The Baucus bill also gives the HHS Secretary the power to suspend payments pending investigation of a "credible allegation of fraud" -- a dangerously broad standard. If enacted, the legislation would allow the government to impose CMPL liability for improper claims submitted by Medicaid managed care organizations, as well as Medicare Advantage and Part D plans. Under the House bill:

• The CMPL would be amended to conform it to the recent FCA amendments, expanding the definition of what constitutes a "claim," and imposing liability for knowingly avoiding an "obligation" owed to the government;

• A $50,000 penalty could be assessed under the CMPL for each such act of "avoidance"; and

• The statute of limitations would be extended from six to ten years.

6. Expanded Federal Oversight of Public and Private Health Plans

Under all of the major reform bills, federal scrutiny and regulation of health care providers, suppliers, and public and private insurance coverage would expand; more federal enforcement actions and recoveries are certain to follow. The Senate HELP bill requires federal regulators to coordinate and oversee efforts to detect and prevent fraud, waste and abuse involving both public and private health insurance coverage. The proposed legislation would require:

• Appointment by the Attorney General of a senior counsel for health care fraud enforcement, responsible for coordinating federal and state fraud investigations and prosecutions involving public and private health insurance coverage.

• Establishment of a Health Care Program Integrity Coordinating Council composed of representatives from federal agencies and Senate and House Committees, responsible for developing a plan for improving anti-fraud efforts with respect to public and private health insurance coverage.

7. More Extensive and Intrusive Background Checks During the Medicare, Medicaid and CHIP Enrollment Process

To bill Medicare and Medicaid, individuals and entities must apply for a provider or supplier number, a process referred to as enrollment. The House and Senate bills would change enrollment procedures by:

• Extending the enrollment process to the Children's Health Insurance Program;

• Permitting the HHS Secretary to require fingerprinting, criminal background checks, multistate data base inquiries, unannounced site visits, and such other screening as the Secretary determines appropriate, and

• Allowing the HHS Secretary to implement a moratorium on new enrollments for an entire category of providers or suppliers; the Senate bill makes this determination unreviewable by any court.

• The House Bill would also require applicants to disclose "any current affiliation or affiliation within the previous 10-year period" with a provider that has been subject to a payment suspension or has been suspended or excluded from participating in these programs. This incredibly broad disclosure obligation could result in significant delays or denials of enrollment applications for providers that had no control over or role in the conduct that resulted in these sanctions.

The House and Baucus bills would both establish a provisional period of enhanced oversight, such as prepayment review and payment caps, for new providers and suppliers. Such reviews can create a significant drag on receivables by causing more of the provider's claims to be reduced, delayed or denied.

Under current Medicare regulations, the structure of a transaction can affect whether Medicare provider numbers can be transferred to a new entity. If the post-reform enrollment process increases cash flow disruptions or leads to significant delays in obtaining new provider numbers, the transferability of those numbers is likely to be a more significant factor when structuring health care transactions.

8. Data Matching

CMS currently is consolidating all Medicare and Medicaid claims and payment data in a comprehensive Integrated Data Repository. The Baucus bill requires CMS to complete the integrated system, and authorizes the expansion of this data collection process to health care programs administered by other federal agencies, including the Social Security Administration, Department of Defense, Department of Veterans Affairs and the Indian Health Service. It also would grant the HHS OIG and DOJ access to these data for enforcement and oversight purposes. A new civil penalty would be imposed for the intentional submission of false data to the data repository, and the Secretary could withhold the federal matching payment to states that fail to report their enrollment data to the Medicaid statistical information system.

9. Expanded Use of Recovery Audit Contractors

CMS uses private contractors to identify and collect improper payments in Medicare's fee-for-service program. These Recovery Audit Contractors (or "RACs") are paid on a contingency fee basis, and receive a percentage of the overpayments ultimately collect from providers, as well as a percentage of confirmed underpayments. The Baucus bill would extend the RAC program to Medicare Parts C and D and to Medicaid by the end of 2010. CMS would be responsible for coordinating the Medicaid RAC program with the states.

10. Additional Funding for Enforcement

The House and Senate reform bills would substantially increase funding for Justice Department and HHS investigations, prosecutions, administrative proceedings and other health care fraud enforcement activities.

• The Baucus bill: Increases funding to the Health Care Fraud and Abuse Control ("HCFAC") program by $10 million annually for ten years.

• The House bill: Appropriates $100 million per year to the HCFAC Fund for each fiscal year beginning in 2011.

• The Kaufman bill: Provides $20 million in additional funding to the Department of Justice for each of the fiscal years 2011 through 2016, with $10 million allocated to the U.S. Attorneys offices, $5 million to the DOJ Criminal Division, and $5 million to the DOJ Civil Division.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.