von Briesen Health Law Blog

The Department of Justice announced on October 30, 2009 that McAllen Hospitals, L.P. d/b/a South Texas Health System, a hospital system based in McAllen, Texas agreed to pay the United States $27.5 million to settle claims that it violated the False Claims Act, the Anti-Kickback Statute and the Stark Statute between 1999 and 2006. The settlement involves allegations that the defendants entered into financial relationships with several doctors in McAllen in order to induce them to refer patients to the defendants’ hospitals. The government alleged that these payments were disguised through a series of sham contracts, including medical directorships and lease agreements.

Two of the Government’s attorneys commented that payments for referrals are improper, corrupt physicians’ judgment in treating patients and contribute to the cost of health care. Tony West, the Assistant Attorney General for the Department’s Civil Division, stated “improper financial relationships between health care providers and their referral sources can corrupt a physician’s judgment about the patient’s true healthcare needs. In addition to yielding a substantial recovery for taxpayers, this settlement should deter similar conduct in the future and help make health care more affordable for patients.” Tim Johnson, U.S. Attorney for the Southern District of Texas said “payment by hospitals to doctors for patient referrals violates federal law and carries the inherent risk that the independent judgment of doctors regarding the best facility for the treatment and care for a particular patient may be adversely influenced; the patient and his medical needs should always be foremost. Our district will continue in its joint effort with our law enforcement partners to enforce these federal laws that protect the public.”

The settlement requires the hospital system to enter into a 5-year Corporate Integrity Agreement. The hospital system must establish procedures for tracking and evaluating financial arrangements between its health care facilities and their referral sources. The agreement also requires specific training for health system representatives involved with financial arrangements, an independent third-party’s annual review of the health system’s compliance with the Corporate Integrity Agreement obligations involving financial arrangements, and a report to the Office of Inspector General by the independent third-party reflecting the results of the review.

Of the $27.5 million settlement, the federal government, the state of Texas and Bruce Moilan, the qui tam whistleblower (a former employee of the health system) will share in the proceeds.

The Department of Justice’s press release can be found here.

A New Yorker magazine article released in June 2009 noted that McAllen, Texas is one of the most expensive health care markets in the United States. Read “The Cost Conundrum” article.

The Health Care Fraud Enforcement Act of 2009 has been introduced in Congress. This proposed legislation makes straightforward but critical improvements to the federal sentencing guidelines, to health care fraud statutes, and to forfeiture, money laundering, and obstruction statutes, all of which would strengthen prosecutors’ ability to combat this particularly destructive form of fraud. More information on the bill can be found here.

In a reminder that sweeping legislative reforms need to pass Constitutional as well as Congressional muster, a federal district court in Ohio has just set aside certain recent amendments to the False Claims Act (“FCA”).  The case, U.S. ex rel. Sanders v. Allison Engine Co. (decided 10/27/09), holds that the retroactive application of these amendments under the Fraud Enforcement and Recovery Act of 2009 (“FERA”) violated the Ex Post Facto clause of the Constitution.

FERA was enacted on May 20 of this year as part of the new administration’s push to protect massive stimulus funds from abuse.  FERA significantly expands the scope of liability under the FCA not only for persons who directly or indirectly receive stimulus dollars, but also for other persons who submit false claims to the government or who use false records to get a claim paid by the government.  An earlier U.S. Supreme Court decision in the Allison Engine case had ruled that the words “to get” in the FCA meant that “a person must have the purpose of getting a false or fraudulent claim ‘paid or approved by the Government’ in order to be liable,” and that the government must rely on the statement “as a condition of payment.”  FERA removed the “to get” language from the applicable provision in the FCA, so that the FCA now applies to false statements  made to almost any recipient of government funds regardless of whether the person making the false statement expected or intended the government to pay the claim based on those statement.

With FERA, Congress not only reversed the Supreme Court decision in Allison Engine but also attempted to completely erase the effects of that decision by applying its change in the law retroactive to June 7, 2008, two days prior to the Supreme Court’s Allison Engine decision.  The Ohio district court, in a continuation of the Allison Engine case after it was remanded by the Supreme Court, ruled that Congress acted improperly when it attempted to apply FERA to claims and cases arising between the date of the Supreme Court’s decision and the enactment of FERA.  The district court concluded that retroactive application of this amendment would punish behavior that was not illegal prior to the enactment of FERA, in violation of the Ex Post Facto clause.  The retroactive application of FERA threatened to resurrect lawsuits decided in that interim period; the new Allison Engine decision should assist in avoiding that result.

In a reminder to hospital executives and compliance officers everywhere, the former executive director and compliance officer for a California hospital has agreed to pay $64,000 to settle claims that he personally violated Stark laws when negotiating various physician financial arrangements. The contracts included interest-free loans, below-market rental arrangements, employment agreements with physician family members, and gifts, all over a period of several years. The hospital reported these arrangements to the government in 2005 and 2006 when details of the arrangements were reported by members of the medical staff during an audit after a new CEO arrived on the scene. The hospital ultimately entered into a $1.52 million settlement with the government in 2007. While some of the conduct alleged at the time of the hospital settlement was egregious, such as a million dollar line of credit to a physician and tens of thousands of dollars in gifts to doctors and their family members, other allegations involved purely technical violations due to an absence of proper paperwork.

According to the Office of Inspector General, the former CEO presented claims for Medicare services that he should have known resulted from these tainted relationships in violation of Stark. OIG Chief Counsel Lew Morris stated in OIG’s press release that “in addition to holding corporations accountable for health care fraud, individuals who caused the fraud should also be held accountable. Health care executives and compliance officers have a vital responsibility to ensure the compliance of the organizations that they serve.” OIG reportedly was originally seeking $5M in penalties.

The litigation ripples from these physician arrangements continue to spread notwithstanding the fraud settlement with the former CEO. The hospital has filed a civil lawsuit against its accountants and attorneys, alleging that they colluded to cover up the former CEO’s alleged improprieties.

Two healthcare reform proposals have been introduced that create a separate self-disclosure process for federal Stark law violations, both intentional and unintentional. The proposals follow the OIG’s recent announcement, through a March 24, 2009 Open Letter, that it no longer will accept voluntary self-disclosures through its protocol if such disclosures do not involve a minimum $50,000 settlement amount and a colorable anti-kickback violation. The proposals also call for the relaxation of the automatic forfeiture liability approach currently taken with under Stark, which totally denies reimbursement in the event of a Stark violation, regardless of the facts and circumstances. The two different proposals are sponsored by Rep. Jim McDermott (D-WA) and Sen. Max Baucus (D-MT). Rep. McDermott hopes to include his proposal (H.R. 3556) as an amendment to the House’s health care reform bill. Sen. Baucus has included his proposal as part of the Senate Finance Committee’s health care reform bill. If you have any questions regarding this proposal, please contact our Health Law Practice Group.

A New Jersey hospital has agreed to pay the government $8.3 million to settle allegations that it illegally paid kickbacks to cardiologists and caused the submission of false claims to Medicare. The government alleged that the hospital provided several area cardiologists with sham employment positions that included little or no actual employment responsibilities. The government alleged that the employment agreements served as vehicles to pay illegal kickbacks to the cardiologists in return for their referrals.

Marc Larkins, 1st Assistant U.S. Attorney for the District of New Jersey, noted that “The Department of Justice continues to pursue those who make referrals based on financial, rather than patient health, considerations.”

Click here to read more on this settlement.

On September 4, 2009, the Department of Justice announced that it will not challenge a proposal between two hospitals to enter into an exclusive joint purchasing agreement with respect to the purchase of certain medical and surgical supplies. Under the agreement the hospitals will jointly evaluate medical and surgical products, designate suppliers and negotiate prices and other terms.

The Department said that the joint purchasing agreement may yield volume discounts and reduced transaction costs for the hospitals and ultimately could result in lower costs and increased hospital services for consumers.

Click here to read more.

In an Advisory Opinion posted on August 10, the OIG said a hospital could provide free blood pressure screenings to walk-in visitors at the hospital without the threat of sanctions under certain circumstances.

The Opinion centered around an arrangement whereby a small critical access hospital provides free blood pressure checks to any visitor who enters requesting the service during daylight hours. The hospital does not advertise the free screening, and it is not conditioned on the visitor’s use of any other goods or services from the hospital or any other particular health care provider. Hospital staff responds to abnormal blood pressure readings obtained during a free check by advising the visitor to see his or her own health care professional.

In issuing its Opinion, the OIG found the arrangement met the preventive care exception of the Anti-Kickback Statute, which allows for the provision of a free non-covered screening as long as the screening is not tied to the provision of other hospital-provided services reimbursed in whole or in part by Medicare or an applicable state health care program.

The Opinion also reiterated previous guidance, which stated that similar arrangements that also involve the scheduling of appointments with hospital providers, discounting of additional covered services, or promotion of its programs may violate the prohibition on beneficiary inducements.

Providers contemplating similar screening services should carefully review and structure such arrangements to avoid improper ties to the provision of other services.